4 Niche Loan Markets That Could Boost Your Portfolio

How did the word “niche” come to be? A derivation of the Italian word “nicchia,” niche was first used in the early 1500s in England to refer to a small alcove or recess in a wall, where religious statues were typically displayed, and later, more broadly, for any small, enclosed space. By the 1800s, people started using the word to describe a specialized area or group within a larger market or audience, and today niche is used to define a specific business segment.Community financial institutions (CFIs) often find ways to stand out by cultivating niches. CFIs that take an affinity-based approach with a tighter focus on vertical markets and niche customer segments are tapping into a key differentiator for their growth strategies, particularly when it comes to lending. Here are several loan types catering to niche markets that CFIs have found success with:1. Small-dollar SBA loans. The majority of 7(a) loans being approved by the Small Business Administration (SBA) are for $500K or less, and over 50% for $150K or less. CFIs are offering such loans to give more business owners access to credit that they otherwise couldn’t get, especially those in underserved markets.According to Christopher Hebbard, senior vice president and senior credit officer at 1st National Bank of Scotia in Scotia, New York, making small-dollar 7(a) loans can also lead to cross-selling more products and services as these businesses grow. “We really make a concerted effort to get the information on these customers in the hands of our development officers, who can then reach out to these businesses,” Hebbard says.2. Commercial leases to manufacturers. Commercial leases fund ongoing manufacturing lines and commercial equipment, and these business customers appreciate how swiftly CFIs can act to address the problems that may arise and generate a need for such a deal. It helps that the underwriting is similar to that of a traditional commercial and industrial loan, says Randy Vicknair, chief lending officer at First Guaranty Bank in Hammond, Louisiana. Commercial leases currently make up 8% of the CFI’s lending portfolio, although this space is typically handled by big banks.“It’s been a great opportunity for us to obtain new clients, because sometimes their senior lender has covenants that restrict them from doing different financing arrangements,” Vicknair says. 3. Mobile home parks. The biggest growth area for Five Star Bank in Rancho Cordova, California has been making loans to owners and operators of mobile home parks across the country. In 2024, these loans accounted for 44% of their CRE portfolio.The financial institution also offers manufactured housing and RV park customers a variety of other financial services, including cash management, account analysis, and merchant services. Serving mobile home parks is not Five Star’s only niche — they also offer specialty loans to churches, special government districts, and diversified agricultural customers, among other types.Powered by former Signature Bank and First Republic Bank employees, the CFI’s team of business development officers runs the show carefully. Five Star Bank is highly selective of its clients, working with highly experienced manufactured home park operating companies that have excellent credit. “CRE is the lifeblood of most community banks. It’s how you diversify inside CRE that matters,” says Robert Perry-Smith, Five Star’s chairperson and a longtime accountant in the banking industry. “We believe there is a high degree of safety in mobile home communities. If everything goes to heck in a handbasket, people still need a place to live, and this is pretty affordable.”4. Healthcare equipment. Customers Bank in West Reading, Pennsylvania offers financing to medical facilities so they can spread out the costs of expensive equipment over time, such as MRI machines, X-ray machines, surgical tools, and patient monitoring systems. The flexibility of equipment financing also gives healthcare providers the ability to upgrade their equipment as technology advances. This type of financing allows healthcare facilities to affordably replace their existing equipment with more advanced and efficient models while maintaining positive cash flow.Understanding what problem you could solve for customers in specific verticals and niche markets is a key factor in taking advantage of this growth strategy. By offering specialty loans to these targeted customers, you provide assistance they may not be able to get from larger financial institutions, as well as help your CFI stand out as the ideal partner these customers should trust and rely on for all of their banking needs.