But apart from some successes found in SBA loan pools, small business loans are in general not easily securitized. Highly diverse small business loans are not easily grouped into large homogeneous pools that credit agencies and investors can efficiently analyze. Underwriting standards tend to vary among originators. Until underwriting standards and documentation for these loans become more uniform and information for estimating the risk of loss more available, markets for securitized small business loans will remain small. There are still other impediments to the small business credit process.
All businesses face the cost of regulation and various legal constraints.
Lending to small businesses is generally riskier and more costly than lending to large firms. Small businesses are very susceptible to swings in the economy and have a much higher failure rate than larger operations. And, historically lenders have had difficulty determining the creditworthiness of small business loan applicants. Small businesses are extremely diverse and range from small corner grocery stores to high tech data base managers and software providers. This heterogeneity, together with widely varying uses of the borrowed funds, has made it difficult to develop general standards for assessing small business loan applications and has made evaluating such loans relatively expensive.