2026 Outlook: What’s on the Menu for Factoring and ABL This Year

Gen Merritt-Parikh, President of Haversine Funding

At the start of last year, most of us expected volatility… And the market delivered. What did surprise us though wasn’t a lack of deal flow, it was the stop-and-start nature of the flow.  

2025 started with a “BANG!” that ran all the way through the second quarter. Then, we went from a packed dining room with a full working kitchen to a sudden stop mid-service… the ticket printer went quiet. Q3 slowed noticeably – to almost a dead stop. After what seemed an interminable wait, Q4 started moving again, with momentum that rolled right into 2026. We saw this pattern firsthand in lender finance and saw the pattern consistently across the factors and asset-based lenders we support.

Adding 2025 tariff uncertainty, rate noise, and “wait-and-see” sentiment, produced a year that felt less like a straight line and more like a few sprints separated by long pauses. Deals didn’t disappear; they just took longer to convert. The point is that it was never a smooth predictable market. Timing mattered, decisions stretched, and competition showed up in places you didn’t expect. The preceding is a consistent truth, but it seemed (like many things) exaggerated in 2025.

Here’s what we’re seeing heading into 2026 across specialty finance and what that means for lenders, factors, and capital providers.

1) There’s Plenty in the Pantry - But the Recipe Has to Work

Let’s start with the obvious: capital is available. Between banks, private credit, and institutional money seeking exposure to asset-backed lending, there’s no shortage of liquidity looking for a home in specialty finance.

The real question operators face: “Can you pull together the right ingredients and execute the recipe without burning the kitchen down?”

“Capital availability” only becomes real when an operator creates a structure that works for everyone. If you want to make the right “dish,” you must balance the right ingredients:  

• the lender’s cost of funds

• the underlying borrower’s pricing tolerance

• collateral behavior in the real world, not in a deck

• monitoring requirements

• and control mechanisms  

When those elements are combined correctly, the result is a structure that is financeable upstream and durable in practice.

Ultimately, there’s more money chasing deals - naturally creating price compression, more aggressive structures, and more creativity around what qualifies as “lendable” collateral.  

We’re seeing lenders push further into side verticals, asset-light components and stretch features - not because anyone forgot how risk works, but because the market is forcing the question: “How do you stay relevant without losing discipline?”

Lenders and factors are also working to maximize their own borrowing bases with their own capital providers (bank or non-bank) so they can keep pace in a more competitive origination environment.

2) The Market Is “Barbelling” – You’re Either Focused or You’re Scaling

Call it “barbelling,” “polarization” or whatever term you wish, the reality is the “middle” is getting squeezed. If you are a factor or a lender in the specialty finance space today, staying in the middle is hard – you either need to be smaller, relationship focused or you need to grow and scale for the business model to make sense.  

The barbelling phenomenon reminds me of the restaurant business right now. People either want fast and reliable food, or they want something premium and bespoke. Paying mid-tier prices for mid-tier experiences is getting harder to justify.

Lending is starting to feel the same way. We’re seeing two winning philosophies at work:

Focused specialists: Boutique, niche, relationship-driven lenders and factors who know exactly who they serve. They don’t try to be everything to everyone. They win by being consistent, decisive, and good at the fundamentals.

Scaled platforms: Firms building broader capabilities - bigger commitments, more collateral funding options, more technology and automation, and more infrastructure. They win by being able to execute complexity at scale.  

Both strategies can be smart. The hardest place to be right now is stuck in the middle with overhead rising, more manual systems, and not enough differentiation to consistently win the deals you really want.

That’s a big reason partnerships are everywhere in 2026. Not the casual “I’ll send you a deal sometime” partnerships. Real ones for participations, co-lending arrangements, and referral programs. Firms are choosing to get sharper or get bigger.  

3) Credit Is Uneven, and That’s Not Changing Overnight

Credit conditions are not one-size-fits-all right now. There are sectors where activity is strong and accelerating such as AI-related infrastructure, data centers, healthcare, and certain service verticals. In contrast, there are sectors where things still feel stuck. Transportation is the sector that comes up constantly. More broadly, we’re still seeing businesses operating with tighter margins, slower cash conversion, and less room for mistakes.  

That’s why two things can be true: deal flow can be up, and credit stress can still be rising in certain segments of the market. This dichotomy is why monitoring discipline has become a competitive advantage. A year ago, a significant number of firms still treated monitoring as a “box checking” exercise. The growing awareness of the primacy of monitoring has driven investment in improved borrower reporting, exception-based workflows, stronger metrics tracking, more frequent collateral reviews, and tools that surface risk earlier. This year won’t reward the firms who “never have problems.” It will reward the firms who see problems early and act fast to mitigate.

4) Fraud Isn’t a Side Dish Right Now

Fraud has been a constant companion for operators in factoring and asset-based lending. Concerningly, fraud schemes have become increasingly easier to execute and harder to detect with outdated processes. AI has made fake documents better. It’s made identity theft more straightforward. It’s made “good enough to pass a quick glance” documentation much more common and attainable.  

In 2026, fraud prevention isn’t just a policy statement; it’s an operating discipline. We’re seeing more focus on tighter onboarding diligence, stronger ongoing monitoring and controls, and workflows that surface anomalies quickly.  Fraud prevention in underwriting increasingly requires a “back to basics” approach to knowing your customer.

5) AI and Automation Are Becoming Table Stakes - But Only If They Reduce Friction

A year ago, the industry was split: some people were all-in on AI, and others dismissed it as hype. That split appears to have disappeared. In 2026, the tone is closer to: if you’re not using it, you’re going to be competing against people who are… and you won’t like that outcome.  

Still, not all automation is progressing. Technology should reduce steps, shorten decision time, and improve visibility. If it only adds clicks and creates more manual checkpoints, it’s not modernization - it’s overhead.

The winners won’t be the firms with the most tools. The winners will be the firms who use tech to move faster with discipline and scale - without losing control. AI won’t replace people. People using AI will absolutely replace people who aren’t.

What This Means for the Menu This Year

More competition.  

More creativity in structures.  

More pressure on pricing.  

More demand for lenders and factors to expand what they can offer, without losing the discipline that makes the industry work.  

The firms that win in 2026 will be the ones who can align:

• capital with strategy

• structure with collateral verification and monitoring

• teams with clear goals

• and technology with actual outcomes

Alignment provides clarity turning activities into real growth. Execution brings the whole meal together. In 2026, the winners won’t be the firms with the longest menu. They’ll be the ones who can deliver the right product, consistently, without losing quality, even when the kitchen gets busy.  As in an effective restaurant, the front and back of the house must be aligned to stay successful and relevant in the long-term.