Need cash?: Try these top Main Street lenders

Elaine Pofeldt, Special to CNBC.com

Despite heightened enthusiasm for small-business lending in the banking sector, it's not easy for mom-and-pop firms to get a U.S. Small Business Administration–backed loan. And it's not just because small-business loans require a lot of paperwork. Banks tend to favor larger deals, which are more profitable for them. So if you're a small-business owner hunting for a lender, it helps to know which banks aren't just talking the talk but are walking the walk when it comes to making small-business loans.

There are some surprises. While big banks still top the list when it comes to issuing greatest dollar volume of loans backed by the SBA and in the sheer number of loans made, some smaller banks are aggressively going after Main Street entrepreneurs.


Courtney Keating | E+ | Getty Images

Of the top lenders signing SBA-backed loans of $150,000 and under are Wall Street banks JPMorgan Chase (No. 1 on the list) and Wells Fargo, as well as some smaller players, including Celtic Bank and Zions First National Bank, according to SBA data for the 12-month period ended Jan. 31, 2014.

Larger banks still dominate when it comes to making loans of $1 million and under (which also include those loans under $150,000), but some smaller banks are gaining ground in that category, too. Take, for instance, this list's No. 14: Ridgestone Bank, a subsidiary of Ridgestone Financial Services, which received money through the recession-era TARP program.

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Big banks can be particularly stringent in lending to small business. Biz2Credit, a matchmaker between borrowers and lenders based in New York City, found in its January 2014 index that big banks using its platform approved 17.8 percent of small-business loans compared to small banks, which approved 50.9 percent.

sba150k 7A Better Your Business chart Rosenbaum 140411

"JPMorgan Chase Bank National""2,770""$143,672,600 "
The Huntington National Bank"2,528""$110,142,000 "
"Wells Fargo Bank National Ass""1,588""$66,080,900 "
U.S. Bank National Association"1,806""$56,529,600 "
Manufacturers and Traders Trus844"$51,441,500 "
Celtic Bank Corporation370"$35,538,000 "
Compass Bank840"$30,546,100 "
Zions First National Bank382"$19,999,900 "
Branch Banking and Trust Compa316"$19,076,600 "
Eastern Bank424"$17,881,000 "
"TD Bank National Association"354"$17,398,100 "
"Santander Bank National Assoc"267"$15,124,600 "
"First Niagara Bank National A"236"$14,729,600 "
"Bank of America National Asso"189"$13,819,600 "
Wilshire Bank139"$11,344,800 "

In fact, the data shows that it's only the larger-dollar-value small-business loans that grew in the recent 12-month period. In the SBA 7(a) loan program, used for working capital, the number of deals for $150,000 or less declined from 25,485 in fiscal 2012 to 24,923 in fiscal 2013, and loan volume stayed relatively flat at $1.4 billion.

The number of SBA 7(a) loans of $1 million or less rose in that same time period, from 40,496 to 41,694, with volume increasing from $7.6 billion to $8.5 billion.

This trend has created an opening for scrappy smaller players, including Salt Lake City, Utah–based Celtic Bank, which is lending across the country.

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"We definitely have stepped up our lending," said Craig Calafati, executive vice president of business development at Celtic Bank. "We made a very strong commitment to the underserved small-business community, particularly in making loans under $150,000."

To keep the loans flowing, Celtic Bank has built an online application into its website.

SBA summary Better Your Business chart Rosenbaum 140411

MAJPGMAPPVFY Approved Loans Approved Dollars
7(A)2013" 24,923 "" $1,445,653,200 "
7(A)2012" 25,485 "" $1,436,425,800 "
504,2013 823 " $90,087,000 "
504,2012 950 " $103,704,000 "
$1M and Under
MAJPGMAPPVFY Approved Loans Approved Dollars
7(A)2013" 41,694 "" $8,476,476,000 "
7(A)2012" 40,496 "" $7,589,555,700 "
504,2013" 6,281 "" $2,511,922,000 "
504,2012" 7,570 "" $3,103,909,000 "

Small banks have a big financial incentive to go after SBA loans.

They profit from selling the loans they originate on the secondary market, where the deals are bundled and snapped up by institutional investors, such as pension funds, hedge funds, and private investors looking for safe deals.

"Banks make a very good premium of 12 percent to 16 percent," said Rohit Arora, CEO of Biz2Credit. "That's a big motivation for small banks to do these loans."

His prediction: "In the next six months, you will see more small banks coming into this space."

A pool party
The SBA's guarantee for the loans—which currently can be as high as 85 percent, depending on loan size—makes the deals attractive to institutional investors seeking low-risk opportunities. That, in turn, keeps money flowing into the banks.

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"It gives them the ability to make loans, retain liquidity and limit some of their risk exposure to the loans," said Craig Cline, managing director and head trader on the government-guaranteed loan desk at Coastal Securities, a financial services firm in Houston that is active in the trading, securitization and analysis of SBA loans and pools.

SBA$1M7A Better Your Business Chart Rosenbaum 140411

"Wells Fargo Bank National Ass"" 3,059 "" $757,501,700 "
"JPMorgan Chase Bank National"" 3,593 "" $417,010,800 "
U.S. Bank National Association" 2,341 "" $314,211,100 "
The Huntington National Bank" 2,976 "" $290,772,000 "
Live Oak Banking Company 372 " $193,146,600 "
Manufacturers and Traders Trus" 1,146 "" $145,406,000 "
Compass Bank" 1,023 "" $117,249,000 "
Seacoast Commerce Bank 213 " $106,432,900 "
Celtic Bank Corporation 515 " $104,877,100 "
Wilshire Bank 323 " $96,010,000 "
Ridgestone Bank 207 " $91,809,000 "
KeyBank National Association 469 " $81,263,800 "
BBCN Bank 208 " $76,623,800 "
Bank of the West 158 " $74,962,200 "
SunTrust Bank 203 " $74,676,300 "

Some small banks are also selling their loans to big banks, said Brendan Ross, president and portfolio manager at Direct Lending Investments, a private investment firm in Los Angeles that owns notes on loans made by alternative lenders.

"The [small] banks can't afford to warehouse them," said Ross. "They are like glorified brokers."

"It does allow us to recycle those dollars back out," said Eric Petersen, executive vice president of corporate development at Celtic Bank. "It allows an institution like ours to make a lot more loans than we would be able to."

Celtic Bank sells most of the loans it originates on the secondary market but remains the primary contact for servicing them, Calafati said.

Party like it's 2009?
How long small banks will have an appetite for SBA lending likely depends on the health of the secondary market, which stalled in 2009. "There were problems during the recession in the secondary market, but it has come back," said Bob Coleman, editor of the "Coleman Report," a trade newsletter for small-business bankers. "It is a very profitable lending product for some of these smaller lenders. If they do it right, they can make some money in it."

Banks aren't the only place to get SBA loans. They are also available through nonbank lenders and credit unions.

Nicole Zinn, owner of Rocket Electrics, an electric-bike shop in Austin, Texas, won an SBA-backed loan for $180,000 from Austin-based Amplify Federal Credit Union after working with an advisor at the Texas State Small Business Development Center to revise the shop's business plan and put the loan application package together.

Zinn founded the business in 2011 after losing her job in high-tech marketing during a corporate restructuring; it became profitable four months after it opened. "I didn't want to go back to a cubicle," she said.

Zinn applied for a loan to expand her inventory in July 2013, then saw her application stall during the federal government shutdown in October 2013. Finally, in November 2013, after the government reopened, Zinn won the loan, which she was more than ready to put to use in expanding the business.

"When the loan process takes so long, your need grows," she said.

By Elaine Pofeldt, Special to CNBC.com

(For more on the banks leading in lending under the SBA's 504 program—loans for fixed assets, including real estate and equipment—consult the charts on the following page.)

SBA504$150K Better Your Business chart Rosenbaum 140411

Florida Business Development C 69 " $7,284,000 "
Granite State Economic Develop 45 " $4,230,000 "
"Colorado Lending Source Ltd." 26 " $2,929,000 "
Mountain West Small Business F 23 " $2,640,000 "
Michigan Certified Development 24 " $2,610,000 "
Bay Colony Development Corpora 23 " $2,549,000 "
Empire State Certified Develop 20 " $2,366,000 "
Florida First Capital Finance 22 " $2,357,000 "
Corporation para el Fromento E 20 " $2,189,000 "
Twin Cities-Metro Certified De 16 " $1,770,000 "
Minnesota Business Finance Cor 14 " $1,726,000 "
"SomerCor 504 Inc." 15 " $1,678,000 "
Economic Development Foundatio 14 " $1,648,000 "
"PYMES Financial Partners Inc." 19 " $1,623,000 "
Capital Certified Development 14 " $1,583,000 "

SBA504$1M Better Your Business chart Rosenbaum 140411

CDC Small Business Finance Cor 308 " $148,434,000 "
Florida Business Development C 356 " $128,077,000 "
Mortgage Capital Development C 218 " $99,106,000 "
Empire State Certified Develop 174 " $79,677,000 "
Small Business Growth Corporat 158 " $69,259,000 "
Florida First Capital Finance 167 " $67,856,000 "
Wisconsin Business Development 156 " $67,507,000 "
"Colorado Lending Source Ltd." 173 " $62,023,000 "
Granite State Economic Develop 197 " $59,657,000 "
Mountain West Small Business F 141 " $50,671,000 "
Evergreen Business Capital 109 " $50,186,000 "
California Statewide Certified 104 " $50,000,000 "
"SomerCor 504 Inc." 109 " $44,385,000 "
Capital Certified Development 97 " $41,658,000 "
Michigan Certified Development 111 " $39,382,000 "