Money Issue: Lending Climbs Up

After years of economic stop-and-go and disruption, capital flows are showing signs of cautious recovery. For Los Angeles’ small businesses looking to secure maintenance and growth capital, that could mean improved access to financing and relief on the horizon.

Businesses that rode out the Covid-19 pandemic slump then saw costs driven up by inflation, uneven demand and the devastation of the January 2025 wildfires. Thinner margins left companies vulnerable to unexpected shocks, like spiking supply costs or sluggish demand, and less likely to qualify for loans.

For well-positioned businesses, the picture began to turn in mid-to-late 2025, with the Federal Reserve reducing the federal funds rate three times in both 2024 and 2025 – now set at a range of 3.5% to 3.75%. That in turn lowered overall borrowing costs.

Small business lending picked up 7.5% in last year’s second quarter compared to the first, according to a survey by the Federal Bank of Kansas City. December’s 25-basis-point rate cut by the Fed could soon deliver another boost. 

Despite improving conditions, many major lenders have continued to tighten credit standards for small business loans, creating a need for small banks and fintech lenders like downtown-based loan agency Lendistry to fill the access-to-capital gap. 

Everett Sands, chief executive of Lendistry, said uncertainty has gone mainstream, and the lending environment seems no longer defined by shock or surprise. In a conversation with the Business Journal, Sands discussed how a heightened awareness of risk is shaping borrowing behavior and lending decisions.

How would you describe the overall lending environment going into 2026 for both borrowers and lenders? What are some sources of optimism or caution?
Overall, small businesses are starting to be more optimistic. (The year) 2025 was unstable for them in terms of tariffs and a variety of different things. I think there’s kind of two schools of thought. One is that they are comfortable now with instability, and the other is that things are becoming a little bit more stable, right? They know where some of the tariffs lie … which then helps them to stabilize their price to the end consumer, whether they’re going to charge the consumer, whether they’re going to eat that from their own margin or get it from the supplier. A lot of those deals have been worked out or are coming to fruition. That generally means stability for the small business owner.

Two years ago, Lendistry branched out into home purchase and refinance loans. How is the mortgage lending environment right now compared to small business lending? With mortgage rates still elevated against recent history, are borrowers adapting their expectations or largely staying on the sidelines?
There’s more money, so to speak, in the market, and specifically, I’m talking about (U.S.) treasuries. That’s causing mortgage rates to drop down. We haven’t necessarily seen the kind of pandemic level activity, but I think that’s starting to cause more buyers to start being ready to consider whether or not they’ll make an acquisition. Typically, these things heat up over summer, because people either have younger family members in school, or they need a little bit more downtime to actually relocate. 

We’re kind of assuming that (by) spring and summer, you’ll start to see more people kind of come off the sidelines. Same thing with small businesses: As things are stabilizing, interest rates went down. When Wall Street Journal Prime (Rate) goes down, that’s an immediate effect on small businesses. The mortgage market takes, generally, a couple of months to catch up. Homeowners tend to lag behind in terms of interest rates, but we’re starting to see inquiries pick up. Inquiries are generally an indication of the future. 

You mentioned small businesses either learning to ride the tide of uncertainty and also potentially benefitting from more stable conditions this coming year. Could you tell me a bit more about how borrowers are changing their borrowing strategies?
I think the small business owner is saying, “OK, I’ve now figured out how to adjust my pricing, adjust my operational expenses, adjust my capital expenses, and I now feel more comfortable with my going forward plan. Therefore, I’m willing to now apply for access to capital.” There’s always someone who needs access to capital. You run a pizza shop and your oven breaks, you need capital. No matter what, you got to buy the oven, because you got to keep the pizza shop going.

How are lenders fielding economic uncertainty?
I think lenders are understanding the market and they’re understanding the macroeconomic factors. That allows lenders to be more willing to lend and less cautious. They’re going through their own version of, “OK – either I’m dealing with instability and I’m OK, I’m comfortable with it, or I found stability in certain industries or certain markets that I feel comfortable with.”

Recent data show small business loan demand is slowly rising while approval rates lag below pre-pandemic levels. What are you seeing that helps explain that gap, and how does Lendistry’s own application and approval data compare?
Small businesses are interested in getting access to capital, for sure. In terms of approval rates, I think there’s naturally going to be some decrease in approval rates. If all of a sudden your expenses go up – tariffs are an easy one; most people understand it. But whatever might cause expenses above inflationary conditions, then that business’ margins are going to be compressed significantly. They’re going to have less profitability.

There’s always going to be a bit of a lag when those things kind of catch up. If you made $100, and now you only make $50, you’re going to be approved for less. But again, once that business right sizes itself, either increases its prices or decreases its operating expenses, it gets back to that $100 and then, all of a sudden, things start to normalize.

Are you seeing a lot of loan demand for small businesses in areas affected by the Eaton and Palisades fires? What kind of capital are they looking for, and how has that changed in the last year?
Emergency capital (went) first. Because we had grant programs, we obviously tried to lead them to things that will be much more reasonable – reasonable being better to have a grant than a loan when you’re trying to get your business back together. 

As they come forward today, it’s more loans to re-establish business and pivot. So, the way I tend to think about it is, maybe in a restaurant, you can’t do full service anymore, but you can be online: think of Uber Eats, DoorDash, etc. That’s the type of pivot we see, like “Let me switch to an e-commerce structure.”

What structural factors, beyond interest rates, will matter most for small businesses’ access to credit in 2026?
We’re all watching the debate going on in Washington right now about credit cards and whether or not there’ll be a reduced interest rate. That can do two things to the market. On one hand, that’ll increase small business lending, because there will absolutely be small businesses that lose access to credit cards. On the flip side, we want to be conscious of credit cards being used in the cash flow of the business – what would be the natural effect of losing that cash flow?

You’re running your business, and you were using your credit card to buy inventory. Let’s just say, hypothetically, you’re used to being able to buy $20,000 worth of inventory, but your credit line shrunk to $10,000. Well, you can’t buy all that inventory, right? So, you’re going to come to us and you’re going to apply. That’s a good thing. We get more applications. But what happens in that in-between time when you need that additional $10,000 of inventory? Those are the things that we want to watch, because we obviously don’t want the business to slow down, and want to make sure you get access to capital in a timely fashion.