Commercial Lending - The Market Is Improving

We are now over six-months into the Covid-19 pandemic, and a lot has changed.  We have all seen our work, educational, sports and personal lives upheaved, and although some things are starting to return back to normal, it still feels that we are quite far away from having things completely normalized.  We have moved away from a full shutdown and panic, to being able to start getting back to work and start to do some of the things we all enjoy.  But it does appear in some ways we will be forever impacted by Covid-19.


When it comes to Commercial Lending, the commercial loan marketplace has seen its own upheaval this year as well.  What began as a very strong start with both Bank and non-bank lenders aggressively looking for new credits, turned into a bit of a nightmare as all lenders took a step backwards and tightened up underwriting guidelines with some lenders shutting down completely.  In addition, the PPP program provided as part of the CARES Act caused a huge distraction in the bank and credit union worlds, and even in some private lending marketplaces, as for over two-months in the middle of the year lenders focused on nothing but PPP loans for their customers.  All of these changes to the lending marketplace made it challenging for commercial loan borrowers to find the financing that they needed this year.


Where do things sit today?  First off, it is not all doom and gloom.  A majority of the businesses we have run across over the last six months are doing at least okay, and many are doing good and some are even thriving.  Even some of those in the hardest impacted industries (such as hospitality and entertainment) are surviving and in some cases are exceling.  A combination of government stimulus, government aid through the SBA PPP and EIDL lending programs, some cost cutting, some reinvention of how goods and services are delivered, and consumers willing to support the businesses they love, have seen many companies in hard hit industries not only survive but even in many cases grow.  Other businesses have found opportunities in the current market and have seen tremendous growth, even despite the Covid-19 headwinds.  And overall, the market seems to be improving quickly, jobs are returning, spending is increasing, and Americans appear ready not only to get back to work full-time but also to go out and enjoy themselves.  Based on the business owners we are talking to, we expect to see strong growth through the end of the year and certainly into 2021, as the recovery continues.


What impact has all of this had on the lending markets?  Although commercial banks, credit unions and non-bank lenders are still taking a cautious approach to the market, business capital is still very much available.  Lenders, unlike during the Great Recession, seem willing to work with their borrowers in finding common sense solutions.  There also continues to be demand for loan growth at most institutions.  Some of the lenders that initially pulled back from the market are now coming out with lending programs again and are once again looking for opportunities.  And now that the up-front processing of PPP is largely behind us, there is significantly more capacity at institutions to get things done.


There are four glaring differences in the financing market today as compared to the Great Recession.  The first is the amount of flexibility the regulators are giving Banks to work with their current Borrowers, and if all those Borrowers need is time, the encouragement regulators are giving to Banks to help them get the time they need.   Secondly, Banks have significantly more capital and larger loan loss reserves today, allowing them to weather the storm much easier and not creating a situation where Banks have to shrink their balance sheets to survive like happened during the Great Recession.  Third, stimulus and outside support was available much quicker now than it was during the Great Recession, and it does appear like there will eventually be a round-three of stimulus and support, although it is unclear if that will come before or after the election.  Lastly, Banks and Credit Unions have not gone through a massive layoff of lending staff like they did with the Great Recession, which seems to indicate that Banks and Credit Unions plan to keep lending and plan to grow going forward.


We are not only seeing deals get done, but we are getting challenging deals done during the pandemic.  Examples of some deals that can be challenging in any market but especially in the Covid-19 market that we have gotten done are as follows:

  • Business purchase for an existing restaurant in New York;
  • Business purchase of a catering company in Las Vegas that primarily serves the hotel and convention businesses;
  • Start-up financing for a new med-spa in Chicago;
  • Refinance with cash-out of a daycare center in Chicago to consolidate debt and reduce interest rates;
  • New large line of credit for an engineering firm to fund growth and establishment of new contracts;
  • High leverage buy-out for a steel fabricator including owner-occupied real estate loan and large line of credit to fund operations;
  • Acquisition financing for a marketing company in the agricultural space;
  • Acquisition and build-out financing for a combination artist studio space and event space in Chicago.


These are just examples of more challenging business opportunities that we have had success in getting done, and the list does not include many more approved and pending closing.  We have done many more owner-occupied, investment real estate, construction, business consolidation, and other financing transactions over the last six months as well.  And these deals are getting done by all different types of lenders, including banks, credit unions, and even some non-bank lenders.  Interest rates continue to be very attractive and there are still lenders looking for opportunities.  If you have a financing need, do not be afraid to pursue it in this current market.  Unlike during the Great recession, there are still options available for you.


Despite all of the stress and challenges we have faced as a nation in 2020, there is light at the end of the tunnel and there is much to feel good about as well.  We have come a long way, and things are not as bad as they have been or could have been.  As a society we will all continue to push through all of the hardships that have plagued us in 2020 and I am confident the year will end on a positive note and 2021 will be a strong growth year.


One last thing we want to say here at CLX.  The election this year is a big one and could have ramifications that impact the business world for many years to come.  Regardless of what side of the aisle you stand on, it is very important that your voice is heard, so we encourage you to vote.  Even if you have not already registered to do so, there is still time to register, and if you are afraid to vote in person, you can always go to a less crowded early voting location or request an absentee ballot.  But no matter what you do, be sure to cast your ballot this November 3rd.  Every vote counts.  There are likely to be many close races that could be decided by just a couple of votes, and your vote could make the difference.  And be sure you make arrangements to give your employees the time to vote as well.