Can Non-Bank Private Lenders Fill the Void in the Middle Market?
By: Cameron Spiller
A recent report from MSCI* signals a significant downturn in commercial real estate (CRE) lending, especially by regional banks. In the second quarter of 2023 alone, these banks saw a sharp 25% decline in CRE originations, amounting to a 900-basis-point drop. While rising interest rates have had their influence, the real story centers on the recent closures of Silicon Valley Bank, Signature Bank, and Silvergate Bank.
The Wake-Up Call: Q2 2023
The fallout from these bank closures was not immediately apparent, only coming into focus by the second quarter of 2023. As we closed the books on the third quarter on October 1st, the industry was feverishly awaiting fresh data. This will reveal the continued impact of interest rate hikes, evolving consumer behaviors, and, importantly, the effect of bank closures on regional banks and the communities they serve.
The Private Lender Conundrum
Though one might assume that private non-bank lenders could easily step in to fill the gap, it could be more complex. Most debt funds concentrate on large-scale loans, making them less than ideal substitutes for regional banks. The financing gap leaves small and mid-sized businesses, who have historically relied on regional banks, in a difficult position to secure the capital they need.
A Looming Threat or an Opportunity?
The financing vacuum for small businesses is not just a problem; it's a potential crisis for local economies. To avert this, private funds must pivot their strategies, targeting loan origination opportunities that can regain lost consumer trust and market share previously held by regional banks.
As the small and mid-sized business sector navigates these treacherous waters, all eyes are on private lenders and how they can or can’t fill the void left by regional banks’ dwindling influence. It’s a critical moment that calls for innovative solutions, thoughtful strategy, and above all, swift action.