Specialty contractor backlog data is at multi-year highs, but cost-of-goods inflation is squeezing gross margins to levels that warrant tighter underwriting.
Construction SMB borrowers present an underwriting paradox in 2026: revenue is strong, backlog is strong, but margins are the weakest we've seen this cycle. Specialty trades (HVAC, electrical, plumbing) are running 4–6 month booked-out, but COGS inflation has compressed gross margins 200–400 bps off 2022 highs.
For lenders, the implication is structural. Cash-flow underwriting based on trailing 6-month revenue overstates capacity. We're underwriting to a normalized gross margin assumption and tightening DSCR requirements on equipment financing 25 bps.
Strong backlog plus compressed margins means working capital demand is rising — operators need to fund payroll and materials against extended draw schedules. AR financing and progress billing factoring are seeing strong inflows.
Spot rates have stabilized but fuel volatility, insurance inflation, and concentration risk continue to keep most lender boxes restrictive on owner-operators.
Aggregate same-store sales across our restaurant origination cohort turned positive YoY in April for the first time since 2023, supporting a measured pricing recovery.
Dry-van spot rates climbed 11% YoY in February — the first sustained recovery since 2022. Owner-operator credit performance should follow with a lag.
