Intense Competition in Middle-Market Lending Benefits Commercial Borrowers

BALTIMORE, Sept. 2, 2021 /PRNewswire/ -- Cerebro Capital, a commercial loan platform, today released its Q2 2021 survey on non-bank lending for middle-market commercial and industrial (C&I) loans. Lenders saw increased demand for credit because of the booming M&A market and the improving economy, according to the survey. At the same time, underwriting standards and loan terms continue to ease because of increasing competition among lenders.  

The growth in requests for credit and the borrower-friendly environment started in the beginning of 2021, as business optimism in the economic recovery increased, and companies began looking for ways to spur growth.

Cerebro's analysis of the middle-market commercial and industrial loan market includes its quarterly survey and the Federal Reserve's quarterly survey of commercial banks. In doing so, Cerebro provides a comprehensive picture of corporate lending to middle-market borrowers, as well as an outlook for the next six months.

Cerebro launched its survey in the second half of 2020, marking this as the fourth consecutive survey providing insights into the $3T credit market from alternative lenders that compete with commercial banks for business. Participants include Managing Directors and Vice Presidents who manage lending in the private credit and mezzanine funds and business development spaces. These lenders work with middle-market borrowers and offer loan sizes of between $2 million and $100 million.

Lending Demands Ease for Larger Loans

Cerebro's survey reports credit standards have become more borrower friendly as 36% of lenders reported easing standards over the last three months. With a jump from 1Q21, which reported 28% of easing credit, the market continues to trend upward as lenders expect their capital positions to improve.

The market is also showcasing signs of sharp economic improvement as COVID-19 vaccines have been distributed and have resulted in sharp declines in deaths since the beginning of 2021. Additionally, nearly 60% of lenders indicated that increased competition from other lenders was a significant factor in easing standards over the last three months.

Commercial Loan Inquiries on the Rise

Nearly 70% of lenders stated increased demand for credit in comparison to the prior quarter. Responses from lenders with increased demand indicate that the top two reasons for new loan questions were due to M&A (91% said this was an important factor) or because other sources of capital were less attractive.

In 1Q21, 27% of non-bank lenders indicated that M&A activity was not an important driver in demand for them; however, in 2Q21 that number dropped to 9%. Borrowers searching for better terms on their capital continued to be a strong driver quarter over quarter with 70% of lenders indicating this a significant reason why they saw more deal flow.  

Borrowers Outlook Trends Positive

28% of lenders expect that larger loans will become even easier to get in the next six months and they also expect rates and terms will continue to get better for borrowers in the face of competition from other lenders. 94% of lenders surveyed who are expecting to ease standards anticipate doing so in response to increased lender competition, which is a 10% increase compared to prior quarter. Expected improvement in a lender's loan portfolio as well as increased risk tolerance was the next highest reasons driving the ability to ease credit standards with 65% and over 80% of lender response, respectively. 

"We continue to see loan terms improve as demand and competition from other lenders increases. To win more loans, lenders made concessions on loan terms because of reduced borrower industry risk, improved liquidity position, and increased tolerance for risk," said Matthew Bjonerud, CEO of Cerebro Capital. "Hungry lenders coupled with eager borrowers makes for a prime market that will continue into Q3."

Cerebro's 800+ lender network is split evenly between commercial banks and non-bank lending institutions. With such a broad lender network, Cerebro offers middle-market companies a data-driven approach to navigating hundreds of commercial bank and non-bank lenders. Download the raw data for additional insights.

About Cerebro Capital: Powered by over 800 commercial bank and non-bank lending institutions, Cerebro Capital ("Cerebro") is a data-driven platform purposefully designed to democratize access to credit markets by connecting corporate borrowers and lenders to find and close corporate loans ranging from $2 million to $100 million. Working with finance and technology experts, Cerebro has created a holistic corporate 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/.

SOURCE Cerebro Capital

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