Florida bank to quit SBA, sell portfolio to in-state rival

• Key insight: Investors embraced BayFirst Financial's decision to walk away from SBA lending, with the company's stock price rising sharply Monday. 
  
• Expert quote: Banesco USA "gains the infrastructure, expertise, and enhanced capabilities to deliver SBA lending on a national scale" through its deal with BayFirst, Banesco CEO Calixto Garcia-Velez said. 
  
• Forward Look: Banesco plans to implement the strategy BayFirst just abandoned, making SBA 7(a) loans on a national scale.

St. Petersburg, Florida-based BayFirst Financial, one of the nation's most prolific Small Business Administration lenders in recent years, completed an about-face on Monday, announcing plans to exit SBA lending altogether. 

The $1.34 billion-asset BayFirst said in a press release that it plans to sell $103 million of 7(a) loans to the $5.2 billion-asset Banesco USA in Miami. Banesco will offer jobs to "the majority" of BayFirst's SBA lending and support teams once the deal is complete, according to the release. 

Monday's announcement caps a major shift in strategy for BayFirst. The bank originated $508 million of 7(a) loans in SBA's 2024 fiscal year, and nearly $2.4 billion in total the past seven years, according to agency statistics. 

News that BayFirst plans to quit SBA lending and sharpen its focus on its community banking operation in the sprawling, fast-growing Tampa-St. Petersburg marketplace sent the company's stock price soaring. Shares were trading up more than 24% at $11.16 midday Monday.

Under the 7(a) program, SBA provides guarantees of 50% to 85% on loans up to $5 million made by banks and other lenders. It's SBA's largest loan program. 

Banesco is purchasing BayFirst's 7(a) portfolio at a slight discount to par and has agreed to service the loans, BayFirst CEO Thomas Zernick said Monday in a press release.

BayFirst, whose SBA lending program was national in scope, reported a $1.2 million loss for the quarter ending June 30, due largely to an increase in problem 7(a) loans. BayFirst reported a second-quarter loan-loss provision totaling $7.3 million, compared with $3 million for the same three months in 2024.  

In August, BayFirst said it would shutter its small-dollar 7(a) lending program, which offered borrowers around the country loans up to $150,000. Chief Operating Officer Robin Oliver said at the time that the bank would continue making larger 7(a) loans. Ultimately, BayFirst decided to make a complete break as a result of a comprehensive strategic review, Zernick said Monday in the press release. 

"Today marks a significant milestone in our efforts," Zernick said. "We remain deeply committed to our community bank mission, serving individuals, families, and small businesses with stable checking and savings products that contribute to a more predictable, low-cost funding base. This relationship-driven approach continues to strengthen our presence across the vibrant Tampa Bay region."

BayFirst and Banesco are targeting a close of the sale prior to Thanksgiving in November. 

Interestingly, Banesco plans to adopt an SBA policy similar to the one BayFirst just abandoned, with CEO Calixto Garcia-Velez signaling his intent to establish a national 7(a) lending operation. Through its deal with BayFirst, Banesco "gains the infrastructure, expertise, and enhanced capabilities to deliver SBA lending on a national scale," Garcia-Velez said in the press release. 

Both Zernick and Garcia-Velez declined to comment.  

In August, Banesco announced that it had crossed the $5 billion-asset threshold, reporting a $28 million profit for the first six months of 2025. The bank maintains five branches in Miami-Dade County as well as loan production offices in Broward and Palm Beach counties. 

The BayFirst-Banesco deal comes a week after the $18.6 billion-asset First Merchants in Muncie, Indiana, said it plans to acquire a smaller in-state rival, the $2.4 billion-asset First Savings Financial Group in Jeffersonville, in part because of the seller's more substantial 7(a) lending business.

"It's exciting for us to have more scale in the SBA space to be more active throughout our entire footprint," First Muncie CEO Mark Hardwick told American Banker last week. "They are making SBA loans nationwide. We'll continue to do that, but I'm most excited about the fact we can bring that scale to our current markets."

SBA's 2025 fiscal year, which ends Tuesday, has turned out to be one of its most successful ever in terms of 7(a) loan volume. Lenders had originated $36.2 billion of 7(a) loans as of Monday.

The year hasn't been without challenges, though. The agency has reported a significant uptick in problem loans, including small-dollar credits. Indeed, SBA Associate Administrator for Capital Access Thomas Kimsey recently told House lawmakers that the issue "keeps me awake at night."