In my daily conversations with community bankers, it’s clear they recognize the mounting pressure from competition, whether from other banks, credit unions, fintechs, or non-bank lenders. However, many tend to shy away from one product that should be a staple in any Main Street bank’s lineup: government guaranteed lending, primarily Small Business Administration (SBA) and U.S. Department of Agriculture (USDA) loan programs. Becoming actively involved in these programs not only helps level the playing field but also offers real solutions for challenges like liquidity and generating non-interest fee income.

Why Your Bank Should Embrace SBA and USDA Lending I hear these concerns firsthand: SBA and USDA loans feel like too much work, seem complicated and time-consuming, and staff may not feel confident or well-versed in managing them. But these hurdles can be overcome by partnering with a qualified Lender Service Provider. Outsourcing your bank’s SBA and USDA processing and servicing doesn’t mean giving up control—it’s a smart way to control costs while bringing in the much-needed expertise your institution requires.

Expanding the Credit Box Just Makes Sense—and Mitigates Risk In community banking, relationships come first. Yet some commercial loans fall just outside of traditional credit risk levels and approval guidelines. That’s where SBA and USDA full faith and credit guarantees shine. They allow banks to take prudent risks and extend credit to worthy small businesses that might otherwise be turned away, supporting relationships and providing much-needed capital.

Secondary Market Opportunities Are Too Valuable to Ignore There’s an active and lucrative secondary market for SBA and USDA loans that community banks can tap into.

  • Non-interest Fee Income: Making SBA and USDA loans, and selling the underlying guarantees, can help a community bank address leverage and liquidity issues, as well as generate significant non-interest fee income. A well-structured SBA loan guarantee can generate 8- to 10-points of premium income. 
  • Removal of Prepayment Risk: Another reason to sell SBA guarantees is to remove prepayment risk. Historically, new SBA loans placed in the bank portfolio do not remain there for the original maturity. A 10-year SBA 7(a) term loan is historically gone from the portfolio in about four years. These credit facilities experience early payoff due to business sales, recapitalization, and, sometimes, defaults. Selling the SBA guarantee immediately after closing and full disbursement allows the bank to take the sale premium into earnings upon settlement and recycle lendable dollars, while avoiding the risk of prepayment.

    Lender Service Providers are Not All Equal When you’re looking for the right Lender Service Provider for your bank, remember to look for these critical attributes:

  • Decades of experience and expertise in SBA and USDA lending – to help keep guarantees intact
  • Full range of services – from loan packaging and closing to securitization and sale, through portfolio management
  • AICPA SOC 2, Type II certification – the top industry attestation for security and compliance
  • Industry recognition – preferred by national banking associations and awarded by the industry

    In my view, government guaranteed lending isn’t just a good idea—it’s essential for community banks wanting to grow, serve local businesses, and stay competitive. For those interested, I encourage you to reach out to Holtmeyer & Monson and request a consultation to learn how SBA and USDA lending could work for you, and at no net cost to your bank.

    Author: Arne Monson, Founder and President, Holtmeyer & Monson