Non-Bank Lenders Forecast Demand Increase and Economic Downturn in 2022

According to Cerebro Capital’s Q4/21 survey of non-bank lending for middle-market commercial and industrial (C&I) loans, commercial lenders continued to ease lending standards in Q4/21, making it easier for businesses to get loans, which drove up loan demand in the middle market. Looking forward, 52% of non-bank lenders expect increased loan demand to continue due to a predicted deterioration of the economy over the next six to 12 months.

Cerebro Capital’s survey is part of an ongoing examination of the middle-market C&I loan market. The survey includes feedback from non-bank lenders, including mezzanine funds, business development companies, venture debt lenders, private credit lenders and alternative lenders, which is paired with the Federal Reserve’s Q4/21 survey of commercial banks to illustrate a perspective of middle-market financing.

Key Survey Findings

  • Lending Remained Borrower Friendly: According to the survey, loan terms in the middle market continued to remain borrower friendly in Q4/21, as 26% of non-bank lenders and 16% of commercial banks indicated they made it easier for borrowers to get larger loans.
  • Loan Demand Was Up Across All Lenders: According to the survey, 64% of non-bank lenders and 32% of commercial banks experienced increased demand in Q4/21. Key drivers for demand for both non-bank lenders and commercial banks cited by more than two-thirds of lenders included:
    • M&A activity
    • Increased inventory financing needs
    • Increased accounts receivable financing

How Terms Changed in Q4/21

  • Lenders Provided Larger Loans: According to the survey, 37% of non-banks and 23% of commercial banks provided larger loans in Q4/21 compared with Q3/21.
  • Spreads Over Costs of Funds Lowered: According to the survey, 26% of non-banks and 42% of commercial banks reported spreads over costs of funds lowering in Q4/21.
  • Loan Covenants Got More Relaxed: According to the survey, 15% of non-banks and 13% of commercial banks reported relaxing loan covenants in Q4/21 compared with Q3/21.

Economic Outlook for Non-Bank Lenders in 2022

Easing lending standards may not continue, as results in the survey were split on whether non-bank lenders expect to tighten or loosen standards in the next six to 12 months, although 27% of non-bank lenders expect lending standards to tighten over the next six to 12 months, which is up from last quarter. On the other hand, 25% of non-bank lenders expect lending standards to continue to ease this year. Out of this 25%, a resounding 95% expect this to be attributed to an increased tolerance for risk among non-bank lenders.

“Should the economy take a turn in 2022, non-bank lenders expect their risk tolerance to set them apart from commercial bank lenders,” Matt Bjonerud, CEO of Cerebro Capital, said. “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.”

Cerebro Capital is a commercial loan marketplace.

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