- Key insight: After closing a $95 million SBA loan sale to Miami-based Banesco USA, BayFirst Financial is working to close a second, larger sale to Banesco by year-end.
- Forward look: Banesco USA CEO Calixto Garcia Velez is confident his bank can meet or exceed BayFirst’s SBA origination levels, which approached $500 million annually prior to the onset of credit quality issues.
- Expert quote: “We’re going to make a big effort to see if we can be successful in cross-selling these small business clients. We want them to bank with us,” Garcia Velez said.
Despite a choppy year that included a fee hike, a spike in problem loans and a 43-day government shutdown, the Small Business Administration continues to attract banks.
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Several banks have announced plans this year to enter SBA lending or expand their existing operations, most recently the Miami-based Banesco USA and Atlantic Union Bankshares in Richmond, Virginia.
This week, the $5.4 billion-asset Banesco closed its
It’s a splashy entry into a line of business that Banesco has been studying for three years, CEO Calixto Garcia-Velez told American Banker.
“We think this business has a lot of runway,” Garcia-Velez said Monday. “We’re mostly focused on commercial lending. What SBA is going to give us is the opportunity to start helping much smaller clients in a broader geographical footprint.”
Under 7(a), which dates back to 1953, SBA provides guarantees ranging from 50% to 85% on loans up to $5 million. The program has guaranteed approximately $120 billion of small business loans since October 2022.
Similarly, the $37.1 billion-asset Atlantic Union expects to widen the scope of its SBA lending beyond the bounds of its current eight-state footprint, Shawn O’Brien, the company’s group executive for consumer and business banking, said earlier this month. Such a move would continue the expansion strategy that Sandy Spring Bancorp in Olney, Maryland, which Atlantic Union
“Our program had been mostly focused in-footprint, whereas Sandy Spring was working on a program that was multistate,” O’Brien said during an investor day presentation. “We’ve combined those two capabilities. … It’s a great opportunity for fee income, it’s a great opportunity for growth, but it is something that is still a work-in-progress.”
SBA has featured prominently in other recent deals. The $18.2 billion-asset First Merchants Corp. in Muncie, Indiana, announced plans to acquire the $2.4 billion-asset First Savings Financial Group in Jeffersonville, Indiana, attracted in part by the seller’s national SBA lending business. Likewise, the $3.4 billion-asset Capital Bancorp in Rockville, Maryland paid $66 million to acquire SBA lender Integrated Financial in March 2024.
Similar to the approach previously taken by the $1.35 billion-asset BayFirst, Banesco plans to maintain a national SBA lending operation. One big difference: Banesco will seek larger-dollar deals, whereas BayFirst focused on loans of $150,000 or less.
With a robust digital banking platform in place, Banesco will seek to become the primary financial institution for SBA borrowers, hopefully picking up deposits, cash and treasury management and other business.
“We’re a relationship-driven bank,” Garcia-Velez said. “We’re going to make a big effort to see if we can be successful in cross-selling these small business clients. We want them to bank with us.”
The strong interest from Banesco and Atlantic Union stands as a testament to SBA’s continuing appeal, which seemingly remains strong, even after a surge in loan defaults and a
In March, after reporting a deteriorating fiscal fiscal position that resulted in negative cash flow for the 12 months ending Sept. 30, 2024, SBA announced it would eliminate a series of fee waivers and discounts implemented during the Biden Administration to incentivize small-dollar lending in its flagship 7(a) loan guarantee program.
Credit-quality issues played a material role in SBA’s budget woes, with agency officials spotlighting “alarmingly high” default rates in a May 27 press release.
Still, 7(a) lending volume stayed strong in the wake of the mid-year fee hike — originations totaled $37.3 billion for the 12 months ending Sept. 30 2025. Volume has moderated since the government reopened Nov. 13, however.
So far in fiscal 2026, which began Oct. 1, 7(a) originations have totaled $4.8 billion, according to SBA statistics. Through the first three months of the 2025 fiscal year, 7(a) volume totaled $8.9 billion.
BayFirst opted to exit SBA lending after experiencing a spike in problems loans, especially those made prior to the run-up in interest rates in 2022 and 2023. SBA 7(a) loans are variable rate, so many of those borrowers were grappling with loan payments that were hundreds or thousands of dollars higher than when they closed their deals. BayFirst reported an $18.9 million loss for the quarter ending Sept. 30, including a $7.3 million restructuring charge connected to the SBA exit.
According to BayFirst CEO Thomas Zernick, the bank expects to complete a second loan sale, totaling $4.5 billion, to Banesco before year-end. Since exiting the SBA business, BayFirst has shifted to a traditional relationship-banking strategy focused on its Tampa-St. Petersburg footprint.
“This relationship-driven approach continues to strengthen our presence across the vibrant Tampa Bay region and creates opportunities to expand our community bank portfolio, deposit growth and fee income sources like treasury management services,” Zernick said Monday in a press release.
BayFirst had ranked as one of the nation’s largest 7(a) lenders, with originations totaling $475 million in fiscal 2024.
Garcia-Velez believes Banesco, which reported net income of $42.3 million through the first nine months of 2025, can eventually match or exceed that total. The company is moving quickly to put its plans in motion.
On Monday, Banesco disclosed that it has hired veteran SBA lender Elijiah Gray to supervise its operation. Banesco has also hired a banker to focus exclusively on cross-selling to small business clients, according to Garcia Velez.
“As a commercial bank, we recognize small and medium-size businesses are the backbone of our economy,” Garcia Velez said. “This transaction aligns with our growth strategy to expand our small business lending capabilities.”