After rough patches during the past years, the labor market seems steady—but companies are laying off thousands of workers. 

The latest inflation numbers show a huge improvement, and GDP is strong. Yet, the talk of recession just won’t stop.

All this confusion puts commercial lending in a tough spot, as organizations balance tighter underwriting standards with the need for fresh loans.

Commercial lenders are faced with few predictable solutions and lots of difficult questions: is it possible to grow in a market like the one we’re in?

In this article, we’ll explore some of the strategic and technological options that can help lenders take advantage of the uncertainty and make 2024 a strong year. 

A Quick Look at the Economic Dashboard

Let’s zoom in a little closer on the economic indicators of 2023:

Aside from the reduction in job openings, numbers are all objectively headed in the right direction. And yet, more than half of Americans feel like the U.S. economy is in a recession.

How people feel about their money and income prospects has way more of an effect on spending and consumption than the Bureau of Labor Statistics telling us that businesses can’t fill all their open roles.  

Plus, when you examine the commercial real estate (CRE) market, things look less rosy:

  • Interest rates for commercial mortgage-backed securities (CMBS) are at 6%.
  • Issuance of CMBS is down by one-third compared to last year (and reduced sales of CMBS directly affect loan volume).
  • The closing CRE transactions show lower loan-to-value ratios, indicating that borrowers are hoping to refinance.

Again, all these numbers compose a picture of national economic health that is broadly improving compared to the last three years, but that still shows cause for concern.

In mid-December, the Fed stated its intention to keep interest rates steady, barring any new data that would warrant a rise or drop. 

As a commercial lender, you may be mirroring the dismal sentiment of many Americans: it doesn’t matter what the economic data says if businesses have stopped borrowing.

You’re also justified in wondering if there’s anything you can do about lower demand for commercial loans.

There’s Opportunity for Commercial Lenders

The silver lining for commercial lending comes from the Small Business Administration (SBA), which reported that in its 2023 financial year, it grew the volume and value of loans to small business owners, especially for women, minorities, and veterans. 

The SBA also awarded new lending licenses to non-depository institutions in under-served communities. This expanded footprint could bring much-needed capital to businesses that desperately need it.

And regardless of the current economic reality, businesses still need capital. But that’s not the only opportunity knocking at your door: 

Tap Into Businesses in Need

Especially in the current market, conventional bank lenders are hungry for deposits and carefully managing their loan-to-deposit ratios. This may leave a gap for businesses that need funding and may be a good fit for an SBA loan.

Increase Interest Rates and Fees

In a high-interest rate environment, lenders tend to make more money per loan, even if overall loan volume is down. Applicants with higher risk profiles can also boost revenue if your organization has the right credit mix to accommodate them. 

Diversify Lending Products

If the commercial lending products you’ve relied on aren’t in demand, then it’s time to explore new financial products. Ask local small business owners to learn about their capital needs and then develop products or programs that can meet those needs.

Build Long-Term Relationships

If business owners aren’t coming through your doors asking for loans, then it’s time to hit the pavement. You don’t need to push loans on them, but you do need to take the time to build relationships. The more they trust your concern for their well-being, the more likely they’ll be to ask you for help with deposit or funding needs. 

Whenever there’s uncertainty, it’s historically a prime moment to push forward. The thing is, you need to be at the top of your game. 

If you’re an SBA lender, your team may be struggling with outdated processes and siloed data. The increased volume of SBA loans is welcome, but it’s creating a logjam of paperwork that your lending officers can’t digest fast enough. 

And in this context, chances are you won’t land a few massive deals that keep you afloat. Instead, you absolutely must be prepared to work with a high volume of smaller deals. If you don’t have the right tools, then you won’t be able to make the difference.

An automated lending platform bridges the gap between seeing the opportunity and actually taking it: applications are more straightforward for would-be borrowers, and streamlined underwriting allows your staff to process more loans, faster.

Paired with the right lending software for your organization, you can begin to work with the market in a different way.

Strategies That Can Withstand Economic Gloom

Now is the time to take calculated risks and get creative about your approach to lending. Here are five strategies to build your resilience to whatever happens next year, and beyond.

1. Focus on Partnerships

Expand your operation by partnering with new vendors and organizations.

Explore how to support local educational institutions, industry associations, governments, and fintechs. Some partnerships will be duds. Others will unlock massive opportunities you never imagined. Be open-handed and diligent in your process. 

2. Enhance the Application Experience

When was the last time you walked through your commercial loan application process from start to finish as a would-be borrower? If it’s not a breeze for you, imagine for a potential borrower.

Have you considered how a SaaS lending platform could streamline the experience? Every improvement you can make to the loan application process will pay dividends in the long term. 

3. Diversify Loan Products

We touched on this briefly, and it bears repeating: you’ll get the same lackluster results if you continue offering products that aren’t in demand.

Instead, explore flexible loan structures, such as adjustable payment terms. Ask existing clients and local businesses about their capital needs and what you could do to win their lending relationship. 

Exploring SBA loans is a great way to get your foot in the door. Many SMBs may not be aware of SBA lending options or how to find out whether they qualify. 

4. Invest in Staff Training and Development

Even if you have a highly competent lending team, it’s never too late to invest in education.

Create space for your employees to learn new technologies, customer relationship management techniques, ethical lending practices, and customer service. 

As curiosity and self-directed learning become a staple of your culture, you’ll be amazed at the results. Even the friction of learning new platforms or tools will lessen because your employees feel confident wading into unfamiliar territory. 

5. Commit to Digital Transformation

Manual lending processes have worked well enough until now. But they’re hindering the growth and innovation you should be enjoying.

Embracing lending automation and modern lending software is critical to outlast economic crosswinds. 

With the right tools in place, you can increase efficiency, accuracy, underwriting, approval, and time to funding. Applicants won’t ask for these improvements. You must look hard at your existing process and identify where things could improve. 

Origination, underwriting, and reporting can all benefit from software automation. Whatever your process looks like now, it’s worth evaluating how better technology could improve loan production and reduce costs.   

Adapt to Survive and Grow

Change for the sake of change isn’t what we’re talking about. As a financial service provider, you can’t afford to jump on every new trend or flashy piece of tech.

However, the economy is sending chaotic signals to commercial lenders. It’s tempting to just wait and see what happens, but that’s a recipe for weak growth or failure—you must act.

You can use this moment to pursue digital transformation and build a nimbler, more productive lending operation. 

SPARK is a cloud-based commercial lending platform that takes the best aspects of conventional lending and fuses them with modern technology. The result is something that makes life easier for borrowers and lending officers.

Schedule a demo if you’re ready to leave conventional lending in the past. We can’t wait to show you what’s possible. 


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