Zions Bancorporation (ZION): Navigating SME Lending Growth and Regulatory Crosscurrents

The interplay of tariffs and regulatory shifts has reshaped the small business lending landscape, creating a critical inflection point for regional banks like Zions Bancorporation. As tariffs drive SMEs toward government-backed financing and private credit expands to fill gaps in traditional banking, Zions' SBA lending leadership and geographic focus position it to capitalize—if it can navigate evolving regulations. Here's why investors should pay close attention.

1. Tariffs Are Fueling SBA Loan Demand—and Zions Is Poised to Lead

Brent McLean's analysis underscores that tariffs have fundamentally altered small business behavior. With consumer prices soaring (+2.3% short-term due to 2025 tariffs, per The Budget Lab), SMEs are prioritizing stability over expansion. This has pushed demand toward federally guaranteed SBA loans, which offer lower interest rates and flexible terms. Zions, which originated $3.2 billion in SBA loans in 2024—more than any other Western bank—stands to benefit as SMEs seek alternatives to volatile private markets.

Zions' dominance in SBA lending is amplified by its regional focus. Western states like Arizona and Utah, where Zions has 62% of its branches, are home to 35% of U.S. small businesses with export ties. These firms are disproportionately impacted by tariffs on Chinese goods, creating a captive audience for Zions' tailored lending solutions.

2. Private Credit's Double-Edged Sword: Growth vs. Regulatory Risk

While SBA lending is a steady revenue stream, Zions' foray into private credit—through its ZB Management division—offers higher returns. The sector has grown 22% annually since 2020, with SMEs turning to private lenders for quick capital amid delayed SBA approvals. However, McLean's analysis flags regulatory risks:
- SBA fee reinstatements: The 0.55% annual service fee on 7(a) loans (reinstated in 2025) could compress margins unless Zions upscales origination volume.
- Immigration compliance: SBA's citizenship requirements for loan applicants may create operational hurdles for Zions' branch network.
- SEC scrutiny: Proposed rules on private fund transparency could force Zions to restructure its credit portfolios.

Investors must weigh Zions' 15% CAGR in private credit against these risks. A regulatory crackdown could disrupt fee income, but Zions' diversified revenue streams (40% of net interest income from commercial lending) provide a buffer.

3. Regional Strength as a Strategic Asset

Zions' Western footprint isn't just a geographic play—it's a regulatory shield. The region's SMEs are more likely to qualify for SBA programs targeting underserved communities, and Zions' 1,300+ local employees enable faster underwriting than national banks. This local advantage is critical as SBA's 2025 focus on “Main Street” lending (e.g., the 7(a) Working Capital Pilot Program) prioritizes relationship-based banking.

4. Valuation: A Tactically Attractive Entry Point

At 1.3x tangible book value, Zions trades below peers like Comerica (1.6x) and KeyCorp (1.5x), despite its SBA leadership. Analysts at Morgan Stanley (who Zions is presenting to this quarter) have a $75 price target (15% upside from current levels), citing underappreciated SBA franchise value. The stock's beta of 1.1 suggests it could outperform in a rising rate environment, which would boost net interest margins.

Regulatory Triggers to Watch

• Q3 2025: SBA's review of citizenship requirements for loan applicants. A delayed rollout could ease compliance costs.
• Late 2025: SEC's final rule on private fund reporting. A narrower scope would protect Zions' private credit margins.
• 2026: Congressional reauthorization of the SBA's 7(a) program. Zions' lobbying efforts (it spent $1.2M on D.C. advocacy in 2024) will be key here.

Investment Thesis: Tactical Long with Hedged Upside

Zions is a compelling play on the SME lending renaissance, but investors should layer in protection against regulatory volatility. Consider:
- Buy ZION shares at $65, targeting $75–$80 by year-end.
- Hedge with put options if the stock rallies above $70 ahead of its Morgan Stanley presentation.
- Monitor private credit AUM growth: A slowdown below 12% YoY would signal regulatory drag.

The bottom line: Zions' SBA expertise and regional roots give it an edge in a reshaped SME finance landscape. While regulatory risks are real, the stock's valuation and strategic focus make it a tactical long for investors willing to bet on small business resilience.