Loan Stars

Package Deal

The role of technology in shaping the small-business lending market has a flipside, too, which makes the prospects even brighter for small-business lending. That is, as credit analysis, approval and monitoring become more automated, small-business loan portfolios at banks will become more homogeneous. This phenomenon is a plus because it means banks will then be able to package and sell their small-business loans in the same way auto loans and mortgages have been sold for years. "When banks can make small-business loans, sell the loans and get their funds back to make even more loans," says Wantland, "it ultimately means the pool of capital for small business has been considerably enlarged."

According to Asch, this recycling of small-business loans is just starting to become visible on the horizon. "It takes a while to season a portfolio, and there needs to be a large enough volume of loans on the books to make the effort worthwhile," he says. "Plus Wall Street, which will `securitize' these debts before they are sold to investors, needs to get a better sense of the prepayment and default rates so that they may be accurately priced." But when this happens, the power of this link to the securities markets cannot be underestimated. Suddenly, investors from around the world will be funding small business, and the pool of capital available will be nearly bottomless.

David R. Evanson, a writer and consultant, is a principal of Financial Communications Associates in Ardmore, Pennsylvania.

Like this article? Get this issue right now on iPad, Nook or Kindle Fire.

This article was originally published in the November 1997 print edition of Entrepreneur with the headline: Loan Stars.

Loading the player ...

Seth Godin on Failing Until You Succeed

Ads by Google

Share Your Thoughts

Connect with Entrepreneur

Most Shared Stories