Every election cycle, uncertainty in the weeks leading up to a national vote causes private equity sponsors to push back signings, borrowers to reconsider capital decisions and credit committees to ask for one more downside case. When results arrive, much of that delayed activity comes back quickly. Lenders who are ready for it can capture a disproportionate share.
This article describes, from the perspective of counsel representing sponsors and middle-market companies that bring financing opportunities to asset-based lenders, the practical ways the Nov. 3 midterm elections are likely to affect the deal pipeline, the collateral base and the provisions in loan documents. Lenders who prepare for these channels now will be better positioned, whichever way the vote goes.
Because these are midterm elections, the administration’s regulatory leadership will not change. What will change is who controls Congress. That outcome will determine whether tax and trade legislation can move, how hard Congress pushes on agency oversight and funding, and how quickly the Senate confirms agency nominees. For lenders, the practical question is whether 2027 brings divided government, and with it gridlock and a status quo they can plan around, or unified control and a legislative agenda that could move faster.
Deal Flow Drives Loan Demand: The Regulatory Picture
For asset-based lenders and specialty finance lenders, M&A and private equity activity is a leading indicator of loan demand. Acquisition financings, carve-outs, dividend recaps and refinancings all depend on deals getting signed and closed. Merger review is therefore a lender issue as well as a buyer issue. Congressional control shapes oversight of the Federal Trade Commission and the Justice Department’s Antitrust Division, agency funding, and the prospects for legislation affecting their authority. That in turn affects how long deals take to close and whether some deals get done at all, particularly sponsor roll-ups in highly regulated and scrutinized industries.
For lenders, the practical consequence is timing risk on committed financings. When we negotiate acquisition agreements and the financing commitments that support them, the terms that matter most to lenders come into focus: commitment expiration dates that track realistic regulatory timelines, ticking fees that compensate lenders for extended holds and conditionality that is tied closely to the acquisition agreement. Lenders should also read the purchase agreement’s regulatory efforts covenant and outside date because those provisions determine how long their capital may be tied up.
Sponsors, Liquidity and the Fund Finance Opportunity
Private equity enters this election with a backlog of portfolio companies held longer than planned and limited partners pressing for distributions. For asset-based lenders, that pressure creates opportunity. Continuation vehicles, net asset value (NAV) facilities and general partner (GP) financings have become major sources of liquidity. These structures depend on the same disciplines asset-based lenders apply every day: collateral valuation, advance rates, concentration limits and reporting.
From the fund side, the terms that draw the most negotiation are valuation methodology and lender challenge rights, loan-to-value triggers and cure mechanics, and restrictions on transfers of portfolio assets. A post-election thaw in exits could reduce some of this demand at the margins, but fund-level finance now looks like a lasting part of the market rather than a cyclical workaround.
Tax policy will also affect sponsor behavior, and it is where control of Congress matters most. Changes touching carried interest, corporate rates or the business interest limitation can change leverage capacity and deal timing. Lenders generally expect closings to bunch up whenever the market expects a tax change — not necessarily to lock in known treatment or to capitalize on favorability, but to proceed with familiarity in the face of uncertainty.
Collateral, Credit and Competition
For asset-based lenders, the election’s most concrete effects may appear in the borrowing base. Tariff policy is largely set by the executive branch, but a change in congressional control could change the political pressure on it. Either way, tariff volatility is already affecting inventory costs, valuations and eligibility. As a result, lenders are (A) revisiting inventory eligibility criteria and reserves for goods exposed to tariff changes; (B) confirming that both new and existing credit agreements preserve the lender’s permitted discretion to impose reserves and adjust advance rates in response to changed conditions; (C) confirming that field exam and appraisal rights, including the frequency of exams the borrower pays for, are adequate if conditions deteriorate; and (D) tightening monitoring and reporting for borrowers whose margins depend on imported inputs or on customers in policy-sensitive sectors.
Interest rates are the second channel. Fiscal policy under unified versus divided control will shape deficit expectations and, in turn, Treasury yields, and floating-rate borrowers feel the effect directly through fixed-charge coverage and availability. Lenders should confirm that springing covenant triggers and availability blocks still work as intended in their current form.
The third channel is competition. Bank capital rules will influence how much balance sheet banks commit to leveraged and asset-based lending. Regulators set those rules, but congressional oversight shapes how aggressively they act. We continue to see banks and private credit funds partnering through forward-flow arrangements, participations and risk-transfer structures. Lenders entering those arrangements should pay close attention to voting and control rights, servicing standards and the allocation of enforcement decisions.
Finally, liability management transactions remain a central concern for lenders in any market. Volatility tends to bring them back, and sponsors facing tight liquidity will look for whatever flexibility their documents allow. Lenders should confirm their documents address priming, collateral transfers to unrestricted subsidiaries and non-pro rata exchanges. In split-collateral asset-based lending (ABL) and term loan structures, intercreditor agreements should clearly protect the ABL priority collateral.
A Lender’s Checklist for the Weeks Ahead
- Pipeline: Expect a post-election rebound in acquisition and refinancing requests, and build approval capacity ahead of it.
- Commitments: Align commitment expiration dates and ticking fees with realistic regulatory timelines.
- Collateral: Stress-test borrowing bases against tariff and rate scenarios, and confirm reserve and appraisal rights.
- Documentation: Review liability management protections, intercreditor terms and fund finance valuation mechanics.
- Governance: Make sure credit approvals record the consideration of policy and regulatory risk. A careful process protects lenders and their boards alike.
Deal activity follows clarity. The election will provide some of it, though rarely all at once. The lenders who have looked closely at their documents and collateral beforehand will be best placed to act when the market moves.
Jeffrey K. Christensen is an associate at DarrowEverett LLP, where he is a member of the Mergers & Acquisitions; Private Equity, Capital Markets & Securities; and Corporate & Business Transactions practice groups. He advises private equity sponsors, founder-owned businesses and middle-market companies on buy-side and sell-side M&A, financing transactions, private equity fund formation and general corporate matters.