For the past several years, our sector has operated in an unusual environment. Inflation has remained elevated, interest rates have climbed significantly and economic uncertainty has persisted. Yet despite these challenges, commercial charge-offs have remained remarkably low by historical standards.
At TBF, we continue to see stable volumes of commercial debt entering the secondary market. While opportunities remain plentiful, charge-off rates across many commercial asset classes have not risen to levels typically associated with a higher-rate environment. Businesses, by and large, have continued to meet their obligations. But many have asked, why? The answer begins with the broader economy.
Although inflationary pressures continue to affect businesses, unemployment remains relatively low, and many companies have managed to maintain sufficient cash flow to service debt obligations. As long as businesses have revenue and access to working capital, they generally prioritize paying lenders.
Importantly, charge-offs are also a lagging indicator. Financial stress often appears long before an account reaches charge-off status. In traditional bank and equipment finance portfolios, it may take six months or longer for a troubled account to ultimately charge off. Even in alternative finance products, where defaults can occur more quickly, borrowers frequently seek payment modifications or workout arrangements before reaching that stage. As a result, credit deterioration can be developing beneath the surface while reported charge-off rates remain historically low. Here’s a breakdown of indicators:
Federal Reserve Data Reinforces Stability
Federal Reserve data continues to support the broader narrative of commercial credit resilience. According to the Fed’s latest commercial bank charge-off statistics, commercial and industrial (C&I) loan charge-offs remain well below historical averages despite elevated interest rates and ongoing economic uncertainty.
Q1 2026 C&I charge-off rate: 0.59%
Q4 2025 C&I charge-off rate: 0.56%
The last time a 0.59% rate was reached was during the modest recession in Q2 2020, but that was nowhere near the historic peak of 2.57 reached in 2009. While charge-offs have drifted modestly higher from the extraordinary lows seen during the post-pandemic period, they remain significantly below levels associated with prior credit downturns. This reinforces what many lenders and debt buyers are seeing in practice: credit conditions may be softening around the edges, but widespread commercial distress has yet to materialize.
At TBF, we’ve observed growing volumes of opportunities entering the marketplace during 2026. However, many of these opportunities involve smaller balances and, in some cases, lower-quality paper than what we historically encountered. While these assets have not yet translated into materially higher charge-off rates, they may signal a gradual weakening of credit quality.
Many of these deals are smaller and the paper quality isn’t as strong as what we saw previously. Despite that, charge-off percentages remain very low compared with historical norms. This distinction matters. Credit performance does not deteriorate overnight. The migration from current to delinquent, from delinquent to default, and ultimately to charge-off can take months or even years.
ELFA Portfolio Performance Metrics
The latest ELFA data shows that receivables more than 30 days delinquent edged up to approximately 2 percent, as of March. While the increase is notable, the figure remains broadly in line with the industry’s two-year average. Loss rates have also moved higher, and charge-off rates appear to have drifted modestly above recent averages. These developments do not suggest a material deterioration in portfolio performance, but they do indicate that lenders are operating in a somewhat more challenging credit environment than they were several years ago.
For debt buyers and equipment finance professionals, these metrics serve as important leading indicators worth monitoring as higher borrowing costs continue working their way through the economy.
Private Credit’s Growing Role and Potential Risks
Another area attracting increased attention is the private credit market. Recent reporting from Reuters has highlighted how some business development companies and private credit lenders have provided payment deferrals and other concessions to borrowers, particularly within the software sector, in an effort to avoid loan defaults. At the same time, analysts have warned that the private credit industry’s increasingly interconnected relationships with banks and asset managers could amplify risks if economic conditions weaken.
While private credit is not a segment that regularly crosses TBF’s desk, the broader trend is worth watching. If payment accommodations become more widespread, reported default statistics may not fully capture the level of stress developing within certain sectors of the economy. For lenders and debt buyers, this raises an important question: are defaults being prevented, or merely postponed?
MCA Debt Appearing More Frequently in Bankruptcy Filings
Merchant cash advance (MCA) obligations are receiving increased scrutiny, as well, particularly as industry observers report that MCA debt is appearing more frequently in bankruptcy proceedings. This trend is not entirely surprising given the nature of the businesses that typically rely on MCA financing. MCA products generally serve merchants that cannot qualify for traditional bank loans, often because they present higher-risk credit profiles and have limited access to lower-cost funding alternatives. As a result, MCA providers charge significantly higher rates than conventional lenders to compensate for the elevated risk associated with this borrower segment.
A second factor driving MCA pricing is the structure of the product itself. In a true merchant cash advance, repayment is tied to future receivables rather than a traditional loan obligation, meaning the funder may have limited recovery options if the business fails organically. In many cases, merchants using MCA financing lack the assets necessary to secure conventional asset-backed loans, further reducing potential recovery prospects beyond any collateral covered by a UCC filing. The higher pricing of MCA products therefore reflects both increased default risk and weaker recovery potential. As bankruptcy filings involving MCA obligations continue to rise, debt buyers should view this trend as a potential indicator of growing financial stress among smaller and more vulnerable businesses.
What This Means for Debt Buyers and Equipment Finance Professionals
The commercial credit market remains remarkably resilient. Federal Reserve data, equipment finance performance metrics, and TBF’s own experience all point to a market that continues to perform better than many expected.
For debt buyers and equipment finance professionals, the message is clear. The market continues to grow and companies show increased profits. If you’ve been waiting for the other shoe to drop all this time, you have may missed the boat.
Brett Boehm
Brett Boehm is CEO and Co-Founder of TBF, a commercial debt acquisition company that pioneered debt buying in the equipment finance industry. He can be reached at bboehm@tbfgroup.com
