March 25, 2025 — Demand for commercial and industrial loans climbed steadily and sharply throughout 2024, driven by a combination of rate-cuts and improving economic sentiment. The question facing companies and banks today is: Can this momentum withstand simmering uncertainty about the business environment in 2025?
After a significant drop in Q1 2024, C&I loan volumes increased every month for the rest of the year. Although the increase tracked closely with a decline in fixed-rate loan pricing, interest-rate cuts were not the only driver of loan demand last year as businesses were increasingly optimistic about the economic environment.
In 2025, things seem much less certain. The impacts of the Trump administration’s tariffs and the resulting retaliatory tariffs, broad federal workforce reductions and other issues are making macroeconomic projections uncertain. GDP growth is now expected to slow in the second half.
“Although economic data remains favorable for business, concerns about trade wars, stubborn inflation, consumer spending and labor demand have introduced uncertainty into the outlook that could potentially be reflected in 1H demand for C&I loans,” says Gregory Schneider, Director, Commercial Loan Analytics (CLA) at Crisil Coalition Greenwich.
Risk Levels, Spread on SOFR Loans Vary Across Regions
Pricing on commercial floating-rate loans is increasingly affected by company location and data from the CLA team shows growing variation in C&I SOFR spreads across the different regions in the U.S.
An analysis of data from across these regions reveals risk levels in the West, which experienced the biggest spread increases in Q4 2024, grew meaningfully from October to December. Further analysis reveals new and renewed loans in the Mountain West, which reported some of the highest SOFR spreads at year-end, had a larger relative proportion of Real Estate and Rental & Leasing loans, which on average have more elevated risk profiles compared to other industries.
Loan Utilization, Capital Allocation and Bank Profitability Margins
C&I loan utilization rates have stabilized from their peak in 2022, when the COVID-19 pandemic forced companies to draw down lines for liquidity. Now that these rates have retreated from a high of 36% and moved closer to historic norms at about 29%, banks have an opportunity to rework portfolios to better optimize capital allocations.
As of year-end 2024, more than half of C&I SOFR-based revolving lines of credit had 0% utilization. Although clients are not using these lines, banks are still required to hold capital against them.
The fact that these lines are not generating interest income while tying up capital acts as a drag on banks’ overall profitability. Charging clients higher rates on revolving lines that are being drawn on more frequently allows banks to maximize interest income generated from those loans.
“As 2025 unfolds, we have seen ample opportunities for banks to reduce the size of under-utilized lines, reducing capital allocations and improving return metrics,” says Gregory Schneider.
Commercial Lending Market Insight is a quarterly review of data and analytics from the CLA team at Crisil Coalition Greenwich.