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3 Tips to Maximize Your Commercial Lending Potential

Bill Roen
May 6, 2024

In my years at Jack Henry™, my lending team has helped hundreds of financial institutions across the United States achieve their strategic goals by focusing on the future of commercial lending.

As we sit down with banks and credit unions who currently offer commercial lending solutions – and those who are looking to enter this line of business – we see a greater dependence on A/R financing as an overall lending strategy of the bank for 2024.

We've seen more bank and credit union leaders reach out to us for a few key reasons: 

  • They need to diversify from their reliance on commercial real estate
  • They’re looking for solutions that drive deposits growth
  • They require products with better risk monitoring/mitigation in relation to working capital offerings
  • To help business customers with cash flow concerns

In our 2024 Strategy Benchmark, 80% of bank CEO respondents said they plan to prioritize commercial/industrial loans over the next two years. There are three things that have caused the market to change – opening new opportunities for those who want to increase their commercial lending programs.

1.  Shifting Commercial Lending Markets

Banks have historically had a very heavy reliance on commercial real estate (CRE) loans as by far their largest market for commercial lending. They have relied on this type lending to grow their base and achieve their financial goals.

Most banks have experienced a significant slowdown in new CRE loans, and many have concerns regarding the possibility of credit issues within this space.

Because of this, they’re looking to increase their commercial and industrial (C&I) lending by focusing on internal bank products within that space or adding product lines to be able to attract and retain these customers.

One client recently told me, “With the softness in the commercial real estate market, especially without anyone refinancing due to higher rates, the bank is looking for other types of lending to focus on, especially C&I loans."

2.  Attracting More Deposits

In early 2023, most banks and credit unions were flush with deposits, and because loan-to-deposit ratios were relatively low, they were focused on lending this money out. By mid-2023, we were starting to talk to financial institutions who needed to increase deposits. A combination of inflation, higher financing costs, increased business, and consumer spending clearly started to put a strain on deposits.

Today, most of the financial institutions we work with are focused on increasing deposits and are looking for our help with this.

Our working capital solution not only attracts C&I loans, but also provides financial institutions with an average of 25 – 35% of compensating core deposits along with lending relationship.

3.  Helping Businesses While Mitigating Risk

Many of our financial institutions are reporting that they are starting to see some weakness in the financials of the businesses they lend to.

At the same time, businesses are looking for increases in the working capital facilities. Here’s why:

  • The increased cost of inputs – as well as A/R turns creeping out further – are driving this need for additional working capital even if the business in not growing significantly.
  • There are also businesses that have large orders, are looking to expand into new markets, and experiencing growth that are looking to financial institutions for help financing these opportunities.

Many of the lenders have reported a “tightening” of credit. In some of these cases, the financial institution is looking for us and our solution – to help them provide larger lines to their accountholders with increased monitoring and credit controls over their current line of credit structure.

As part of our strategic relationships with banks and credit unions, we sit down with their lenders, one-on-one, and develop a plan. We help them execute on that plan to attract business accountholders and reach their strategic goals.

create limitless possibilities

Contact us to learn more about how A/R financing can help you reach your lending goals!

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