NEWSRELEASE
For Release: April 10, 2003
Contact: John McDowell (202) 205-6941
john.mcdowell@sba.gov
SBA Number: 03-17 ADVO
Trends In Banking Can Free Up Funds For Small Business
Growth And Job Creation
Strong Secondary Market For Small Business Loans Can Provide Capital
WASHINGTON, D.C. - If current trends in banking continue, small businesses may find greater availability of funds for growth and job creation. The expansion of large bank holding companies and the increased use of credit scoring for small business loans should make it easier to securitize small business loans for the secondary market. This could result in greater availability of capital for entrepreneurs, according to a new study released today.
“This study sheds new light on how bank consolidation affects access to capital for small business,” said Thomas M. Sullivan, Chief Counsel for Advocacy. “Growth in the secondary market sale of small business loans can help entrepreneurs who need capital to hire more employees and grow,” he concluded.
The study, “An Exploration of a Secondary Market for Small Business Loans” authored by Kormendi/Gardner Partners, addresses the nature of the secondary market in conventional small business loans and how current trends have the potential to affect that market.
The development of a secondary market for small business loans improves the flow of capital to entrepreneurs. In a secondary market, loans are pooled together and packaged as securities for sale to investors. This practice makes more capital available by allowing lenders to remove existing loans from their balance sheets, freeing them to make new loans.
The authors report that the rise of credit scoring for small business loans can result in a large pool of lines of credit that are good candidates for the secondary market. These loans are underwritten with relatively standard scoring methods across lenders, which accounts for why they are attractive to the secondary market. Moreover, banking mergers have increased the likelihood of the securitization of small business loans. Mergers result in a larger pool of loans available from fewer originators, making it easier to create loan pools for the secondary market.
The Office of Advocacy examines the role and status of small business in the economy and is the source for small business statistics presented in user-friendly formats. For more information, visit the Office of Advocacy website at
www.sba.gov/advo.###
Created by Congress in 1976, the Office of Advocacy of the U.S. Small Business Administration (SBA) is an independent voice for small business within the federal government. Appointed by the President and confirmed by the U.S. Senate, the Chief Counsel for Advocacy directs the office. The Chief Counsel advances the views, concerns, and interests of small business before Congress, the White House, federal agencies, federal courts, and state policy makers. Economic research, policy analyses, and small business outreach help identify issues of concern. Regional Advocates and an office in Washington, DC, support the Chief Counsel’s efforts. For more information on the Office of Advocacy, visit
www.sba.gov/advo, or call (202) 205-6533.