During a downturn, conventional lenders tighten standards (tracked in the Federal Reserve SLOOS diffusion index), but SBA disaster loans, EIDL programs, and SBA Express remain available — and refinancing existing higher-cost debt into longer-term products while credit is still accessible is one of the highest-leverage financial moves a business owner can make before conditions tighten further.
The Federal Reserve publishes the Senior Loan Officer Opinion Survey (SLOOS) quarterly — a diffusion index measuring the net percentage of banks reporting tighter or looser lending standards for business loans. A diffusion index works by taking the percentage of banks reporting tighter standards minus the percentage reporting looser standards — a positive reading (above zero) means more banks are tightening than loosening. During the 2008 financial crisis, the SLOOS index for C&I (commercial and industrial) loans reached +84 (84% net tightening) — nearly every reporting bank was tightening standards simultaneously. During COVID-19 in Q2 2020, the index hit +71. Federal Reserve SLOOS data is published after each quarterly survey and is the best leading indicator of credit availability for small businesses. When SLOOS turns positive (net tightening), the time to access credit has already begun shrinking.
The SBA operates two downturn-specific lending programs that conventional lenders don't. SBA Disaster Loans: Available to businesses in declared disaster areas (natural disasters, economic injury declarations) — administered directly by the SBA, not through banks. Rates as low as 4% for physical damage loans and 3.305% for economic injury loans (rates are congressionally set per disaster declaration). The COVID-19 EIDL program (2020–2021) provided $380 billion in direct SBA loans to 3.9 million small businesses. SBA Economic Injury Disaster Loans (EIDL): Available during federally declared economic emergencies — the SBA disburses directly, bypassing conventional bank underwriting entirely. According to the SBA disaster loan program page, businesses can borrow up to $2 million for working capital needs when they can demonstrate economic injury from the declared disaster.
One of the highest-leverage financial moves available to a business owner in the early stages of a downturn is refinancing existing higher-cost short-term debt into longer-term products while credit is still accessible. Early in a tightening cycle (when SLOOS is moving from negative toward zero), banks are still approving loans but beginning to tighten standards. A business that refinances a high-factor-rate MCA stack or short-term bridge loan into a 5–7 year SBA term loan in the early tightening phase locks in a much lower payment structure for the downturn period. Wait until SLOOS is deeply positive (50+) and conventional refinancing may not be available at all. The SBA 7(a) program continues operating through most downturns and can refinance business debt even when conventional lenders have largely stopped.
Lenders approve businesses on the way up — cash flow improving, deposits consistent, FICO trending positive. The worst time to apply for a loan is when you're already in distress: revenue down, NSFs in the bank account, or delinquencies on your credit report. The best time is when you don't yet need it but can see tightening ahead. SLOOS trend data is public — watch it.