The securitization of small-business loans is still in its infancy, compared with mortgages, credit cards and auto loans. But pending changes in a Small Business Administration program may help spur activity in this area.

The federal agency has proposed new regulations, to be adopted early next year, that would increase the amount of the unguaranteed portion of SBA "preferred lender" loans that may be securitized.

Banks must now retain at least 20% of the value of loans made under the program. The new rule would reduce that percentage to 10%, the same cutoff that prevails in the SBA's other 7(a) lending programs, which involve loans partially guaranteed by the agency.

The proposed change is expected to free lenders to make bigger and more potentially profitable offerings.

In anticipation of the change, Sierra Tahoe Bancorp of Truckee, Calif. recently put off a planned $20 million 7(a) securitization until the first quarter of next year. Reducing the percentage of the portion it must hold on its own books from 20% to 10% will enable the $320 million-asset two- bank holding company to double the size of the planned securitization and boost its earnings per-share by an additional 10 cents.

"The economics of doing a single deal - and there are also some technical aspects - just make it better to do in one shot," said Marty Sorensen, president of Truckee River Bank, Sierra Tahoe's lead bank.

Mr. Sorensen said the proposed change in the SBA's preferred lender program will likely spur increased securitizations of loans in the program. But he said the agency's move earlier in the year, to boost the maximum 7(a) loan to $750,000 from $500,000 was even more helpful.

The improvements in the SBA program constitute a minor victory for banks that want to broaden the small business loan securitization market, which now involves just one-half of 1% of such loans.

Ron Feldman, a financial specialist in the banking supervision department at the Federal Reserve Bank of Minneapolis, estimated recently that less than $900 million in small business loans has ever been securitized, compared with $155 billion of such loans outstanding at the end of last year.

Determining the expected cash flows from a pool of small-business loans remains relatively expensive, Mr. Feldman wrote in an article recently. He cited the need for detailed information on each small business, the lack of standardization of loan terms, and a scarcity of long-term performance data.

"The lack of data and loan standardization prevents the use of low-cost statistical methods to determine the expected performance of a loan pool and substantially raises the costs of the transactions," Mr. Feldman wrote.

Given that background, much small business loan securitization has taken place under the aegis of the SBA, which backstops the loan pools with various guarantees. The agency's 7(a) and 504 programs have been particularly strong candidates for securitizations.

Unlike the 7(a) loans, which involve partial SBA guarantees, the 504 program allows lenders to make first mortgages on commercial property that are backed by SBA debentures in a second position.

"People are focusing on securitizing SBA-related loans simply because there's a lot of information about them," said Rick Burthenshaw, a vice president in the investments division of Salt Lake City-based Zions First National Bank.

"They're kind of standardized transactions," he added, "and one way or another, they have a government guarantee or quasi-government guarantee - or at least participation and signoff by the SBA in the transaction."

"When you get into the arena of just straight small business loans, without the SBA involvement of one sort or another, it becomes very difficult," he declared.

Earlier in the year, a subsidiary of Zions Bancorp securitized $45 million of 504 loans. Mr. Burthenshaw said Zions First is now building an even bigger pipeline of 504 loans for a second securitization.

"We're waiting for a larger critical mass this time to get economies of scale," he said.

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