Magazine article American Banker

Venture Would Pool Small-Business Loans for Community Banks

Magazine article American Banker

Venture Would Pool Small-Business Loans for Community Banks

Article excerpt

A California securitizing firm and CFI Proservices Inc., the banking software company, plan a venture to securitize small-business loans made by community banks.

CFI and TIS Financial Services said the venture, which they plan to call Loan Origination Management and Exchange Corp., would start operating early next year.

They've already nicknamed it: Lori Mae.

TIS, based in San Francisco, now securitizes mortgages and other asset backed loans. The securitization of nonguaranteed small-business loans would allow community banks to make more loans and generate fee income from servicing the loans without risking additional capital.

"I think the reception will be overwhelming," said Matt Chapman, chairman and chief executive officer of CFI Proservices. "It's profitable for banks to do this."

Initially, Lori Mae would limit loan amounts to $250,000. But Tom Sidley, who will be Lori Mae's chief operating officer, estimates it could securitize $250 million of small-business loans in 1998.

The securitization of small-business loans is currently dominated by nonbank lenders who sell the guaranteed or nonguaranteed portions of their Small Business Administration loans.

Nearly half of all SBA loans are securitized, but the market for other small-business loans has been hampered by a lack of standardized loan documentation and terms.

More than $21 billion in SBA loans have been securitized since 1977, but Mr. Chapman estimates that only $1.5 billion in loans without government guarantees have been securitized. Lori Mae would securitize such loans.

Initially, Lori Mae would focus on securitizing lines of credit secured by accounts receivable and term loans for equipment. …

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