A new survey of the middle marketing lending environment sponsored by Carl Marks Advisors highlights the changing nature of the relationships between banks and middle market borrowers. As we enter a post-pandemic world, lenders are exhibiting less tolerance with borrowers when not meeting financial targets.
“The dynamics have shifted, and banks are enforcing stricter terms and having much tougher conversations with management teams.”
-Bobby Lau, Partner
Given current economic headwinds and higher interest rates, are you seeing traditional lenders applying more pressure to their middle market borrowers and exhibiting less tolerance for missing financial targets?
- Yes, they are demanding better terms and stricter covenants: 86.51%
- No, they are continuing to show patience with borrowers: 13.89%
Key Takeaway:
86% of middle market companies are noticing traditional lenders applying more pressure and showing less tolerance when borrowers miss financial targets.
What, if any, are the leading challenges middle market companies are facing as a result of the current economic environment? (Select up to 2)
- Competitive labor mark/higher labor costs: 44.84%
- Margin compression driven by increased input and labor costs: 40.87%
- Tighter capital markets/higher borrowing costs: 37.30%
- Broader/more complex set of competitors: 34.14%
- None: 0.79%
Key Takeaway:
44% of survey respondents say high labor costs are the leading challenge that middle market companies are currently facing.
As alternative lenders become a larger part of middle market lending landscape, what, if any, is their impact on borrowers and lender groups?
- Alternative lenders fill a void in the market and provide leverage, flexibility and ease of execution beyond what traditional regulated banks offer: 22.62%*
- Alternative lenders are transaction focused and less relationship-oriented than regulated institutions: 21.83%
- Alternative lenders are more flexible and supportive when dealing with a challenged borrower: 21.83*
- Alternative lenders are more aggressive when dealing with a challenged borrower: 14.68%
- No impact: 0.79%
- Not sure: 0.79%
Key Takeaway:
44% of survey respondents feel that alternative lenders play an increasingly important role in providing flexible lending options.
*Note: 44% is the combined statistic from the two starred responses above
What are the most important factors leading middle market companies to seek new financing at this time? (Select up to 2)
- To keep up with current economic challenges, including rising inflation: 36.9%
- To improve their capital structures: 36.51%
- To make up for recent losses in productivity/profit: 30.56%
- To finance mergers and acquisitions: 30.16%
- To address liquidity needs: 28.97%
- To pursue growth opportunities/expand operations: 26.98%
Key Takeaway:
Rising inflation is one of the key factors causing middle market companies to seek new financing at this time.
