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Non-bank Lenders Forecast Demand Increase, Economic Downturn in 2022, Survey

February 18, 2022, 08:00 AM
Filed Under: Industry News

Cerebro Capital, a commercial loan marketplace, released its Q4 2021 survey on non-bank lending for middle-market commercial and industrial (C&I) loans. Cerebro reports commercial lenders continued to ease lending standards in the fourth quarter, making it easier for businesses to get loans, which has driven up loan demand in the middle-market. Looking forward, 52 percent of non-bank lenders expect increased loan demand to continue due to a predicted deterioration of the economy over the next 6 to 12 months.

Cerebro's ongoing examination of the middle-market C&I loan market includes this sixth-consecutive quarterly survey of non-bank lenders. The feedback from non-bank lenders, which includes mezzanine funds, business development companies, and venture debt lenders, private credit lenders and alternative lenders is paired with the Federal Reserve's 4Q21 survey of commercial banks to illustrate a comprehensive perspective of middle-market financing.

Q4 2021 Middle-Market Key Findings

  • Lending Remained Borrower Friendly: Cerebro's survey reports loan terms in the middle-market continued to remain borrower friendly; 26 percent of non-bank lenders and 16 percent of commercial banks indicated they have made it easier for borrowers to get larger loans.
  • Loan Demand Is Up Across All Lenders: 64 percent of non-bank lenders and 32 percent of commercial banks surveyed saw an increase in demand in Q4. Key drivers for demand for both non-bank lenders and commercial banks cited by over two-thirds of lenders included: M&A activity, increased inventory financing needs and increased accounts receivable financing.

How Terms Changed in Q4 2021

  • Lenders are providing larger loans: 37 percent of non-banks and 23 percent of commercial banks reported providing larger loans in Q4 than compared to Q3.
  • Spreads over costs of funds lowered: 26 percent of non-banks and 42 percent of commercial banks reported spreads over costs of funds lowering in Q4.
  • Loan Covenants have gotten more relaxed: 15 percent of non-banks and 13 percent of commercial banks report relaxing loan covenants compared to the quarter prior.

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

Non-Bank Lending’s Outlook on the Economy in 2022

Easing lending standards may not continue, as results were split on if non-bank lenders anticipate tightening or loosening of standards in the next 6-12 months. 27 percent of non-bank lenders anticipate lending standards will tighten over the next 6-12 months. This is up from last quarter.

On the other hand, 25 percent of non-bank lenders expect lending standards to continue to ease this year. Out of this 25 percent, a resounding 95 percent of these respondents expect this to be attributed to an increased tolerance for risk among non-bank lenders.

According to Matt Bjonerud, CEO of Cerebro Capital, "Should the economy take a turn in 2022, non-bank lenders expect their risk tolerance to set them apart from commercial bank lenders. The rebounding pandemic economy and trend of easing standards among lenders cannot last forever; and non-bank lenders will create attractive options for those in the middle-market who need capital."

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