Credit issues put damper on profits at SBA specialist Newtek

• Key takeaway: Newtek CEO Barry Sloane is hopeful that both oil prices and inflation will lessen following the mid-term elections, improving his company’s asset-quality profile.
• Expert quote: “At these higher levels of rates, it is more challenging to make loans, it’s more challenging to run the business.” — Sloane

The nation’s largest Small Business Administration lender by number of loans says higher-for-longer interest rates and stubborn inflation are pushing problem-loan levels higher, while also dampening the company’s growth prospects.  

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A cocktail of higher rates and inflation “has been difficult” on NewtekOne’s entire portfolio, CEO Barry Sloane said Wednesday during a call with analysts.

Conditions have proven particularly challenging for small businesses that obtained their loans prior to 2022, when rates began rising. They’ve seen inflation crimp profits, even as their borrowing costs have soared. “There’s been stress on the historic portfolio,” Sloane told analysts.

Boca Raton, Florida-based Newtek reported its third-quarter earnings Wednesday. Net income totaled $10.7 million, down 40% from the same period in 2025. At the same time, nonaccrual loans more than doubled, reaching $383.2 million on Sept. 30.

The spike in problem loans prompted Newtek to more than double its provision for credit losses to $15.4 million for the quarter ended Sept. 30. The company has also tightened underwriting and tamped down on its growth targets.

“At these higher levels of rates, it is more challenging to make loans, it’s more challenging to run the business,” Sloane said. “Therefore we have muted our origination volumes … and we’ve also tightened underwriting guidelines historically and are doing so as we speak right now.”

Piper Sandler analyst Crispin Love described Newtek’s credit picture as “mixed” in a research note Thursday. Love cited the increase in nonaccrual loans, but he also noted that early-stage delinquencies declined from their June 30 level.

Though Newtek has been a prominent SBA lender for more than a decade, it operated for most of that time as a non-depository business development company.

In January 2023, Newtek bought the one-branch National Bank of New York City, intending to use less costly bank deposits to fund loans. Since closing the deal, the $3.5 billion Newtek has grown deposits at the bank, which it renamed Newtek Bank, from $141.6 million to $2.5 billion.

Robust deposit growth and an improved funding profile provided Newtek leeway to scale back the volume of SBA loans it sells to investors on the secondary market, a course it announced it would adopt in August. Interest income has responded, totaling $53.4 million for the quarter ended Sept. 30, increasing 15% on a linked-quarter basis and 36% year-over-year. 

And Newtek is by no means the only SBA lender to report third-quarter credit quality issues. At the $9.9 billion-asset, Chicago-based Byline Bancorp, government-guaranteed nonperforming assets reached $9.7 million on Sept. 30, up 15% year-over-year.

Meanwhile, at the $1.46 billion-asset, Las Vegas-based GBank Financial Holdings, government-guaranteed nonaccrual assets remained elevated, totaling $25.5 million on Sept. 30, their fifth consecutive quarter over $25 million.

“Credit costs have weighed on earnings this year,” GBank CEO Jeff Newgard said Wednesday on a conference call with analysts. 

SBA’s biggest loan programs, 7(a) and 504, operate by guaranteeing loans made by banks, credit unions and other lenders.

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For his part, Sloane remains hopeful a post-election economic upturn will boost Newtek’s returns. 

“Once we get through these mid-terms, I think that oil, which has been the primary driver of inflation, will hopefully move in the right direction, reduce rates, reduce inflation and give us a lift,” he said.

During SBA’s 2026 fiscal year, which ended Sept. 30, Newtek was credited with originating 5,035 7(a) loans, 1,436 more than Portland, Maine-based Northeast Bank, the number-two lender by number of loans. The 7(a) program is SBA’s largest loan program. It approved 56,130 loans during fiscal 2026.