Navigating the Shift: Overcoming Challenges in C&I Lending

As commercial real estate (CRE) markets face ongoing volatility, many banks are looking to commercial and industrial (C&I) lending as a way to diversify revenue streams. However, shifting into C&I lending is not a quick fix—it requires a strategic, well-planned approach. Without the right expertise, smaller and regional banks may find themselves struggling to achieve success in this highly specialized area.

C&I Lending: Not a Quick Solution for CRE Challenges

One of the biggest misconceptions is that C&I lending can be a simple substitute for CRE asset turnover. While both are essential components of a bank’s portfolio, C&I lending operates on an entirely different playing field. Unlike CRE loans, which are typically secured by real estate, C&I loans often involve underwriting based on cash flow, working capital cycles, and business fundamentals. This shift in approach means banks must take the time to understand new risk factors, industry dynamics, and borrower profiles. Rushing into C&I lending without a solid foundation can lead to costly missteps.

The Right Leadership: C&I Credit Experts vs. Legacy CRE Executives

A critical factor in successful C&I lending is having the right leadership and expertise in place. Many banks attempting to expand into C&I lending rely on legacy CRE Chief Credit Officers to oversee this transition. However, CRE and C&I lending require distinct skill sets. CRE lending expertise does not easily translate into the nuanced risk assessment needed for C&I loans. Banks must prioritize hiring or developing professionals with deep C&I experience who understand the complexities of cash flow analysis, industry cycles, and asset-based lending structures.

Bridging the Expertise Gap in Smaller and Regional Banks

For smaller and regional banks, the move into C&I lending presents an even greater challenge. Many of these institutions lack the necessary credit talent to evaluate and manage C&I loans effectively. Unlike larger banks with established C&I credit teams, regional banks often have CRE-heavy lending portfolios and credit teams unfamiliar with working capital assessments, debt service coverage ratios, and sector-specific lending risks. Without the right personnel, these banks risk making poor credit decisions that could lead to increased defaults and regulatory scrutiny.

Building a Stronger C&I Lending Strategy

To successfully transition into C&I lending, banks must take deliberate steps, including:

• Investing in Talent – Hiring experienced C&I credit professionals who can build a robust lending strategy.

• Developing Training Programs – Equipping existing teams with the knowledge and skills to assess C&I credit risk.

• Refining Credit Policies – Establishing risk management frameworks tailored to C&I borrowers, rather than applying CRE-focused underwriting practices.

• Leveraging Technology and Data Analytics – Utilizing advanced risk assessment tools to enhance credit decision-making.

Final Thoughts

C&I lending offers promising opportunities, but success requires careful planning, the right expertise, and a strong commitment to credit discipline. Smaller and regional banks that recognize and address these challenges will be better positioned to diversify their portfolios while mitigating risk. By investing in C&I credit professionals and strategic planning, banks can move beyond CRE reliance and establish a sustainable, growth-oriented lending approach.

Let us help you find your next C&I Lending professional. L.D. Peck Executive Search Firm specializes in finding the right talent for your organization. Schedule a quick call to find out how we can help with talent ready to face today’s greatest C&I lending challenges.