The highly competitive small-business lending sector could get more cutthroat as First Union Corp. completes its integration of Money Store, lenders and analysts said.

The finance company's Small Business Administration lending division has led the market for 16 years. Now, with the capital, technology, and product mix of First Union behind it, some speculate that the unit could push others right out of the business.

"There's an 800-pound gorilla in the business, and everything you do is a reaction to that," said James Bradshaw, an analyst at Pacific Crest Securities in Portland, Ore. "You have to decide if you want to stay in the business."

Money Store and First Union began integrating their commercial lending units in earnest six weeks ago, said Paul Leliakov, president of the former's commercial lending division.

He said he hopes to use the finance company's successful SBA division to "complement the different types of lending that First Union already does."

"We're assessing the opportunities for cross-selling," Mr. Leliakov said. "At this point we have a lot of irons in the fire, and we're very encouraged about what we're seeing."

First Union's SBA loan shop, located in Philadelphia, focuses on the Northeast and lending through First Union and former CoreStates branches. Last year, the banking company's unit did $70.4 million of loans.

Money Store's 100 SBA sales agents, meanwhile, drum up business through referrals from contacts like accountants and commercial real estate brokers. "Our sales reps are networked into the small-business community," Mr. Leliakov explained. In 1998, the division made $460.5 million of loans, down slightly from 1997 due to increased industry competition.

But that trend won't continue this year, Mr. Leliakov said. First Union's resources will let Money Store create "customers for life" by offering ancillary products like business credit cards or cash management, he said. "We see a tremendous opportunity to grow the business."

Large finance companies like Money Store and Heller Financial Inc. in Chicago, as well as new community bank entrants, have been propelling competition in the SBA lending market for years, said Sherrill Stockton, vice president and SBA administrator at Sonoma National Bank in Santa Rosa, Calif.

"They're going after market share, and they're driving what's happening," Ms. Stockton said, adding that these lenders are pushing larger loan products and lower rates. "To remain competitive, others have to follow suit."

The leaders in the SBA business will be those that specialize in it and develop scale, said David H. Winton, a Keefe, Bruyette & Woods Inc. analyst. "For so many banks, this is simply another product offering," he said.

Money Store is such a "sharp competitor" that newcomers can't just "dabble in the business," said Pacific Crest's Mr. Bradshaw.

Nonetheless, Money Store's involvement in the market does not necessarily mean that other lenders will see a decline in volume, the analysts said.

Lower interest rates, greater government commitment to the market, and overall economic growth have attracted several new entrants.

"There's just so much opportunity in small business, I don't think anyone's volume will be definitely declining" this year, said Steve Sinisgalli, senior vice president of small-business lending at Key Bank, a subsidiary of KeyCorp in Cleveland.

Subscribe Now

Access to authoritative analysis and perspective and our data-driven report series.

14-Day Free Trial

No credit card required. Complete access to articles, breaking news and industry data.