BizSugar.com › Raising Capital › Banks are seeing more small-business loans go sour

The turbulent economy is exposing yet another type of credit where bankers let their guard down: small-business loans.

Missed payments and losses on small-business loans are surging at banks throughout the country that were so eager to pad their profits that they essentially threw typical underwriting methods out the window. Some lenders doled out small-business loans as if they were credit cards, relying solely on the personal credit scores of borrowers.

That meant many loans were made without assessing a company's strategy or finances, even by banks that avoided subprime mortgages. Now the economic slowdown is leaving lenders with little or nothing to collect on many small-business loans in case of default.