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Owner-user pricing is generally more favorable because it is thought of as less risky by the regulators and by credit. Banks can basically lend as much C&I as they can find and owner-user (occupies minimum 51% of space) falls under C&I. In a nutshell Banks have to manage their portfolio percentage of CRE (Investment real estate) within certain limits to keep regulators happy and there can be higher costs because of higher reserve requirements if the CRE and/or construction portfolio ratio gets too high.
Interesting, thanks for this. Why is it that banks can lead as much C&I as they can find? Is it because they find it relatively safe due to the fact that there is the real estate as collateral and they would simply underwrite based on their business?
I'm vague on the details, but I believe it's because banks are chartered to serve their communities. There is incentive by the Feds to make C&I (business loans), as well as personal loans. Banks don't have to hold extra reserves for C&I in the way they might if their CRE or Construction portfolio ratio grew too high vs their total assets. This is governed by the regulators at the OCC and FDIC, but also banks may have lower thresholds set by their own board.
So some of this is based upon risk, perceived or real, of C&I vs CRE and some is based upon the way banks are chartered and regulated.
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