Noelle Tomlin
Published on:
January 31, 2024
min. read

Navigating the Lending Landscape: Key Takeaways from 25 In-Depth Meetings with Chief Credit Officers

Over the last several months, the Lev team met with 25 Chief Credit Officers (CCOs), Chief Lending Officers (CLOs), and other C-Suite executives from local and regional banks and credit unions.

Our goal with this research was to understand participants’ decision-making processes and build a picture of how their perspectives and lending preferences have shifted due to the current economic conditions.

We focused on this group of lenders because they operate in an area of the market with the highest level of uncertainty. We focused on CCOs, CLOs, and C-Suite executives as they have a unique perspective not often available to borrowers, who typically interact with Originators on a daily basis.

Our findings can be distilled down into four key themes:

1. A “good” deal is no longer sufficient to succeed in today’s market

When making decisions on new loans, lenders have shifted their focus from traditional deal-specific criteria to higher-level factors such as a borrower’s ability to bring over deposits and their portfolio concentration.

While lenders have always considered these factors in their decision-making process, their importance has increased significantly due to heightened scrutiny and the current economic environment. In today’s lending landscape, even a "good" deal or borrower may not be sufficient to secure a loan, unlike in previous cycles.

2. Disjointed communication flows create uncertainty and ambiguity for borrowers

There are wide differences in the way that lending preferences are shared across different layers of lending organizations. Respondents admitted that in many cases the flow of information between Boards, the C-Suite, and Originators often lacks clarity and that changes aren’t communicated clearly or frequently enough.

Overall lending preferences in terms of capital available and asset class focus are typically set at the Board level, while the C-Suite and Credit Committees generally decide on more granular, deal-specific lending criteria. This information then flows to Originators, but with varying levels of efficiency. The issue of poor communication flow is compounded by the fact that lending preferences often change rapidly based on both external factors and deal activity.

In cases where lenders do not have effective communication flows, Originators may not have visibility into their Credit Committee's preferences until deals are submitted, making it extremely difficult for borrowers to predict the success of their deals.

3. "Return on borrower relationships” has become an important success metric

Both banks and credit unions consider the potential for long-term borrower relationships as an important factor when evaluating new deals. Factors such as bringing over deposits and focusing on relationships rather than individual transactions carry more weight than ever before.

To be successful in this new reality, Borrowers need to not only present compelling and well-structured financing requests, but also outline their broader business plans and future pipeline. Bringing deposits as part of deals has become a requirement for many lenders, as has the promise of additional, consistent deal flow.

Capital availability is more limited for the majority of lenders we met with, which is why they have become extremely selective and highly focused on long-term relationships, as opposed to one-off deals. Relationship lenders still consider these more transactional deals, but significantly less so in the current market.  

4. Brokers can significantly limit financing options

A somewhat surprising finding from our discussions was that working with brokers will often restrict borrowers’ financing options instead of expanding them.

As lenders focus more and more on building long-term direct borrower relationships, they are increasingly wary of brokers, who by definition are more transactional in nature. Many lenders we met with went so far as to say they would never consider deals presented to them through brokers. A notable exception to this sentiment was from lenders who operate in markets with established broker footprints, such as New York City.

Conclusions for borrowers

  • Consider factors beyond the deal: In the current market, it's important to identify banks that have strong liquidity positions. This can save you time and effort by preventing you from approaching lenders who are not in a position to lend, or who may require a large volume of deposits that would make the deal infeasible.
  • Keep your options open: With gaps in communication and a rapidly evolving market it’s important to have multiple lending options under consideration until receiving credit approval to help avoid potential retrades.
  • Focus on the long term: Convincing lenders of the potential for more business in the near future is key. Show a genuine interest in building lasting relationships rather than just chasing the best deal.
  • Beware of the broker trap: New financing realities require new approaches. Working directly with lenders has a higher likelihood of a positive outcome in the majority of markets across the country.

💡 Need help navigating the capital markets? Put Lev in your corner. Lev is a digital platform for commercial real estate financing. The platform enables you to identify and reach out directly to the best-fit lenders for your deal. And our AI tools will help you automate and enhance deal management. We’re not a broker; we use technology to help you build and manage your lender relationships. Platform access is free to qualified borrowers. Request your demo here.