SBA Lending Surges to Near-Record Levels, Fueling Small Business Growth
The Small Business Administration (SBA) is experiencing a remarkable surge in lending activity, marking a near-record start to fiscal year 2025. During the first quarter, the agency approved a staggering $8.8 billion in 7(a) loans, a 38% increase compared to the same period in 2024 and the second-highest first-quarter figure since data tracking began in 1991. This robust performance mirrors the lending boom observed in 2011, following the enactment of the Small Business Jobs Act, which significantly expanded borrowing capacity for small business owners. The 7(a) loan program, a cornerstone of small business financing since 1953, continues to attract borrowers with its favorable terms, including low down payments, extended repayment periods, and a maximum loan amount of $5 million. The government-backed guarantee inherent in these loans mitigates risk for lenders, making them particularly appealing for business acquisitions.
Several factors contribute to this surge in SBA lending. Experts cite a consistent influx of aspiring entrepreneurs seeking business ownership as a pathway to lifestyle change and financial independence. Unlike large corporations, whose mergers and acquisitions are often influenced by fluctuating interest rates, smaller business buyers remain undeterred by higher borrowing costs. Furthermore, recent changes to SBA regulations have streamlined the acquisition process. A May 2023 amendment allowed borrowers to secure multiple 7(a) loans, provided the acquisitions are in different industries, essentially removing funding limitations. Another update in December 2024 further facilitated acquisitions by permitting borrowers to offer sellers equity in the newly acquired business while utilizing SBA-backed financing, a previously prohibited practice.
Beyond regulatory changes, market dynamics also play a crucial role. The ongoing retirement of Baby Boomers is creating a steady supply of established, profitable businesses ripe for acquisition. These often decades-old enterprises have demonstrated resilience, particularly during the COVID-19 pandemic, instilling confidence in potential buyers. This confluence of factors, from regulatory adjustments to demographic shifts, suggests that the accelerated pace of SBA-backed business acquisitions will likely persist throughout 2025.
However, differing perspectives exist regarding the primary driver of this lending surge. While acquisitions undoubtedly contribute, some analysts believe the growth is fueled by smaller loans and lines of credit within the SBA’s 7(a) program. These include the Small Loans and Express Lines of Credit programs, which offer expedited access to capital, with the former capped at $500,000 and the latter providing revolving credit. Despite the excitement surrounding business acquisitions and the "Silver Tsunami" of retiring Baby Boomers, analysis of SBA data and conversations with lenders point towards a significant volume of smaller loans driving the overall increase.
The shift towards smaller loans is partly attributed to increased participation by traditional banks and credit unions in this segment. Previously dominated by fintech lenders, the small loan market often involved high fees and interest rates, potentially jeopardizing borrowers’ financial stability. Banks and credit unions are now leveraging technology to efficiently process smaller loans, offering more affordable options to borrowers. This trend is reflected in the declining average loan size, even as overall loan volume increases.
The top three SBA lenders in the first quarter of 2025 were Newtek Bank, Live Oak Banking Company, and The Huntington National Bank, collectively accounting for 20% of total loan volume. Newtek Bank, the leading lender in fiscal year 2024, continued its dominance with $738 million in approvals. Live Oak Banking Company followed with $564 million, and The Huntington National Bank secured the third position with $423 million. The increased involvement of traditional lenders in the small loan arena signifies a positive shift towards more accessible and sustainable financing options for small businesses. This trend, coupled with regulatory changes and market dynamics, positions the SBA lending program for continued growth in the foreseeable future.
