Reclaim the C&I Business You're Losing

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In previous articles in the C&I series, we looked at the commercial lending trend that’s created a huge opportunity cost for community banks. But the effect is more than just financial. It is undermining the very spirit of community banks, which are now losing prime opportunities to fintech, nonbank lenders, and regional and national banks.


Let’s take a look.

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The bread-and-butter of community banks, where they’ve traditionally maintained an advantage over larger banks, is relationship lending. But, as community banks have trended away from commercial and industrial (C&I) loans during the last 30 years, they have gradually eroded a keystone of relationship lending opportunities in favor of commercial real estate (CRE).


In 1984, the number of community banks the FDIC considered CRE specialists represented just 2% of all banks. By 2011, that number had jumped to 24%.


During the same time period, the number of banks considered C&I specialists declined significantly, from 11% of all community banks down to 2%.


As a result, businesses in the C&I space have gravitated to fintech, nonbank lenders, regional banks and national banks for their credit needs. This poses problems in two key areas:


1) Businesses in rural areas

2) Businesses that need to borrow between $1-10 million.


Even despite the large growth of regional and national banks with the relaxation of government restrictions on branching, rural businesses are still less likely to find a regional or national bank branch in their county. The FDIC’s 2012 comprehensive study of the community banking industry found that community banks still retain the only banking presence in nearly 20% of all U.S. counties.


Fintech and nonbank lenders can get businesses the credit they need quickly, but it often comes with higher fees. They also can't meet the full spectrum of financial needs, which can include checking accounts, credit card processing, cash management services and insurance.


For those businesses that do become regional or national bank customers, those that need between $1-10 million in credit may find extra challenges. Many large banks feel more comfortable lending to established businesses for which they can find audited accounting information, credit reports, and other “hard” information. It’s difficult for them to replicate the relationship lending practices of community banks, where lenders can rely on “soft” information, like their own knowledge of the business, its products, the owners, employees, their reputations and the local market conditions to increase comfort levels.


These C&I businesses value a relationship with a bank that understands their business and needs. That banking relationship may continue as the business grows, adds new locations or begins exporting. The owners and employees often turn to that bank for their personal credit needs.


CRE lending tends to be driven by price. Borrowers are looking for the best rate, and may have multiple relationships with different community banks in order to shop for the lowest rate. The mentality is more transactional than relationship-oriented.


Community banks that have long-favored CRE loans may have lost some expertise in the C&I space. Now, even if they want to engage in more C&I lending, this lack of experience makes them more uncomfortable with extending credit. But that can change – even as soon as today.


By partnering with VITAL Financial Services, you are engaging an experienced lender service provider with expertise in the C&I space, particularly with businesses in the manufacturing, wholesale, heavy construction, mining and trucking industries. Contact us any time, but especially when you’re ready to grow your C&I portfolio and start reclaiming missed opportunities.