By Rieva Lesonsky
Commercial lending to midsize businesses is projected to grow this year, according to data from bond-market advisory firm CreditSights reports CFO.com. After two years of a credit crunch, why are banks now announcing new plans to focus on commercial lending?
The collapse of the housing market is one reason—obviously, banks have lost much of the residential mortgage business that once dominated their portfolios. Second, the passage of the CARD Act, which has restricted banks’ ability to profit from consumer credit cards, has banks looking elsewhere for a way to make money.
Commercial lending, which accounted for as much as 40 percent of banks’ portfolios in 1960, fell to just 15 percent in 2010 as banks relied on consumer credit for much of their business. Now, banks are turning back to commercial loans, which offer them higher margins and terms, says CreditSights, as well as a chance to cross-sell other services to the businesses that borrow.
The Federal Reserve’s July survey of senior loan officers showed that banks were already loosening their standards on many types of commercial loans. Many had also stopped downsizing companies’ existing lines of credit.
Currently, banks are focusing on lending to companies in industries with high growth potential, including health care, technology and energy. But some are focusing on other areas, such as manufacturing. In addition to major banks such as Wells Fargo, U.S. Bancorp and PNC Financial Services, larger regional banks are also getting into the game—so you may want to investigate what’s going on with banks in your area.
Will the change in lending standards be good or bad news for smaller companies? So far, one expert cited by CFO.com says, it’s bad news—banks are becoming more aggressive in their approach to small companies that have outstanding loans or lines of credit and show signs of cash-flow problems or management weaknesses.
If that sounds like your company, you better get your ducks in a row. If it doesn’t describe your business, the change could be good news for you in the long run. With more banks looking to midsize businesses as a way to make money, it could be just a matter of time until the wealth trickles down to smaller firms.Google+