Small-business lending is the lifeblood of Truckee River Bank, Truckee, Calif.

But Truckee's small-business lending not only relies on the economy, but also on the generosity of the federal government. That reliance caused loan funding problems earlier this year, and is likely to cause problems next year as well.

Since 1986, the $170 million subsidiary of Sierra Tahoe Bancorp has developed a profitable niche in Small Business Administration lending in Northern California.

Agency Funding Dries Up

As Congress debated the appropriations bill for the SBA this spring, the agency was without funding between April and June. Nonetheless, Truckee River Bank funded almost $8 million in SBA loans.

With the SBA unfunded, Truckee River couldn't put the guarantee credit enhancement on the loans, and package and sell them on the secondary market. Truckee River's liquidity position became tight as a result.

"We were in a position to manage the liquidity problems," said William Fike, chief executive of Sierra Tahoe. "Now we are still converting those loans that we made and selling them."

The SBA was provided with $175 million in guarantee funds, which leverages into $3.2 billion in SBA-enhanced loans to small businesses nationwide.

|Preferred Lender' Status

Truckee River is the second-biggest SBA lender in California and the fifth-largest nationwide, and is a coveted "preferred lender," meaning it can underwrite its own SBA loans without approval from the agency. Truckee River Bank has a $375 million SBA servicing portfolio.

The demand for SBA loans will surely outstrip its current funding, Mr. Fike said. Agency funding tentatively earmarked for 1993, $155 million, is less than for 1992.

The SBA hopes that with underwriting and securitizing changes, however, SBA lending will keep pace with this year's $6.8 billion.

Still, the changes could put a damper on Truckee's growth, since demand for SBA loans is expected to be twice as strong next year as the California economy recovers, Mr. Fike said.

Competitive Pressures

On top of funding pressures, the Northern California market for SBA lending is increasingly crowded, with both bank and nonbank lenders jumping into the niche Truckee first carved out for itself seven years ago.

SBA originations in 1992 at Truckee were $46 million, down slightly from 1991. Mr. Fike said that this year the pace of loan origination at the bank is down slightly as well.

But he added that Truckee won't compromise its underwriting standards because of pricing pressures.

"A lot of the institutions getting into SBA lending don't understand the kind of resources you have to devote to it," he said. "It takes a real commitment to do well at it in the long haul."

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