– in addition to capital challenges, banks pointed to a number of other constraints on their lending resources, such as the following : asset management challenges – banks reported that higher - than - average delinquency and loss rates have taxed their workout units, forcing them to shift seasoned staff, including loan officers, to assist with the increased number of problem loans. some banks, particularly smaller banks, described a temporary suspension of all lending activities while they assess portfolios, manage workouts and distressed loans, and reevaluate collateral. regulatory burden – smaller banks pointed out the difficulties involved in staying abreast of new regulations and guidance, understanding them thoroughly, and determining how to best implement them. – programmatic changes – bank lenders described how enhancements to small business administration ( sba ) lending programs, including the increase in guarantee authority and fee waivers, helped them to make loans they might not otherwise have made. credit unions also reported good success in using the 7 ( a ) loan program, which was in high demand. suggestions for program improvements included an sba guarantee for loan modifications, more streamlined and faster loan processing, and packaging assistance for the 7 ( a ) program, similar to what is available for the 504 program. – because of the complexity associated with administering new or revised regulations, some community banks said that they often must assign senior loan officers to handle the new rules, leaving more junior lenders to handle new loans. some small businesses commented that they are then left working with junior loan officers who they believe do not understand their businesses, are dismissive, or adhere mechanically to underwriting guidelines. in meetings in nashville and tampa, several participants expressed the view that uncertainty about the duration, availability, and conditions of sba program enhancements has made banks reluctant to invest the time to adapt to new program requirements. impact on underwriting time – banks frequently said that they do not have enough time to handle applications with insufficient documentation, such as sparse tax returns, inadequate income statements, or unreliable interim financial statements. participants noted that some banks significantly reduced or eliminated loans below a certain threshold, typically $ 200, 000, as a way to limit time - consuming applications from smaller and less sophisticated businesses. banks also cited the imbalance between time commitment and returns as a reason for not participating in certain sba loan products, such as the america ’ s recovery capital or 7 ( a ) loan programs. – in miami, bankers noted that they were spending much more time on due dil

two years. they expressed the view that this may be the result of a tighter supply of credit by larger financial institutions. they noted that their ability to meet increased demand is limited by capital constraints and underwriting capacity. credit unions also noted the statutory limitation on the percentage of small business loans they may make ( 12. 25 percent of total assets ). – at several meetings, participants noted that some small businesses are turning toward non - mainstream finance sources such as factoring companies and pay - day loans, which carry higher fees and interest rates, due to the lack of conventional credit sources. – in detroit, credit union service organizations are working to provide scale for making small business loans by centralizing some aspects of the underwriting process. – on the other hand, in new york, some credit unions indicated that outsourcing underwriting is not always an effective solution to capacity constraints, stating that they lose control over quality in outsourcing. – a credit union in tampa expressed the view that credit unions that are new to small business lending do not have an established infrastructure to compete with the bigger banks, particularly in areas such as sba programs. – in nashville, it was noted that some cdfis are receiving loan applications from businesses that they would not expect to hear from, such as moreestablished businesses whose financial conditions are better than those of clients they served several years ago. – in chicago, the chicago urban league, which offers bridge loans to companies that have gone through its entrepreneurship training and coaching programs, reported making such loans to businesses that could not get credit from banks. a banker indicated that several banks participating in the meeting were founding investors in the league ’ s loan fund. – at several meetings, cdfi participants described the challenges in becoming authorized to provide loans under the sba ’ s 7 ( a ) program. factors impacting the demand for small business credit small businesses and bank participants noted that the economic downturn has diminished sales for many small businesses, weakening balance sheets and asset values and thus dampening small business loan demand. some financial institutions reported weaker quality in loan applications from small businesses. comments related to credit demand by small businesses included issues of reduced credit quality, reduced confidence, a need for additional technical assistance, and interest in government contracting and entrepreneurship. reduced credit quality – banks generally attributed the decrease in overall lending to small businesses to their declining sales and asset valuations. they reported lower overall demand for credit from creditworthy businesses. some financial institutions also noted that