Main Street Banks’ New Lending Rivals: Hedge Funds and Private Equity

Midsize banks have to rethink a business that is a key part of their revenue

Main Street banks are feeling squeezed by competition from new rivals: nonbanks like hedge funds and private-equity firms that are elbowing into business loans.

The situation is forcing the banks to rethink a business that is a key part of their revenue but which is now weighing down what many had hoped would finally represent a banner year in commercial lending.

Growth...