In banking, C&I stands for Commercial and Industrial lending, the category of business loans that finances a company’s operations and growth rather than the purchase of real estate. A C&I loan might fund payroll, inventory, a new production line, or the acquisition of a competitor, and it is typically secured by the borrower’s business assets: receivables, inventory, equipment, and general intangibles. As of February 2026, U.S. commercial banks held roughly $2.79 trillion in outstanding C&I loans, making the segment one of the largest lines on the banking industry’s collective balance sheet.1Federal Reserve Bank of St. Louis. Commercial and Industrial Loans, All Commercial Banks (BUSLOANS)
How C&I Differs From Commercial Real Estate Lending
The cleanest way to understand C&I is by what it is not. When a bank finances an office building, apartment complex, or shopping center, that falls under Commercial Real Estate (CRE) lending. C&I covers almost everything else a business borrows for.
The distinction is not just categorical. It drives the entire structure of the loan. CRE debt is backed by a physical building with a stable, appraised value, so the bank can size the loan against that value and check in periodically. C&I debt is backed by assets that change every day. A manufacturer’s inventory might be steel coils this month and finished parts the next. A staffing company’s receivables turn over every 30 to 60 days. Because the collateral moves, the bank has to keep watching, and that ongoing monitoring shapes how these facilities are priced, documented, and administered.
What Businesses Use C&I Loans For
The most common use is working capital. Most businesses pay suppliers before their own customers pay them. A distributor might pay for a shipment on 30-day terms while offering its customers 60-day terms, creating a cash flow gap that grows as sales grow. A revolving C&I facility bridges that gap: the business draws to pay suppliers and repays as customer payments come in.
Equipment purchases are the next major use. When a company needs to add trucks, upgrade a production line, or replace aging machinery, a C&I term loan provides the capital. These purchases can come with meaningful tax benefits. Under Section 179, a business can expense up to $2,560,000 of qualifying equipment costs in the year of purchase for tax year 2026, rather than depreciating the asset over its useful life.2Internal Revenue Service. Topic No. 704, Depreciation The 100 percent bonus depreciation deduction now applies permanently to qualified property acquired after January 19, 2025, allowing full write-off in year one.3Internal Revenue Service. Treasury, IRS Issue Guidance on the Additional First Year Depreciation Deduction
C&I debt also finances strategic transactions: mergers, acquisitions, and leveraged buyouts. A mid-market manufacturer buying a competitor, a private equity firm acquiring a portfolio company, or a technology company consolidating a fragmented niche will typically use C&I debt somewhere in the capital structure. Deals large enough often get syndicated, with several banks each taking a piece of the total commitment.
The Two Main Loan Structures
C&I debt comes in two basic shapes, each built for a different job.
Term Loans
A term loan provides a fixed lump sum repaid over a set period, usually three to seven years. It is the right tool for financing a specific asset with a defined useful life: machinery, vehicles, a build-out. The principal amortizes through regular monthly or quarterly payments, and the collateral is often the asset being purchased. As the loan balance declines alongside the depreciating asset, the bank keeps a reasonable cushion between what’s owed and what the collateral is worth.
Revolving Lines of Credit
A revolver works more like a corporate credit card. The bank commits a maximum amount, and the business draws, repays, and redraws as needed. That flexibility makes revolvers the standard structure for working capital financing, where borrowing needs move with sales cycles and the timing of customer payments.
Revolvers usually carry short maturities, often one to three years, after which the bank formally reviews performance and decides whether to renew. Available credit is not simply the committed amount; it is tied to a borrowing base, so a business cannot max out the line and sit on the cash.
How the Collateral and Borrowing Base Work
Because C&I loans are secured by movable business assets, the collateral package is dynamic. The bank usually takes a blanket security interest covering all accounts receivable, inventory, equipment, and general intangibles, then files a UCC-1 financing statement with the appropriate state office. That filing creates a public record of the claim and establishes priority over unsecured creditors if the business defaults.
For asset-based facilities, the bank does not simply hand over a fixed amount. It calculates a borrowing base by applying a discount, called an advance rate, to eligible collateral. Advance rates for accounts receivable typically run 70 to 80 percent of eligible invoices, while inventory advance rates generally fall between 20 and 65 percent depending on how easily the inventory can be sold.4Office of the Comptroller of the Currency. Comptrollers Handbook – Accounts Receivable and Inventory Financing Finished consumer goods draw higher rates than specialized industrial components that only a handful of buyers would want. The borrower submits regular borrowing base certificates, often monthly, and the bank adjusts available credit accordingly.
How C&I Loans Are Priced
Most C&I loans carry floating interest rates that adjust periodically against a market benchmark. Since the retirement of LIBOR in 2023, the two dominant benchmarks are the Secured Overnight Financing Rate (SOFR) and the bank’s own Prime Rate.5CME Group. CME Group – Term SOFR Rates Which one appears on a loan depends largely on the size and sophistication of the deal. SOFR-based pricing is standard for larger syndicated facilities and corporate credit lines; Prime-based pricing is more common for smaller, relationship-driven loans to middle-market and small businesses.
On top of the benchmark, the bank adds a credit spread that reflects the borrower’s specific risk. A well-established company with strong cash flow and solid collateral pays a narrower spread; a younger business with thinner margins pays more. Prime-based loans typically carry spreads of 1.0 to 3.0 percentage points above Prime. SOFR-based deals can run 2.0 to 4.5 percentage points or more.
Interest is not the whole cost. Most revolving facilities charge an unused line fee, generally 0.25 to 1.0 percent annually on the undrawn portion of the committed line, compensating the bank for holding capital in reserve. Origination fees at closing and annual renewal fees are also common. All of it belongs in the all-in cost calculation before signing.
Financial Covenants: The Risk Borrowers Underestimate
Almost every C&I loan agreement includes financial covenants, specific metrics the borrower must maintain throughout the life of the loan. Covenants function as an early warning system for the bank, flagging deteriorating performance before it turns into a missed payment.
The most common is a minimum debt service coverage ratio (DSCR), which measures whether the business generates enough cash flow to cover its loan payments. Most lenders require a DSCR of at least 1.25, meaning $1.25 in cash flow for every $1.00 in debt payments. Other common covenants cap total leverage, set minimum working capital levels, or restrict additional borrowing and large capital expenditures without the bank’s consent.
Breaching a covenant, even while making every payment on time, puts the loan in technical default. That gives the bank the legal right to accelerate the loan and demand full repayment. In practice, banks rarely pull that trigger immediately. The more common path is a formal default notice followed by either a waiver with a compliance deadline or a negotiation over tighter terms, higher pricing, and closer monitoring. If the bank declines to waive, borrowers typically get a 60 to 120 day window to find alternative financing.
This is where many owners get caught off guard. Payments are current, so everything feels fine, but a covenant breach in December can lead to a non-renewal in March, and a profitable company suddenly faces a liquidity crisis. Checking your own covenant compliance every quarter is not optional.
Personal Guarantees
For small and mid-sized C&I borrowers, the bank will almost certainly require a personal guarantee from the business owners. If the business cannot repay, the lender can pursue the guarantor’s personal assets: savings, investments, real estate, other property.
Guarantees take two forms. An unlimited guarantee exposes the individual to the full loan balance plus interest and collection costs, with no cap. A limited guarantee sets a specific dollar amount or percentage of the loan. When a business has multiple owners, the bank may require each to sign a guarantee tied to their ownership percentage, though joint-and-several guarantees let the bank pursue any single owner for the full amount if the others cannot pay.
The guarantee is often the single biggest risk an owner takes on when borrowing, and it is the part of the loan agreement that deserves the most careful reading. Larger companies with strong balance sheets and long banking relationships can sometimes negotiate the guarantee away or narrow it; for most borrowers below the middle market, it is a non-negotiable condition.
Who Borrows and What Approval Looks Like
The borrower pool spans the full range of American business. At the smaller end, a regional distributor might carry a $500,000 revolving line to manage seasonal swings. According to FDIC survey data, 81 percent of banks regularly make loans of $1 million or more to small businesses, and 54 percent regularly extend loans of about $3 million.6Federal Deposit Insurance Corporation. Small Business Lending Survey 2024 Section 2 Fundamentals At the upper end, publicly traded corporations secure syndicated facilities reaching hundreds of millions.
Small businesses that cannot qualify for conventional C&I terms on their own may borrow through the SBA 7(a) program, which provides a federal guarantee that reduces the bank’s risk. The maximum 7(a) loan is $5 million, with the SBA guaranteeing up to 85 percent of loans of $150,000 or less and 75 percent of larger loans.7U.S. Small Business Administration. 7(a) Loans The application involves more paperwork and longer timelines than a conventional C&I loan, and businesses generally have to show they could not get financing on reasonable terms elsewhere.
Underwriting focuses on the borrower’s ability to repay from cash flow, not just the value of the collateral. The bank analyzes historical and projected revenue, margins, fixed costs, and debt service capacity, then stress-tests the numbers against a sales drop or the loss of a major customer. Collateral is the backup plan. A loan that can only be repaid by liquidating collateral is a bad loan, no matter how much the collateral is worth. A straightforward revolver for an existing customer might close in two to four weeks; a new relationship with a complex structure can take two to three months.
Why C&I Volumes Matter Beyond the Loan Itself
Economists and investors watch C&I loan volumes closely because they signal business willingness to invest. When companies borrow to expand production, hire, and build inventory, it reflects confidence in future demand. When C&I balances contract, businesses are typically pulling back, paying down debt, and preparing for leaner times.
The Federal Reserve’s quarterly Senior Loan Officer Opinion Survey adds another lens. The July 2025 survey found that a modest share of banks had tightened C&I lending standards during the second quarter, though standards had eased from the tighter levels reported a year earlier.8Federal Reserve. The July 2025 Senior Loan Officer Opinion Survey on Bank Lending Practices When banks tighten, fewer businesses access credit and investment slows. When banks loosen, capital flows more freely and activity tends to pick up. The feedback loop between C&I lending and the real economy is one of the most direct in finance, which is why the segment gets watched as closely as it does.