Smaller banks taking on more SBA lending

8/11/2011

Despite the large share of deposits and holdings of big banking institutions, small banks have increasingly become the underwriters of U.S. Small Business Administration loans.

As SBA lending has increased in many states in the past few years, several national financial institutions have cut back on approving commercial loans backed by the SBA. The New York Times reports that the 25 largest U.S. lenders only originated 20 percent of SBA 7(a) loans in 2010, despite a rise in holdings.

The SBA's 7(a) program is designed to provided funding for special-purpose businesses. Those companies affected by the North American Free Trade Agreement, working in environmental industries, veterans and servicemembers, rural companies and other special groups can use the streamlined processes and guidance of the program to get started or expand an existing business.

Smaller-scale lenders and community banks have picked up the slack from big banks shirking the program. The draw of government guarantees, the positive effects of investing in the community and the business generated by offering the special loans are all attractive to lenders that don't carry the brand or financial assets of their larger competitors.