SierraWest Heads East to Help Line Up $50 Million of SBA Loans to

California's SierraWest Bancorp wants to buy and then securitize $50 million in Small Business Administration loans from other community banks.

SierraWest president William Fike said that early next year the Truckee- based bank plans to securitize long-term real estate and equipment loans made through the SBA's 504 program.

SierraWest is competing with Zions Bancorp. to buy and pool type-504 loans from banks that don't want to hold these 10- or 20-year term loans.

"It allows banks to service their customers without tying up their capital," Mr. Fike said.

He said that to find SBA loans, the company is expanding outside the ultra-competitive small-business lending market in California.

Last week SierraWest opened an SBA lending office in Denver. Earlier this fall it opened SBA lending offices in Portland, Ore., Nashville, and Chattanooga, Tenn.

SierraWest was the first bank to securitize the nonguaranteed portions of loans made through the SBA's conventional 7(a) program. It wants to securitize SBA loans to fund new loans. Mr. Fike said deposits in SierraWest's home market cannot keep up with the company's anticipated 35% annual loan growth.

That strategy is typically used by nonbank lenders, such as Money Store, which sell their loans to fund new loans because they have no access to deposits.

The small-business securitization market is still in its infancy. The guaranteed portion of SBA 7(a) loans account for the vast majority of small-business loan securitizations. According to the SBA, lenders securitized $2.5 billion or nearly half the guaranteed portions of SBA loans. But that's just 1.4% of the $181 billion in bank loans to small- business outstanding at midyear, according to Sheshunoff Information Services.

"Over time, it will get easier to securitize these loans as more and more people become familiar with it," said W. David Hemingway, Zions executive vice president. "It's becoming more common."

In 1994, Salt Lake City-based Zions was the first to securitize loans made through the SBA's 504 program-nearly $44 million of them. Zions completed its second securitization, of a $140 million pool, in June.

Also that month, SierraWest sold an $51.3 billion pool of the nonguaranteed portion of 7(a) loans. Until April, the SBA prohibited banks from securitizing the nonguaranteed portions of 7(a) loans.

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