2021 Mid-Market Lending Outlook

As we shift into the second month of 2021, Cerebro is focused on how we can best serve our clients and partners now and throughout the year. While we remain optimistic that there is a near-term path for many businesses to reset after pandemic-driven losses, we know that there is still a bumpy road ahead for other businesses that are seeking more stable and predictable revenue.


The first half of 2021 will be a transitional lending environment. Many lenders are still trying to get on a firm footing with their existing customers as government shutdown orders were reinstated in late Q4 due to increasing COVID cases. Businesses that are showing continued quarterly losses heading into Q2 may need to seek new lenders as they are worked out of existing bank relationships. 

At the same time, executive and legislative branches are transitioning to new leadership and there may be an appetite for increasing stimulus plans to support businesses. With the second round of Paycheck Protection Program funds being made available, small businesses can seek additional funds to support their payroll and certain business expenses. Additionally, the SBA 7a Program will subsidize principal and interest payments for six months, up to $9,000 per month, for any loans closed prior to Sept 30, 2021. The SBA will also cover the guarantee fee that borrowers previously had to pay. 


With good economic signals, we anticipate the second half of the year to return to some level of normalcy in lending, assuming the vaccine rollout will have an immediate impact on COVID rates and most businesses can reopen fully in Q2. 

As you start planning for new financing in 2021, here are a few areas to consider:

1. A new round of Paycheck Protection Program funds is open

The second round of the Paycheck Protection Program is live as of January 13th, 2021. There are some changes to this current round of funding. Borrowers can have no more than 300 employees and must be able to demonstrate at least a 25% reduction in gross receipts between 2019 and 2020 comparable quarters. Additionally, borrowers who received a First Draw PPP Loan will need to have used those complete funds for authorized purposes only. Full details of the PPP are available at the SBA site

Cerebro is partnering with a national SBA lender to provide an easy online application process, The Loan Source + ACAP is now accepting applications and there are no fees to access these loans. Apply now as funds are limited.

2. Commercial banks are showing optimism towards high quality borrowers

For obvious reasons, credit appetites shrunk dramatically in 2020. Looking ahead, we expect commercial banks to loosen credit standards as business revenues stabilize over the coming quarters.

Commercial banks will continue to grow their loan portfolios for government backed loan programs like the SBA 7a & 504, USDA B&I, and MSLP (if reinstated) to help support borrowers who are already in recovery or had limited impacts in 2020. However bank lenders are expected to continue requiring higher collateral amounts and personal guarantees more often than before, based on financing deals that Cerebro sourced in 4Q20.

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3. Non-bank lenders are seeing opportunities with borrowers that are showing signs of recovery

From input we are receiving from non-bank lenders in our network, we expect the alternative lending market to become more competitive with rates and terms to make their loans more attractive to borrowers that are recovering from recent losses. Many non-bank lenders were well capitalized before COVID and remain so at the start of 2021. The combination of dry power and a higher cost of capital, will allow non-bank lenders to benefit as companies return to growth.

4. Although the Main Street Lending Program is currently closed, it may come back in a new form

Despite everyone’s hopes for the program, only a small number of companies that were eligible for MSLP received funding before the January 8th, 2021 deadline. While many borrowers expressed interest in MSLP loans, the program ended up being very limited in its ability to support borrower interest


It is possible that a new middle market loan program will be conceived and launched with the new administration and additional stimulus funding. In order for a new program to be initiated, we believe there will be an improvement on the underwriting, structuring, risk retention and eligibility requirements of the prior program. Cerebro encourages clients that are kicking off a new financing process to start a loan assessment soon, so that your business will be ready to move forward should a program be announced in the coming months. 

As the vaccine rollout continues to progress, we expect ongoing shutdowns to have at least 1-2 quarters of financial impact to companies in 2021. There will continue to be a reduced appetite for new credit deals from businesses that have heavy impacts from 2020, as underwriting approvals are based on historical financial performance and projected financials that are likely to show ongoing disruptions to supply and demand in many industries. 


If your 2020 year-end numbers are finalized and you have completed your 2021 projection model, we are happy to discuss what loan programs might be available to you now. Cerebro can provide you with a complimentary analysis of your target loan request and discuss potential timing for your bringing your deal to market. 

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