SBA lending: Bigger is typically better

As we have blogged about in the past, there are over 4,000 FDIC-insured banks in America, but roughly 70% of those do not make Small Business Administration (SBA) loans. Of the banks that do lend via the SBA’s 7(a) program, the top SBA banks make most of the loans. The 80/20 rule, also known as the Pareto principle, is a concept that states that a small proportion of causes often lead to a large proportion of effects. This principal is clearly on display with SBA lending as evidenced by SBA loan data:


Bank Ranking# of Banks# of loans$$$ volume
Top 1%1333%26%
Top 20%26083%87%
Top 50%65096%98%
Bottom 50%6504%2%

What this table shows us is the top 20% of the banks participating (260 out of 1,300) made 83% of the loans and accounted for 87% of the loan volume (measured in dollars). The bottom 50% only accounted for 4% of the loans and 2% of the loan volume.

Why are the numbers skewed this way? For a variety of reasons:

  1. Most banks view the SBA loan program as an after thought or a necessary-evil product. They tried to avoid it.
  2. Most banks do not understand the SBA program very well. As a result, they are not very efficient at it and lose deals to the more efficient SBA banks.

As a result of these factors, at we only refer borrowers to the top SBA banks, who are highly motivated to provide a quick, cost competitive loan to potential borrowers.

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