As the first quarter of 2022 wraps up, the commercial finance industry continues to deal with inflation, supply chain issues and war in Ukraine. Considering this constantly shifting environment, Mitsubishi HC Capital America has identified five relevant commercial financing trends that are emerging for the balance of the year.

In a year shaping up like no other, commercial lenders will benefit by staying on top of these five emerging trends, outlined by Jim Giaimo, Chief Credit Officer – Commercial Finance, Mitsubishi HC Capital America.

1. Abundant liquidity in the marketplace. With plenty of money available to lend, competition for deals will increase, and in large part will be based on interest rates. In effect, squeezed margins will have lenders chasing more deals for lower yields. “When there’s a lot of money on the street, there can be a tendency to take shortcuts,” Giaimo warned. That can lead into a cycle of treacherous decisions.
2. Loosening of credit standards. While it’s tempting to get deals done quickly in a highly competitive market, lenders should remain wary of loosening credit standards, said Giaimo. Liquidity in the marketplace lends itself to competitive pricing, then moves to lowered standards when structuring deals, and then on to credit. “Lenders may start lending to companies they normally would not – and with higher amounts than usual,” he said. “Lenders need to be on the lookout when standards start to drop on all three points: pricing, deal structure and credit.”
3. Boom in clean energy markets. The tremendous potential for clean energy products and services has more players entering the sector, including more banks and financial institutions. And as rates rise this year, the market could see even further interest in the sector from banks. “It’s easy to let standards down in light of growth opportunities,” Giaimo said. He cautioned lenders to remain consistent in risk appetite and credit approval practices as they try to gain a foothold in the green space.
4. Need for renewed risk evaluation. The confluence of factors including inflation, rising interest rates, ongoing supply chain disruptions and international conflicts will require credit officers to increase vigilance. “In times of uncertainty, it’s critical to place more attention on risk evaluation,” Giaimo said.
5. Increased competition throughout the commercial finance sector. For all the reasons stated here, commercial finance lenders can expect increased competition in all areas the remainder of this year, Giaimo said. Mitsubishi HC Capital America, for example, is closing transactions for companies of various sizes and at different growth stages of company development. “We’ve found that working with small to medium-size companies and growing with them is core to long-term relationships and business stability.”

“Bad loans happen in good times,” said Giaimo. In 2022, he stressed, the lure of a quick deal based on price alone can wind up costing far more than expected in the long run. “Staying true to proven standards, with an eye on flexible and customized deals will help lenders weather the ups and downs of the year.”

Giaimo and members of Mitsubishi HC Capital America’s Structured Finance division will be attending ELFA’s 33rd Annual National Funding Conference in Chicago, April 12-14.