SBA Loan: Funding Shifting to Smaller Banks

SBA Loans

The Obama Administration has done quite a bit to encourage banks to start lending to small companies again. Some of the smaller banks are listening, while the big banks tend to continue avoiding this loan class altogether. With SBA loan guarantees, the risk to these smaller banks is greatly reduced. Taking up the slack by capturing some of these as potential customers is hard for them to pass up.

The Small Business Administration (SBA) encourages more and more of these small lenders to get involved with the SBA loan program. The funding from the government reflects this trend. This is good for borrowers, since it means there are more funds available for small businesses and self-employed professionals, both of whom have a great deal of trouble getting funding from large banks. However, there are still problems.

Despite the encouragement to participate in these programs by guaranteeing the loans against default, many small banks still take issue with the strict requirements of the loans themselves. The Small Business Administration sets strict caps on the amount of interest that can be charged, for example. Also, the amount you can charge in fees is restricted, as well.

As such, many banks have decided to withhold their funds from these SBA loan programs. Instead, they look for higher risk, but generally more profitable borrowers in the private capital markets. Many banks also offer high-interest lending, such as business cash advances. They do this through wholly owned subsidiaries, operating under different names from the banks.

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SBA Loan: Funding Shifting to Smaller Banks was last modified: November 8th, 2011 by Amit Kraidman
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