Middle Market Loan Volume Has Crashed

April 28, 2020 Dallas Wells

Over the last several weeks, conversations with bankers have become incredibly predictable.

“We are drowning in PPP. It’s been all hands on deck for seven days a week, and we still can’t keep up.”

On top of PPP, the total loans outstanding for the industry are up significantly YTD. However, as is often the case with the U.S. banking statistics, those totals can be wildly misleading. Loans are up, but the vast majority has been driven by the top 10 banks in the country funding revolvers for some of the nation’s largest corporations. The rest of the market, as we’ll see below, looks a lot different.

I’m afraid the chaos of PPP is masking some real underlying ugliness for the industry. There are rough times ahead, as we’re seeing complete breakdowns in parts of the market that make even the financial crisis of 2008 pale in comparison. Outside of the Federal government, credit markets have slowed dramatically over the last few weeks.

(Note: Since publishing this article in late April, we’ve gone back to check on the data. Given that a large number of PPP deals took a long time to be processed, we expected there would be some retroactive changes in the volume numbers for April. Those are reflected in the updated charts below. While they lessen the degree of the volume drop we found originally, the story remains the same: Middle market loan volume is at a fraction of its previous levels.)

The Fed's Ballooning Balance Sheet

The Fed has had to step into the void to help clear markets for repos, money market funds, commercial paper, municipal bonds, and now, via PPP and the Main Street facilities, even private bilateral commercial loans. The clearest view of the impact is to look at the Fed’s balance sheet:

That represents a 66% increase, an astounding $2.8 trillion, in just 11 weeks, and the Main Street Lending programs aren't even live yet!

Federal intervention in the bond markets is a big deal, but not unprecedented. But they've never before stepped in to directly facilitate small business and middle market commercial loan transactions.

CARES Act … and Little Else

The CARES Act changed all that, and in the last two weeks, those are essentially the only transactions getting done in the SME space.

PrecisionLender processes a little over 15% of the commercial loans booked in the United States on our profitability platform. We see the deals being booked in nearly real time, and the data from the last month is mind boggling. In particular, the last two weeks were wild enough that we did multiple checks to make sure there weren’t data problems. There weren’t.

The chart below represents a simple loan count for small business and middle market deals booked by week during 2020. Of note, it includes both brand new originations AND renewals, and we indexed the count to the first full week of January (at 100). 

Record volume? Yes. Long hours for bankers? Undoubtedly. The week ending 4/17 saw loan counts at more than 10x the average from January and February of this year.

But now, let’s remove PPP loans from that volume:

As expected, the PPP loans have drowned out much of the normal loan activity. The pace was close to normal through March, though it was missing the usual uptick we see in the final week of the month. PPP officially opened on April 3, and non-PPP volume that week was right on the Jan to February average. But it began to rapidly decline in the following weeks. 

It’s concerning to see “business as usual” down that much, but it is understandable given the deluge of PPP loans and all the related systems/processes building that had to be done. Even that number, though, significantly under-reports the true extent of the issue.

The next chart looks at the dollar volume of loans, again by week, indexed to 100 for the first full week of January:

Yikes. Again, after that initial surge in mid-April - when PPP deals started hitting the books - there has been a swift drop-off. Now let’s remove PPP again:

After spiking above the averages in March, volume fell off a cliff in April and has gone even lower in May. 


1. The small business lending market has effectively been nationalized for the time being.
2. The middle market is not functioning in a healthy manner right now.
3. If banks want to help their middle market customers survive the economic fallout of COVID-19, they had better be preparing to make extensive use of the Main Street Lending facilities (which to this point have been largely ignored at almost every bank we’ve talked to).

More to Come on Main Street

Speaking of the Main Street Lending program, we’ll be taking an in-depth look at it later this week. We’ll cover the basics of how it is expected to work, and more important, how it might help solve some credit problems that are very likely surfacing in your bank’s portfolio, right now.
Stay safe out there, and good luck navigating these crazy times! Let us know how we can help. 

About the Author

Dallas Wells

Dallas is a writer, speaker and former consultant who has held executive roles at two banks with experience in capital planning, liquidity forecasting, investments, budgeting, financial reporting and mergers and acquisitions.

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