Easing standards benefits middle-market commercial borrowers as economy rebounds

Cerebro Capital non-bank lending survey found lenders continue to ease credit terms, but expect terms to tighten in 2022

BALTIMORE, December 16, 2021 / PRNewswire / – Cerebral capital, a commercial lending marketplace, today released its third quarter 2021 non-bank lending survey for middle market commercial and industrial (C&I) lending. Cerebro reports that lenders have continued to relax lending standards, making it easier for businesses to get loans, which in turn has increased demand for loans.

Cerebro Capital (PRNewsfoto / Cerebro Capital)

Cerebro’s survey of mid-market non-bank commercial lending reports easing of terms in Q3, but expected to tighten in 22

About the survey

Cerebro’s ongoing review of the mid-market C&I loan market includes this fifth quarterly survey of non-bank lenders which completes the Federal Reserve Quarterly Survey of Commercial Banks. The aim of the analysis is to shed light on the 1000 billion dollars the non-bank lending industry and surveys non-bank lenders, private lenders and alternative lenders who work with middle market borrowers and offer loan amounts between $ 2 million and $ 100 million.

“Two offsetting forces affecting non-bank lending markets are clearly evident,” explains Ken singleton, Stanford University Honorary professor. “Bank loan-to-deposit ratios and net interest margins continued to decline in the third quarter, even as the US economy recovered. These trends support favorable lending conditions on the supply side until early 2022. ”

Key detailed findings for the third quarter of 2021 include:

  • The loans remained favorable to the borrower: The Cerebro survey reports that lending terms have continued to become more favorable to borrowers, as more than a third of non-bank lenders (40%) and commercial banks (33%) reported that they had allowed borrowers more easily obtain larger loans.

  • Loan demand is on the rise among all lenders: 74% of non-bank lenders surveyed saw an increase in demand. In contrast, 25% of commercial banks recorded an increase in demand in the third quarter. The main drivers of increased demand for non-bank lenders and commercial banks cited by more than two-thirds of lenders are:

Commercial banks and the demand for non-bank loans differed for borrowers seeking capital to supplement decreases in internally generated funds. Over 50% of non-bank lenders cited this as one of the main reasons for the demand, compared to less than 6% of commercial banks. This is probably due to the higher risk profile that non-bank lenders can take on.

Non-bank lenders have also seen a high demand for loan applications due to M&A activity due to their less bureaucratic structures and their ability to come up with riskier terms and adapt to different levers. . 83% of non-bank lenders cited increased demand for M&A financing, compared with 55% of commercial banks.

  • Non-bank lenders are always ready to relax the standards: As confidence in the improving economic outlook grew along with market competition and increasing risk profiles, lenders continued to relax underwriting standards in the third quarter. According to Cerebro data, 18% of commercial banks and 25% of nonbanks surveyed continue to relax underwriting standards. Main reasons for the desire to relax underwriting standards:

  • Disconnecting the supply chain is a driver for loans: As noted above, the expansion of the plant and the financing of the equipment created a demand for working capital. Inventory financing needs remain significant according to 62% of respondents in the third quarter, as prices rise and supply chains are constrained. With many investors demanding the same materials and inventory, costs and prices go up. Over the long term, the survey indicates that as the economy rebounds, companies will begin to reinvest in production, hopefully allowing for less supply chain disconnection.

See the full results of the non-bank lending survey for additional information.

What does this mean for 2022?

According to Matt Bjonerud, CEO of Cerebro Capital, “The market will continue to see more flexible underwriting criteria as loan competition and risk appetite among lenders increases in the coming months. However, we expect lenders to start tightening underwriting standards as they deploy their capital, and the market will settle in 2022. “

Data from Cerebro’s survey further confirms that easing of lending standards is unlikely to continue. The first sign of a pullback came in the third quarter, with 11% of non-banks tightening standards, almost double the previous period.

In early 2021, lenders were pressured to lend more capital to make up for the lending pause in 2020. Lenders put capital to work at high speed as the economy rebounded throughout 2021. So As lenders look to 2022, they should be more picky about the loans they make now, as they have deployed much of their accumulated capital from 2020. Additionally, according to Cerebro data, 40% of respondents predict the economy will weaken over the next 6 months, which could dampen demand and tighten lending. terms.

About Cerebro Capital: Powered by more than 1,500 bank and non-bank lenders, Cerebro Capital (“Cerebro”) is a data-driven marketplace specifically designed to democratize access to credit markets by connecting corporate borrowers and lenders to find and enter into business loans ranging from $ 2 million at $ 100 million. Working with financial and technology experts, Cerebro has created a comprehensive business loan management solution designed to revolutionize the way borrowers, lenders, intermediaries and stakeholders manage corporate debt. To learn more about Cerebro, please visit, https://www.cerebrocapital.com/.



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SOURCE Cerebro Capital

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