Loans without Income Proof Debut in Small Business Deal

ABSnet

A recently completed small business loan securitization was the first to include loans that don't require proof of income. The $312.3 million Lehman Brothers Small Balance Commercial 2005-2 deal, closed Oct. 28, included a 12% concentration of these loans. Future deals may increasingly include the loans as the line between small business owners and individuals blurs, according to Weili Chen, director in Standard & Poor's new assets group.

Chen pointed to a couple of factors driving the change. "Number one, the income review is expensive and number two, at [the small business loan size] lenders think personal credit is more important," he said. The deal's average loan size was $800,000, and the top three industries were business services, manufacturing and wholesale trade.

Exactly how large a component of future securitizations no-income loans will become remains to be seen, but market participants are optimistic. "Now that one deal has been done successfully, I suspect it will open up the spigots for others," said Barry Reiner, ceo of Bond Street Capital, a West Palm Beach, Fla.,-based firm that originates small business loans.