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Commercial lending is showing mixed signals so far in 2025 amid tighter standards, particularly in commercial real estate. While interest rates have shown some stabilization, businesses are adapting to the current environment. Regional banks across the Midwest have maintained steady lending activity, though due diligence requirements remain tough. In changing economic times, businesses can benefit from reviewing their capital structures, maintaining strong banking relationships and ensuring robust cash flow management.

Assessing the current capital access environment

As financial markets adjust to changing economic conditions and the new administration’s policies, access to capital is still available, but lenders have implemented more stringent standards, particularly in commercial real estate financing.

Financial institutions reported modest tightening of lending standards for commercial and industrial loans across all firm sizes at the end of last year, according to the Federal Reserve’s Survey of Senior Lenders¹. Small business loan demand has remained moderate, while regional banks have adopted more cautious underwriting approaches. The lending landscape has seen a variety of changes in loan terms, including higher premiums for risky loans and increased use of interest rate floors, though some interest rate spreads have narrowed.

This environment marks a notable shift from pandemic-era policies, with lenders now placing higher emphasis on fundamentals and stricter underwriting standards. This careful approach to lending reflects broader adjustments to the financial sector as institutions navigate the evolving economic landscape under the new presidential administration.

Relationship-based pricing has emerged as a key factor in lending decisions. Banks are increasingly offering preferential rates and more flexible terms to businesses that maintain broader banking relationships that include treasury management services, deposits and other financial products.

Banks and lenders are taking a number of different approaches to lending this year. Some are being more careful by charging higher rates for risky loans and setting minimum interest rates. Others are offering lower rates to attract more customers.

Businesses should focus on these key lending criteria

For businesses seeking capital, several factors have become increasingly important:

• Relationship depth - the extent and breadth of banking relationships can directly influence pricing and credit availability.

• Cash flow management - lenders are placing greater emphasis on sustainable cash flows and robust debt coverage ratios.

• Collateral quality - the quality and liquidity of collateral have become critical factors in lending decisions.

• Documentation standards - financial institutions are maintaining rigorous documentation requirements.

The market is finding its balance

The financial landscape has evolved significantly in early 2025, shaped by both monetary policy developments and the changing regulatory environment. After three rate cuts in 2024, the Fed has maintained its overall restrictive policy in the opening months of 2025, carefully balancing inflation concerns with economic growth objectives. This measured approach follows the aggressive tightening cycle that characterized 2022 through 2023, a period that saw rates climb to multi-year highs.

Markets are currently pricing in expectations for two to three additional rate cuts through the remainder of this year. These expectations have influenced both debt and equity markets, though the Fed continues to emphasize its data-dependent approach.

On the regulatory front, the transition to the second Trump administration has ushered in a renewed focus on deregulation, echoing policies from his first term. The administration has signaled its intent to streamline business regulations across multiple sectors, aiming to reduce compliance burdens.

Even with efforts to reduce regulations, the important safety rules put in place to protect banks after 2023 are still working well, showing a careful balance between freedom and security in managing the banking sector. These frameworks continue to provide important safeguards while allowing for operational flexibility within the banking system.

Looking ahead, the commercial lending market appears to be finding a new balance. The Midwest’s diverse industries help protect against economic risks, and companies are paying attention to their core business health. While standards remain stringent, businesses that cultivate strong banking relationships and maintain solid fundamentals continue to find access to needed capital at competitive rates.