C&I Lending at Banks
Commercial and industrial loans fund the operating needs of businesses: working capital lines of credit, equipment financing, accounts receivable facilities, and term loans for general corporate purposes. C&I lending is secured by business assets rather than real property, and the credit decision is based on the borrower's cash flow and business fundamentals rather than collateral value alone.
How C&I Differs from CRE
C&I loans typically carry shorter maturities and variable interest rates, which means they reprice faster and carry less interest rate risk than long-duration CRE or residential mortgage loans. A revolving line of credit might have a one-year commitment period with a floating rate tied to prime or SOFR. A term loan might run three to five years with quarterly rate resets.
The borrower base is also more granular. A bank's C&I portfolio might include hundreds of businesses across manufacturing, professional services, healthcare, technology, distribution, and other sectors. No single borrower or industry typically dominates, which provides natural diversification that CRE portfolios often lack.
What Drives C&I Credit Quality
C&I credit performance tracks the business cycle. During expansions, businesses generate strong cash flow and repay loans reliably. During recessions, revenue declines stress borrowers' ability to service debt, and defaults rise. The relationship is more direct and immediate than in CRE, where property values and rental income may hold up initially even as the broader economy weakens.
Line utilization is a useful leading indicator. When businesses draw more heavily on their revolving credit lines, it can signal cash flow pressure. Banks report average line utilization in their quarterly supplements, and a sustained increase deserves attention.
Evaluating a Bank's C&I Book
Look at C&I as a percentage of total loans and how it has trended. Banks actively growing C&I often have experienced commercial lenders and relationship banking models that generate deposits alongside the loans. A commercial client with a line of credit typically maintains its operating accounts at the same bank, making C&I lending a deposit-gathering strategy as well.
Industry diversification within the C&I book matters. A bank where 30% of C&I loans go to a single industry (oil and gas, agriculture, or healthcare, for example) has a concentration that undermines the diversification benefit. The 10-K may provide sector-level detail, and the call report breaks out certain categories.
C&I classified and criticized loan trends are worth monitoring alongside overall asset quality metrics. Classified C&I loans that are migrating from "special mention" to "substandard" indicate active credit deterioration in the commercial book.
Related Articles
- CRE Concentration Risk in Banks — C&I lending provides portfolio diversification away from CRE exposure
- Consumer Lending at Banks — Consumer and C&I loans behave differently through economic cycles
Related Metrics
- Non-Performing Loans (NPL) Ratio — C&I NPL trends track business cycle conditions across the borrower base
- Net Charge-Off Ratio — C&I charge-offs tend to be more evenly distributed than lumpy CRE losses
- Loans to Deposits Ratio — C&I relationships often bring deposits alongside the loan, improving the ratio's quality