How The Pandemic Has Changed The Landscape of Commercial Lending

How has the landscape for commercial lending been changing? How has it already changed?

Amid the COVID19 pandemic, there have been significant changes in lending practices. The changes are expected to remain fluid going into the end of the year with an expected acceleration into recovery in the U.S.. During the beginning of COVID19, financial institutions focused on helping existing customers with their loans as well as leading stimulus efforts through support of the PPP loan program. While most lenders halted new lending or slowed it substantially, some credit unions continued to support their local economies by lending money to new borrowers while continuing to help existing members with loans and stimulus efforts.

The commercial lending landscape will continue to shift over the next few months as it has in recent months, with borrowers and lenders focusing on multifamily properties and some multi-unit industrial spaces. Most lenders and borrowers are carefully inspecting opportunities in the retail and restaurant sectors because we do not fully understand how COVID19 has affected small retailers.

Mortgage rates are very low, does the same remain true for commercial loans?

Yes, but the two differ in many ways. Most commercial lenders have hit their floor rates—between 3.90-4.25%—for commercial loans, while some home mortgage rates have been at historical lows—currently between 3.50-3.75%—but are expecting to increase as we approach the end of the year. Commercial loan rates are expected to remain the same, but lending intuitions understand the impacts of economic recovery on interest rates for both loans: residential and commercial.

Since more people are working from home, what type of commercial properties is the market skewing toward?

Many individual investors have shifted interest toward multi-family properties and industrial properties. Some investors are still interested in single-tenant retail buildings in certain industries, such as pharmacies and retail medical providers. Each transaction is carefully reviewed by investors and lenders to determine the stability of the investment. With interest rates low, there are not many other investments that yield as high of returns that real estate does. However, everyone is exploring these opportunities with caution to ensure the right investment is selected.

What do you think is in the cards for commercial lending in the near future?

As we enter the new year, I believe that commercial lending will continue to grow in popularity and remain a stable option for small businesses. The interest rates will hopefully remain low, which will help drum up new loans and an opportunity for some to refinance their existing loans. I also believe there will be movement by many as certain relationships with financing professionals will change. Small business owners will move banking and lending relationships and engage changes with their other financials professionals as well. Where there is change, there is an opportunity grow and prosper.

Regardless of any circumstances, the CMH team has learned that as the environment changes, the landscape does too. Business does not stop during a pandemic, but changes; if you are looking to invest in commercial property, consider something different for the time being and as things change so do your investments.

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