We will call this report the “missed signal” and not the “mixed signal.”
The current environment for U.S. lower middle market businesses ($5–$50MM revenue segment) remains constrained and conflicted. Newpoint’s proprietary data show acceleration in defaults in large (>$1MM outstanding SBA loans) and growing voluntary Chapter 11 bankruptcy filings in the $1–$10MM liabilities range. At the center of this, we are seeing that volatility is high and growing for the construction industry. Moreover, several industries are showing a continuing trend of post-COVID risk via the long-range bankruptcy data.
Macroeconomics falls in line with bank sentiment. The most recent SLOOS reading shows 6.6% of banks on net still tightening C&I lending standards for small firms, down from the roughly 8% net tightening reported for small firms in Q2 2025 and well below the sharper tightening seen earlier in the cycle.
But industries are not all aligned on sentiment. ISM’s Spring 2026 forecast, released June 17, projects continued U.S. economic expansion through 2026, with outlooks improving from December 2025 despite trade and inflation headwinds. Overall, 14 of 18 manufacturing industries and 16 of 18 services industries forecast revenue declines; lagging industries included textiles, apparel, wood products, petroleum & coal, agriculture/forestry, and construction.
Bankruptcy Filing Trends
Here is the big miss for credit tracking. For voluntary Chapter 11 filings in the $1–$10MM liabilities range tracked by Newpoint, the growth in filings from 2024 to 2025 was a substantial 93% increase, from 934 to 1,809 cases. Year-to-date through June 30, 2026 shows 1,248 filings in this category, suggesting that 2026 will materially top 2025 in filings.
Focusing on specific industries, we highlight the following industries of concern:
- Construction
- Retail trade
- Manufacturing
- Transportation & warehousing
- Healthcare
Key drivers include:
- Elevated prices
- Higher borrowing costs
- Broader inflation and geopolitical uncertainty
Additional industry-specific risk remains elevated across agriculture, construction, manufacturing, retail & restaurant, real estate rental & leasing, and health care. These are industries of focus and attention for stakeholders heading into Q3 2026, in line with Newpoint’s client feedback and observations.
Bank and Special Assets Perspectives
Coincident with the uptick in core lower middle market bankruptcy filings and distortions from tariff and supply chain issues in early/mid 2025, there has been an uptick in special assets officer job postings across regions. Newpoint tracks these listings through proprietary search tools.
As shown in the chart below, there was a spike in postings for special assets officers in Q2 2025 and Q3 2025, with a taper going into Q2 2026. Newpoint continues to monitor this proprietary data to determine whether it is a rangebound issue or something that will correct itself in coming quarters. But this could be a “missed signal.”
The SBA recently released loan and industry-level detail for the 7(a) portfolio, used for working capital, equipment, inventory, and owner-occupied commercial real estate, for which Newpoint has created a proprietary analysis for loans between $1–$5MM (the current statutory loan limit).
The data cover SBA 7(a) originations from December 2009 through March 2026. In total, there was an aggregate origination loan volume of approximately $203.1B, with $15.5B (7.6%) of loans classified as problem loans, falling into the categories of liquidated, purchased, charge-off, delinquent, past due, deferred, or closed after charge-off.
As an initial breakout, Newpoint looked at loan performance indicators during the pre-COVID (2009–2019), COVID (2020–2022), and post-COVID (2023+) time periods.
| Timeframe | Total SBA 7(a) Originations | Problem Loans ($ / %) |
|---|---|---|
| Pre-COVID | $102.6B | $8.0B / 7.8% |
| COVID | $50.7B | $4.7B / 9.2% |
| Post-COVID | $49.8B | $2.8B / 5.7% |
Given the recency of originations and the lower post-COVID problem loan rate, Newpoint examined charge-off timeframes for loans in a similar $1–$5MM cohort. One noticeable trend jumped out: the months to charge-off loans have accelerated since the onset of COVID. The table below highlights the fact that lower middle market economic uncertainty is not isolated by industry and is a real factor contributing to the bifurcated sentiment about the health of the U.S. economy.
Average Months to Loan Charge-Off (Count Driven, Not Dollar Weighted)
| Industry | Pre-COVID Average (2010–2019) | Post-COVID Average (2020+) | Change (Months) | Change (%) |
|---|---|---|---|---|
| Agriculture, Forestry, Fishing and Hunting | 67.0 | N/A | N/A | N/A |
| Mining, Quarrying, and Oil and Gas Extraction | 59.8 | N/A | N/A | N/A |
| Utilities | 59.0 | 19.7 | (39.2) | -66.5% |
| Construction | 57.2 | 36.7 | (20.5) | -35.9% |
| Manufacturing | 62.2 | 41.0 | (21.2) | -34.0% |
| Wholesale Trade | 58.0 | 41.6 | (16.4) | -28.3% |
| Retail Trade | 57.4 | 38.6 | (18.8) | -32.8% |
| Transportation and Warehousing | 53.0 | 38.7 | (14.3) | -27.0% |
| Information | 58.7 | 38.2 | (20.5) | -34.9% |
| Finance and Insurance | 57.0 | 46.4 | (10.6) | -18.6% |
| Real Estate and Rental and Leasing | 60.9 | 38.7 | (22.2) | -36.5% |
| Professional, Scientific, and Technical Services | 56.5 | 42.9 | (13.5) | -24.0% |
| Management of Companies and Enterprises | 74.5 | N/A | N/A | N/A |
| Administrative and Support and Waste Management and Remediation Services | 57.2 | 33.8 | (23.3) | -40.8% |
| Educational Services | 57.6 | N/A | N/A | N/A |
| Health Care and Social Assistance | 62.1 | 43.3 | (18.8) | -30.3% |
| Arts, Entertainment, and Recreation | 61.1 | 49.9 | (11.2) | -18.3% |
| Accommodation and Food Services | 59.7 | 37.4 | (22.3) | -37.3% |
| Other Services (except Public Administration) | 57.9 | 49.7 | (8.2) | -14.2% |
| Public Administration | 52.1 | N/A | N/A | N/A |
| Average/Totals Across Industries | 59.4 | 39.8 | (19.7) | -33.1% |
As exhibited in the above data, months to loan charge-off have collapsed since COVID across a number of industry groups.
Newpoint then looked at key risk industry groups (high volume origination and high problem loan rates) to derive its top five industry risk groups graph. The data represent problem loans by origination year by industry group, matched to the industry groups exhibited in the bankruptcy filing data above. Newpoint views these as industries to watch given macroeconomic issues and latent loan quality/credit risk issues coming to the surface.
Data for 2024 and 2025 originations is omitted because there has not been enough time for loans to work through the problem loan-to-charge-off pipeline. However, that cohort already exhibits more than $1.5B of problem loans as of March 31, 2026.
This data highlights the fact that lower middle market economic uncertainty is not isolated by industry.
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Newpoint Advisors Corporation is a North American financial advisory firm dedicated to improving troubled and financially underperforming businesses with revenues of $5–$50MM for a fixed fee and on a fixed timeline. Since 2013, Newpoint has recovered $1,918,000,000 in debt and saved 15,754 jobs.
Sources: Federal Reserve, Bureau of Labor Statistics, U.S. Treasury, ISM, S&P Global, Deloitte, Philadelphia Fed Survey of Professional Forecasters, Epiq AACER/American Bankruptcy Institute, Newpoint Advisors Corporation proprietary research.
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