Edgar Filing: NEWTEK BUSINESS SERVICES INC

As Filed Pursuant to Rule 424B3
Reg. No.: 333-118353

PROSPECTUS

69,444 SHARES

NEWTEK BUSINESS SERVICES, INC.

COMMON STOCK

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This prospectus relates to the offering, which is not being
underwritten, of 69,444 shares of our common stock, par value $0.02 per share.

The selling shareholder may sell the shares at prices determined by the
prevailing market price for the shares or in negotiated transactions. We will
not receive any proceeds from the sale of these shares.

Our common stock is traded on The Nasdaq Stock Market under the symbol
"NKBS". On October 6, 2004, the last reported sale price of our common stock
was $3.50 per share.

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BEFORE BUYING ANY SHARES YOU SHOULD READ THE DISCUSSION OF MATERIAL
RISKS OF INVESTING IN OUR COMMON STOCK IN "RISK FACTORS" BEGINNING ON PAGE 3.

NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES, OR DETERMINED IF
THIS PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.

The date of this prospectus is October 7, 2004.

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TABLE OF CONTENTS

PAGE
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PROSPECTUS SUMMARY 1
RISK FACTORS 3
WHERE YOU CAN FIND MORE INFORMATION; INCORPORATION BY REFERENCE 16
SPECIAL NOTE OF CAUTION REGARDING FORWARD-LOOKING STATEMENTS 17
PLAN OF DISTRIBUTION 17
SELLING SHAREHOLDER 19
USE OF PROCEEDS 20
LEGAL MATTERS 20
EXPERTS 20
DISCLOSURE OF COMMISSION POLICY ON INDEMNIFICATION FOR SECURITIES ACT LIABILITY 20

-i-

PROSPECTUS SUMMARY

This summary highlights information contained elsewhere in this
prospectus. It is not complete and does not contain all of the information that
you should consider before investing in the shares. You should read the entire
prospectus carefully, including the "Risk Factors" section, as well as the
information that we incorporate by reference in this prospectus.

OUR BUSINESS

Newtek Business Services, Inc. is a holding company for several wholly and
majority-owned operating subsidiaries and certified capital companies, or
capcos. Our major focus is to provide high value and cost efficient services to
small and medium-sized businesses. We currently operate in four principal lines
of business. These four lines of business are as follows:

o CERTIFIED CAPITAL COMPANIES. A capco is a company we form pursuant to a
state-sponsored program which is designed to encourage investment in small and
new businesses and to create economic activity and jobs in the sponsoring state.
To induce investors to participate in capco programs, the state provides a capco
with tax credits to issue to its investors, all of which must be insurance
companies. After it is capitalized, the capco is obligated to invest its funds
in small and new businesses within the state in accordance with statutory
requirements relating to such matters as the size of the business, location and
number of employees. We have used our capcos to finance our small business
administration, payment processing and financial reporting businesses. To date,
our primary source of cash has been the statutorily fixed annual management fees
of 2.5% of each capco's initial capital.

o SMALL BUSINESS LOANS. Through our majority-owned subsidiary, Newtek
Small Business Finance, Inc., or NSBF, we make small business loans guaranteed
by the U.S. Small Business Administration, or SBA, under the section 7(a) loan
program and related section 504 business real estate loan program. NSBF is one
of 14 companies licensed to provide SBA loans nationwide under the section 7(a)
loan program and the related section 504 real estate loan program. The SBA
definition of eligible small businesses is based on standard industry codes and
generally includes businesses with less than $25,000,000 in revenues and no more
than 1,500 employees.

o PAYMENT PROCESSING. Newtek Merchant Solutions, or NMS, offers credit
card, debit card and gift card processing services and check approval services
to approximately 5,600 small and medium-sized businesses as of June 30, 2004
through its four payment processing companies and its full-service processing
center in Milwaukee, Wisconsin. NMS also provides these services to local and
regional banks and credit unions that do not offer their own payment processing
services so that these banks may offer these services to their merchant clients
through us.

o WEBSITE HOSTING. On July 9, 2004 we acquired CrystalTech Web Hosting,
Inc., or CrystalTech. Netcraft, an independent consultant, has cited CrystalTech
as the world's third largest website hosting enterprise utilizing exclusively
Microsoft Hosting 2003(R). As of April 2004, CrystalTech had approximately
26,000 active accounts in approximately 80 countries, approximately 80% of which
are located in the United States.

OUR STRATEGY

Through our business relationships, we continually assess new product
offerings and services for our small and medium-sized business customers. As we
seek to enhance our position as a leading provider of business services to our
marketplace, we have implemented the following strategies:

o Aggressively focus our business model to provide products and services
to the small and medium-sized business market. Over the last three years, we
have refined our business model to focus on developing and marketing products
and services aimed at small and medium-sized businesses like those we fund
through our capco programs. As our product and service offerings grow and
diversify, we intend to continue to reduce our dependence on the capco programs
as a source of funding and revenue.

o Further develop national recognition of the "Newtek" brand through
marketing alliances. We have formed key marketing alliances with national
business organizations such as Merrill Lynch and Cendant Corporation, business
and trade organizations such as the Credit Union National Association and the
Community Bankers of Wisconsin, and affinity organizations such as Revelation
Corporation of America, Navy Federal Credit Union and the semi-public Veterans'
Corporation of America. These strategic partners, through their customers,
members and participants, generate small business lending and payment processing
business for us and build awareness of our brand name. We intend to develop
further our "Newtek" brand by seeking out and entering into new marketing
alliances.

o Cross-sell additional products and services to small and medium-sized
businesses. Our web-based, proprietary referral system is a custom designed
customer relationship management tool which allows us to utilize our marketing
alliance partners' client base efficiently and cost effectively and assures our
alliance partners full transaction transparency with the highest level of
customer service. We intend to expand the use of this tool to cross-sell our
products and services to our customer base, the customers we acquire through
acquisitions and our alliance partners.

o Opportunistically acquire companies or assets to provide complementary
products and services to small and medium-sized businesses. By strategically
acquiring companies or assets in our primary product and service markets, we can
expand our customer base and create cross-selling opportunities for our growing
suite of complementary goods and services. We believe that the acquisition of
CrystalTech furthers this objective.

o Focus our cross marketing and acquisition strategies on the addition of
small and medium-sized business customers. We plan to grow the marketing
programs of our current businesses and acquire other complementary businesses to
build a large unified base of small and medium-sized business customers.

o Continue to develop our technology to process new business and financial
transactions. Our applications processing technology allows us to process new
business received by our small and medium-sized business customers utilizing a
web-based system and a centralized processing point. Our trained representatives
use these web-based applications as a tool to acquire and process data,
eliminating the need for our customers to complete multiple paper forms in
face-to-face meetings. We will continue to develop this system because we
believe it is customer friendly, allows us to process applications efficiently
and allows us to store client information for further processing and future
cross-selling efforts.

o Continue to access the capco market as capco opportunities arise. We
believe there is continued opportunity to use the capco programs as a funding
source to facilitate the growth of our businesses and to facilitate our ability
to make opportunistic loans and passive investments in small businesses.

RESALE REGISTRATION

We are registering these securities for resale by the selling shareholder
and will receive no proceeds from their disposition. We will bear all costs,
expenses and fees in connection with the registration of these securities. The
selling shareholder will bear all commission and discounts, if any, attributable
to the sale of these securities.

ABOUT US

We were incorporated in 1999 in New York and changed our name from Newtek
Capital, Inc. to Newtek Business Services, Inc. in November 2002. Our principal
executive offices are located at 100 Quentin Roosevelt Blvd., Garden City, New
York 11530 and our telephone number is (516) 794-0100. Our website address is
www.NewtekBusinessServices.com. Information incorporated into our website is not
a part of this prospectus.

RISK FACTORS

Before you invest in our common stock, you should carefully consider the
following risks as well as the other information in this prospectus in
evaluating the investment.

RISKS RELATING TO OUR BUSINESS GENERALLY

OUR BUSINESS FOCUSES ON THE INVESTMENT IN AND ACQUISITION OF SMALL
BUSINESSES, WHICH TYPICALLY HAVE A HIGH RATE OF FAILURE, MAY TAKE SOME TIME TO
BECOME PROFITABLE AND MAY NEVER BECOME PROFITABLE.

We place primary emphasis on the investment in and acquisition of small
businesses with the objective of developing a network of profitable businesses,
most of which will principally serve the small and medium-sized business market.
Early stage businesses historically have a higher rate of failure than larger
businesses, and many that do not fail will have only limited profitability.
Moreover, profit generated by any of our majority-owned companies or other
investments could be offset by losses generated by others. Our profitability
resulting from the operations of our businesses may be delayed for the
foreseeable future.

For example, our consolidated subsidiaries experienced aggregate net
losses of approximately $2,700,000 for the year ended December 31, 2003 and
aggregate net losses of approximately $3,591,000 for the year ended December 31,
2002. We recorded no net losses from equity method investees in 2003 and
approximately $729,000 in 2002. In addition, during 2003 we wrote off
approximately $1,996,000 of investments in small businesses, compared to
approximately $1,602,000 in 2002, representing management's best estimate as to
the amount of the other than temporary decline in the value of the investments.
During the first and second quarters of 2004 we had no write offs.

We have generated and carry goodwill as an asset resulting from some of
our acquisition transactions. In 2003, we determined to write down the value of
our goodwill by approximately $1,435,000. We can make no assurance that our
current or future additional goodwill will not be written down pursuant to
applicable accounting standards. A significant write down of a major asset, such
as goodwill, could have a material adverse effect on our business, a negative
impact on earnings and the value of our common stock.

Each of our major investments and affiliated companies may be impacted by
a variety of adverse economic, governmental, industrial and internal company
factors unique to that business and outside our control. If our investments and
affiliated companies do not succeed in overcoming these adverse factors, the
value of our assets and the price of our stock would fall.

In the past few years we have increasingly concentrated our investments in
companies participating in small business lending and electronic payment
processing, and we plan to make significant investments in a new insurance
agency, the Newtek Insurance Agency, and CrystalTech. Each of these businesses
has numerous risks associated with them and you should read the specific risk
factors set forth below with respect to each of these businesses.

As we have concentrated our investments, typically made through the capco
programs, in companies which are part of our nationwide marketing strategy of
providing a variety of services to small and medium-sized businesses, our
exposure and that of our affiliated companies to risks specific to these
business lines has increased. We discuss below some of the risks of our
significant operations in government-guaranteed small business lending and
acting as an independent sales organization in the electronic card processing
business. If we are not successful in implementing this business strategy and
developing and marketing our new products and services, our results of
operations will be negatively impacted.

WE RELY ON OUR CAPCOS TO FUND OUR INVESTMENTS AND OUR CAPCOS ARE LIMITED
BY REGULATIONS IN THE TYPES OF INVESTMENTS THEY CAN MAKE.

Our ability to invest in or acquire companies has in the past been
significantly reliant on investments permissible under the capco programs in
which we participate. In the programs under which the capcos operate,
investments by a capco may only be made in the state in which the particular
capco operates and the target company must meet certain requirements as to size,
employment of state residents and possible restrictions on the ability to
relocate. These limitations may require us to forego attractive or desirable
investments, which could adversely affect or prevent implementation of our
business strategy.

IF WE DO NOT MANAGE OUR GROWTH EFFECTIVELY, OUR FINANCIAL PERFORMANCE
COULD BE HARMED.

Our rapid revenue growth has placed, and will continue to place, certain
pressures on our management, administrative, operational and financial
infrastructure. As we continue to grow our business, such growth could require
capital, systems development and human resources beyond current capacities. As
evidence of our internal growth, on December 31, 2001, we and all of our
consolidated and majority-owned affiliates had approximately 20 employees, and
on December 31, 2003 we had approximately 100 employees, without consideration
of independent contractors. The increase in the size of our operations may make
it more difficult for us to ensure that we execute our present businesses and
future strategies. The failure to manage our growth effectively could have a
material adverse effect on our financial condition and results of operations.

BECAUSE EXPENSES ARE EXPECTED TO INCREASE AS WE BUILD AN INFRASTRUCTURE
AND IMPLEMENT OUR BUSINESS STRATEGY, WE MAY INCUR ADDITIONAL LOSSES IN THE
FUTURE.

Because our expenses are expected to increase more quickly than our
revenue as we build our infrastructure and implement our business strategy, we
will likely incur additional losses in the near future. We expect the additional
expenses to result primarily from our plans to:

o expand existing systems;

o broaden affiliated company support capabilities;

o continue to explore acquisition opportunities and alliances;
and

o facilitate business arrangements among affiliated companies.

IF WE ARE UNABLE TO OBTAIN THE RESOURCES REQUIRED FOR THE GROWTH AND
DEVELOPMENT OF OUR AFFILIATED COMPANIES, THEY WILL BE HIGHLY SUSCEPTIBLE TO
FAILURE, WHICH WOULD DIRECTLY AFFECT OUR PROFITABILITY AND VALUE.

Early-stage businesses often fail due to their limited capital and human
resources. The effective implementation of our business model is dependent upon
the ability of the affiliated companies, with assistance from us, to arrange for
the managerial, capital and other resources which they usually require in order
to become and remain profitable.

WE MAY NOT BE ABLE TO INTEGRATE ACQUIRED COMPANIES INTO OUR COMPANY AND,
AS WE ACQUIRE MORE AND LARGER INTERESTS IN AFFILIATED COMPANIES, OUR RESOURCES
AVAILABLE TO ASSIST OUR AFFILIATED COMPANIES MAY BE INSUFFICIENT.

We have made strategic acquisitions and we intend to continue to make
acquisitions in accordance with our business plan. Each acquisition involves a
number of risks, including:

o the diversion of our management's attention to the
assimilation and ongoing assistance with the operations and
personnel of the acquired business, which could strain the
management resources we have available;

o the potential for our affiliated companies to grow rapidly and
adversely affect our ability to assist our affiliated
companies as intended;

o possible adverse effects on our results of operations and cash
flows; and

o possible inability by us to achieve the intended objective of
the acquisition.

Any strain on our ability to assist our affiliated companies as intended
or to acquire and integrate businesses under our business plan could have a
negative impact on our operations, financial results and cash flows.

OUR BUSINESS MAY BE ADVERSELY AFFECTED BY THE HIGHLY REGULATED INDUSTRIES
IN WHICH WE OPERATE.

Many of the industries in which we operate are highly regulated and we
cannot assure you that we or our affiliated companies are, or that we will
continue to be, in full compliance with current laws, rules and regulations. If
we or our affiliated companies are unable to comply with applicable laws or
regulations or if new laws limit or eliminate some of the benefits of our
business lines, our financial condition, results of operations and our cash
flows could be materially adversely affected.

IF WE LOSE OUR KEY PERSONNEL, WE MAY NOT BE ABLE TO FIND AND HIRE
EXPERIENCED REPLACEMENTS.

Our business relies heavily on the expertise of our senior management,
particularly Messrs. Barry Sloane, Brian A. Wasserman and Jeffrey G. Rubin, our
CEO, CFO and President, respectively. These individuals currently serve pursuant
to employment agreements which expire on June 30, 2005. The loss of the services
of these individuals could have a material adverse effect on our financial
condition, results of operations and cash flows and it is likely that it will be
difficult to find adequate replacements.

WE AND OUR AFFILIATED COMPANIES DEPEND ON OUR ABILITY TO ATTRACT AND
RETAIN KEY PERSONNEL AND ANY LOSS OF ABILITY TO ATTRACT THESE PERSONNEL COULD
ADVERSELY AFFECT US.

Our success depends upon the ability of our affiliated companies and other
investments to attract and retain qualified personnel and our ability to
supplement those capabilities with our senior management personnel. Competition
for qualified employees is intense. If our affiliated companies lose the
services of key personnel, or are unable to attract additional qualified
personnel, the business, financial condition, results of operations and cash
flows of us or one or more of our affiliated companies could be materially
adversely affected. It can take a significant period of time to identify and
hire personnel with the combination of skills and attributes required in
carrying out our strategy.

OUR SUCCESS DEPENDS ON OUR ABILITY TO COMPETE EFFECTIVELY IN THE HIGHLY
COMPETITIVE INDUSTRIES IN WHICH WE OPERATE.

We face intense competition in organizing capcos, originating SBA loans,
processing electronic payments and offering insurance, as well as in the other
industries in which we or our affiliated companies operate. Low barriers to
entry often result in a steady stream of new competitors entering certain of
these businesses. Current and potential competitors are or may be better
established, substantially larger and have more capital and other resources than
we do. If we expand into additional geographical markets, we will face
competition from others in those markets as well.

A MAJOR FEATURE OF OUR BUSINESS STRATEGY IS THE DEVELOPMENT OF
OPPORTUNITIES FOR OUR SERVICE AND PRODUCT PROVIDER BUSINESSES TO MARKET TO THE
CUSTOMERS OF OUR OTHER BUSINESS LINES AND TO THE CUSTOMER BASES OF OUR ALLIANCE
PARTNERS.

Although the business strategy of management contemplates the referring of
prospects between wholly-owned and partially owned companies in our network,
there is no history of such cross-selling and there can be no assurances that
any effort to make referrals across our network of affiliated companies will
result in additional revenue opportunities. In order for our referral network to
achieve the desired

result, each of the constituent companies must have proper incentives and feel
comfortable making such introduction, and furthermore, the service provider
receiving such referral must properly service such referred client. Instituting
a corporate culture conducive to sending and receiving referrals is difficult
and may not yield the results anticipated by us. In addition, our marketing
alliances are terminable and, if we make serious errors or fail to produce
sufficient revenues for our alliance partners, we are at risk of losing these
relationships.

THE INABILITY OF ANY ONE OF OUR BUSINESS SEGMENTS TO SERVICE CUSTOMERS
ADEQUATELY REFERRED TO IT FROM WITHIN OUR OTHER COMPANIES COULD IMPAIR OUR
OVERALL RELATIONSHIP WITH SUCH CUSTOMERS.

A significant benefit of our structure and strategy is the ability to
cross market between our SBA, electronic payment processing and other business
customers. However, should the business relationship between one of our business
segments and customers deteriorate for any reason, such customers may opt to
withdraw their business from our other businesses. Such a loss of business could
negatively impact our results of operations and cash flows.

WE RELY ON INFORMATION PROCESSING SYSTEMS, AND OUR STRATEGY OF CROSS
MARKETING TO CUSTOMERS AMONG OUR MAJORITY-OWNED SUBSIDIARIES WILL INCREASE THIS
RELIANCE; THE INTERRUPTION, LOSS OR FAILURE OF WHICH WOULD MATERIALLY AND
ADVERSELY AFFECT OUR BUSINESS.

Our ability to provide business services depends, and will increasingly
depend, on our capacity to store, retrieve, process and manage significant
amounts of data and expand and upgrade our information processing capabilities.
Interruption or loss of our information processing capabilities through loss of
stored data, breakdown or malfunctioning of computer equipment and software
systems, telecommunications failure or damage caused by acts of god or other
disruption, could have a material adverse effect on our business, financial
condition and results of operations. Although we have disaster recovery
procedures in place and insurance to protect against such contingencies, we
cannot be certain that our disaster recovery systems or insurance will continue
to be available at reasonable prices, cover all our losses or compensate us for
the possible loss of clients occurring during any period that we are unable to
provide outsourced business services.

WE ARE ATTEMPTING TO BUILD A NATIONAL "NEWTEK" BRAND FOR SERVICES AND
PRODUCTS MARKETED TO SMALL AND MEDIUM-SIZED BUSINESSES, BUT WE ARE UNABLE TO
OBTAIN A SIGNIFICANTLY HIGH LEVEL OF PROTECTION FOR THE BRAND NAME DUE TO ITS
PREVIOUS USAGE IN OTHER CONTEXTS.

The current and past usage by others of names similar to "Newtek" may make
obtaining a significant level of protection for the use of such name very
costly. We cannot assure you that we will be able to prevent competitors from
using the name "Newtek" in other contexts or even in competition with us. In the
event of such an infringement, we would attempt to vigorously defend our rights
to the name, but we can give no assurance that we will be successful in doing
so. We have not registered the mark "Newtek" with the United States Patent and
Trademark Office.

RISKS RELATED TO OUR CAPCO BUSINESS

BECAUSE OUR CAPCOS ARE SUBJECT TO MINIMUM INVESTMENT AND OTHER
REQUIREMENTS UNDER STATE LAW, A FAILURE OF ANY OF THEM TO MEET THESE
REQUIREMENTS COULD SUBJECT THE CAPCO AND OUR SHAREHOLDERS TO THE LOSS OF ONE OR
MORE CAPCOS AND WOULD PRECLUDE PARTICIPATION IN FUTURE CAPCO PROGRAMS.

Involuntary decertification of all or substantially all of our capcos
would result in material loss to us and our shareholders. In general, capcos
issue debt and equity instruments, such as warrants, to insurance company
investors and the capcos then acquire interests in companies in accordance with
applicable state statutes. In return, the states issue tax credits to the
capcos, which are available to and used by the insurance company investors to
reduce their state tax liabilities. In order to maintain its status as a capco
and to avoid the recapture of the tax credits granted, each capco must meet a
number of state requirements. A key requirement in order to maintain capco
certification is that a capco must comply with minimum investment schedules that
benchmark both the timing and type of required investments.

Although to date we have met all applicable benchmarks, we may not do so in the
future. A final involuntary loss of capco status, referred to as a
decertification as a capco, will result in a loss of the tax credits for us and
our insurance company investors; it would also enable the capco insurer, which
has the obligation to make compensatory payments to offset the lost tax credits,
to take control of one or more capcos and manage or liquidate the capco
investments to offset its losses. This would deprive us of the value of the
investments and make participation in future capco programs highly unlikely.

THE ABILITY OF OUR CAPCOS TO MEET MINIMUM INVESTMENT REQUIREMENTS IS
MATERIALLY AND ADVERSELY AFFECTED BY THE COST OF CAPCO INSURANCE.

Each of our capcos, following its organization and payment for capco
insurance, begins operations with cash approximately equal to 50% of its initial
funding (inclusive of any funds obtained from the capco insurer as premium
financing), or "certified capital," the amount on which the minimum investment
requirement is based. In order to avoid decertification and remain in compliance
with applicable rules, each capco must invest an amount equal to at least 50% of
certified capital in qualified investments. The capcos receive full credit in
the minimum investment calculation for the reinvestment of funds returned to the
capco by the repayment, sale or liquidation of investments. However, each
capco's ability to meet its minimum investment requirement could be adversely
effected by:

o the cost of insurance at the beginning of the capco's
investment cycle;

o the ability to obtain the premium financing from the capco
insurer;

o the transfer of 2.5% of certified capital per year as
management fees to us;

o the direct costs and expenses of operating the capco,
including legal and accounting fees;

o the payment of taxes due by the capco; and

o losses by the capco, which are common on investments in
riskier early-stage, start up and potentially high growth
businesses.

As of June 30, 2004 seven of our eleven operating capcos have met the
minimum investment requirements (the capco managed by Exponential Business
Development, Inc., or Exponential, is not included as we only manage but do not
own it). The eleventh capco, in Alabama, was funded and began operations in
January, 2004 and is at the beginning of its business cycle, with the entire
amount of its certified capital yet to be invested. However, the remaining four
capcos must invest an aggregate of approximately $8,910,000 within the varying
time frames prescribed by the capcos' respective states. Failure of one of these
capcos to make the minimum investments within the prescribed time frames would
lead to decertification of a capco.

THE CAPCO PROGRAMS AND THE TAX CREDITS THEY PROVIDE ARE CREATED BY STATE
LEGISLATION, AND SUCH LAWS ARE SUBJECT TO POSSIBLE ACTION TO REPEAL OR
RETROACTIVELY REVISE THE PROGRAMS FOR POLITICAL, ECONOMIC OR OTHER REASONS. SUCH
AN ATTEMPTED REPEAL WOULD CREATE SUBSTANTIAL DIFFICULTY FOR THE CAPCO PROGRAMS
AND COULD, IF ULTIMATELY SUCCESSFUL, CAUSE US MATERIAL FINANCIAL HARM.

The tax credits associated with the capco programs and provided to our
capcos' investors are to be utilized by the investors over a period of time,
typically ten years. Much can change during such a period and it is possible
that one or more states may revise or eliminate the tax credits. Any such
revision or repeal could have a material adverse economic impact on our capco,
either directly or as a result of the capco's insurer's actions. During 2002 a
single legislator in Louisiana did introduce such a proposed bill, on which no
action was taken, and in Colorado in 2003 and 2004 bills to modify (not repeal)
its capco program were introduced; the 2002 legislation was defeated in a
legislative committee. The 2004 Colorado legislation could have a material and
adverse impact on the potential profitability of our Colorado capco if some of
the proposed provisions are adopted.

IN THE EVENT OF A THREAT OF DECERTIFICATION BY A STATE, THE CAPCO INSURER
IS AUTHORIZED TO ASSUME PARTIAL OR COMPLETE CONTROL OF A CAPCO WHICH WOULD
LIKELY RESULT IN FINANCIAL LOSS TO THE CAPCO AND POSSIBLY US AND OUR
SHAREHOLDERS.

Under the terms of insurance policies purchased by all but one of our
capcos for the benefit of the investors, the capco insurer is authorized, in the
event of a formal written threat of decertification by a state and absent
appropriate corrective action by the capco, to assume partial or complete
control of a capco in order to avoid final decertification and the requirement
to pay compensatory interest to the certified investors under the policies.
While avoiding final decertification, control by the insurer would result in
significant disruption of the capco's business and likely result in financial
loss to the capco and our business.

IN THE ABSENCE OF THE ADOPTION OF NEW CAPCO PROGRAMS, WE WILL BE UNABLE TO
DERIVE ANY NEW INCOME FROM TAX CREDITS, WHICH TO DATE REPRESENTS SUBSTANTIALLY
ALL OF OUR INCOME.

Virtually all of our net income for each of the years since inception was
derived from the recognition of income related to tax credits available under
current capco programs. We will recognize additional income related to tax
credits from the current capco programs over the next ten years. Thereafter,
unless additional capco programs are adopted and we are able to participate in
them, we will derive no income from additional capco programs. The adoption of
new state capco programs could be materially and adversely affected by adverse
economic conditions or a change in the political acceptability of economic
development or capco programs.

OUR METHOD OF INCOME RECOGNITION DERIVED FROM THE CAPCO TAX CREDITS CAUSES
MOST OF SUCH INCOME TO BE RECEIVED IN THE FIRST FIVE YEARS OF THE PROGRAMS. IN
THE ABSENCE OF INCOME FROM OUR INVESTMENTS OR OTHER SOURCES, WE WOULD SUSTAIN
MATERIAL LOSSES IN LATER YEARS.

In our capco programs we recognize the majority of our income from the tax
credits in the early years of the programs because income recognition is tied to
the schedule by which the tax credits become irrevocable and beyond recapture
(approximately five years). We recognize the majority of our income from ten
year capco programs in the first five years. In the absence of income from other
sources, such as our investments in small businesses and affiliated companies,
our income would decrease materially and we would likely sustain material losses
in later years. Although we will not be recognizing significant tax credit
income in the latter part of the program, we will continue to incur costs for
the administration of the capcos, insurance expenses for the capcos and interest
expenses on the capco notes. In the absence of our participation in new capco
programs, income from tax credits will remain stagnant or decrease as the capcos
reach maturity beginning in 2004.

IF WE ARE DEEMED TO BE AN INVESTMENT COMPANY UNDER THE INVESTMENT COMPANY
ACT OF 1940, WE WILL NOT BE ABLE TO EXECUTE OUR BUSINESS STRATEGY.

Because capcos can operate in a manner similar to venture capital funds,
there is a risk that the Securities and Exchange Commission, or the SEC, or a
court might conclude that we fall within the definition of investment company,
and unless an exemption is available, we would be required to register under the
Investment Company Act of 1940. Compliance with the Investment Company Act as a
registered investment company would cause us to alter significantly our business
strategy of participating in the management and development of affiliated
companies, impair our ability to operate as planned and seriously harm our
business. In addition, our contracts would be voidable and a court could appoint
a receiver to take control of and liquidate our business.

The SEC has adopted Rule 3a-1 that provides an exemption from registration
as an investment company if a company meets both an asset and an income test and
is not otherwise primarily engaged in an investment company business by, among
other things, holding itself out to the public as such or by taking controlling
interests in companies with a view to realizing profits through subsequent sales
of these interests. A company satisfies the asset test of Rule 3a-1 if it has no
more than 45% of the value of its total assets (adjusted to exclude U.S.
Government securities and cash) in the form of securities other than interests
in majority-owned subsidiaries and companies which it primarily and actively
controls. A

company satisfies the income test of Rule 3a-1 if it has derived no more than
45% of its net income for its last four fiscal quarters combined from securities
other than interests in majority owned subsidiaries and primarily and actively
controlled companies.

RISKS RELATING TO OUR SBA LENDING BUSINESS

WE HAVE SPECIFIC RISKS ASSOCIATED WITH SMALL BUSINESS ADMINISTRATION
LOANS.

We have generally sold the guaranteed portion of SBA loans in the
secondary market. There can be no assurance that we will be able to continue
originating these loans, or that a secondary market will exist for, or that we
will continue to realize premiums upon the sale of, the guaranteed portions of
the SBA loans.

We believe that our SBA loan portfolio does not involve more than a normal
risk of collection. However, since we have sold the guaranteed portion of
substantially all of our SBA loan portfolio, we incur a pro rata credit risk on
the non-guaranteed portion of the SBA loans since we share pro rata with the SBA
in any recoveries. In the event of default on an SBA loan, our pursuit of
remedies against a borrower is subject to SBA approval, and where the SBA
establishes that its loss is attributable to deficiencies in the manner in which
the loan application has been prepared and submitted, the SBA may decline to
honor its guarantee with respect to our SBA loans or it may seek the recovery of
damages from us. If we should experience significant problems with our
underwriting of SBA loans, such failure to honor a guarantee or the cost to
correct the problems could have a material adverse effect on us. Although the
SBA has never declined to honor its guarantees with respect to SBA loans made by
us since our acquisition of the lender, no assurance can be given that the SBA
would not attempt to do so in the future.

CURTAILMENT OF THE GOVERNMENT GUARANTEED LOAN PROGRAMS COULD CUT OFF AN
IMPORTANT SEGMENT OF OUR BUSINESS.

There can be no assurance that the federal government will maintain the
SBA program, or that it will continue to guarantee loans at current levels. If
we cannot continue making and selling government guaranteed loans, we will
generate fewer origination fees and our ability to generate gains on sale of
loans will decrease. From time to time, the government agencies that guarantee
these loans reach their internal budgeted limits and cease to guarantee loans
for a stated time period. In addition, these agencies may change their rules for
loans. Also, Congress may adopt legislation that would have the effect of
discontinuing or changing the programs. Non-governmental programs could replace
government programs for some borrowers, but the terms might not be equally
acceptable. If these changes occur, the volume of loans to small business and
industrial borrowers of the types that now qualify for government guaranteed
loans could decline, as could the profitability of these loans.

CHANGING INTEREST RATES MAY REDUCE OUR INCOME FROM LENDING.

Fluctuations in interest rates may affect customer demand for our loans
and other products and services. Our lending business will likely increase
during times of falling interest rates and, conversely, decrease during times of
significantly higher interest rates. Significant fluctuations in interest rates
and loan demand could have a potentially adverse effect on our results of
operations and cash flows.

OUR ABILITY TO PARTICIPATE IN THE SBA GOVERNMENT-GUARANTEED LOAN PROGRAM
DEPENDS ON OUR ABILITY TO OBTAIN SUFFICIENT WAREHOUSE OR SIMILAR LENDING
FACILITIES, ON SUFFICIENTLY ATTRACTIVE TERMS, TO ENABLE US TO MAKE PROFITABLE
LOANS.

In conjunction with the acquisition of our SBA lending affiliate, we were
able to assist in the renegotiation and extension of a major warehouse loan
facility from an affiliate of Deutsche Bank. This warehouse line enables NSBF to
fund loans and repay the line at the time all or a portion of the loan is sold,
as is typically the case.

On June 22, 2004, NSBF executed an amendment to such warehouse facility to
provide for an extension of the warehouse credit line to June 30, 2005 and a
possible increase of such line from the current $75 million up to $100 million
under certain conditions. The credit facility had been scheduled to terminate on
June 30, 2004. The amended warehouse line contains adjustments to the terms of
the advances and required reserves, additional financial and non-financial
covenants and a commitment from NSBF to obtain $10 million in additional
funding. In addition, the amended agreement requires, among other terms and
conditions, that: (1) Newtek continue its previous guaranty of all of NSBF's
obligations under the credit line (including the possible expanded facility),
(2) Newtek conform to maximum debt and minimum equity requirements, (3) Newtek
not pay dividends for the one year term of the facility and (4) in the absence
of funding from other sources, Newtek make a debt or equity infusion of at least
$10 million to support the lending activities of NSBF.

In the absence of NSBF's warehouse line of credit, or some other
comparable credit facility, NSBF would be unable to make any material number of
loans without finding a replacement lending facility. Furthermore, our interest
spread and net earnings from this segment of our business would be directly
effected by the terms and conditions of the replacement lending facilities.

AN INCREASE IN NON-PERFORMING ASSETS WOULD REDUCE OUR INCOME AND INCREASE
OUR EXPENSES.

If our level of non-performing assets in our SBA lending business rises in
the future, it could adversely affect our revenue and earnings. Non-performing
assets are primarily loans on which borrowers are not making their required
payments. Non-performing assets also include loans that have been restructured
to permit the borrower to have smaller payments and real estate that has been
acquired through foreclosure of unpaid loans. To the extent that our loan assets
are non-performing, we will have less cash available for lending and other
activities.

RISKS RELATING TO OUR ELECTRONIC PAYMENT PROCESSING BUSINESS

WE RELY CURRENTLY ON A SINGLE BANK SPONSOR, WHICH HAS SUBSTANTIAL
DISCRETION WITH RESPECT TO CERTAIN ELEMENTS OF OUR BUSINESS PRACTICES, IN ORDER
TO PROCESS BANKCARD TRANSACTIONS. IF THIS SPONSORSHIP IS TERMINATED AND WE ARE
NOT ABLE TO SECURE OR MIGRATE MERCHANT PORTFOLIOS TO NEW BANK SPONSORS, WE WILL
NOT BE ABLE TO CONDUCT OUR ELECTRONIC PAYMENT PROCESSING BUSINESS.

Because we are not a bank, we are unable to belong to and directly access
the Visa and MasterCard bankcard associations. The Visa and MasterCard operating
regulations require us to be sponsored by a bank in order to process bankcard
transactions. We are currently registered with Visa and MasterCard through the
sponsorship of one bank that is a member of the card associations. If this
sponsorship is terminated and we are unable to secure a bank sponsor, we will
not be able to process bankcard transactions. Furthermore, our agreement with
our sponsoring bank gives the sponsoring bank substantial discretion in
approving certain elements of our business practices, including our
solicitation, application and qualification procedures for merchants, the terms
of our agreements with merchants, the processing fees that we charge, our
customer service levels and our use of independent sales organizations. We
cannot guarantee that our sponsoring bank's actions under these agreements will
not be detrimental to us.

IF WE OR OUR BANK SPONSOR FAIL TO ADHERE TO THE STANDARDS OF THE VISA AND
MASTERCARD CREDIT CARD ASSOCIATIONS, OUR REGISTRATIONS WITH THESE ASSOCIATIONS
COULD BE TERMINATED AND WE COULD BE REQUIRED TO STOP PROVIDING PAYMENT
PROCESSING SERVICES FOR VISA AND MASTERCARD.

Substantially all of the transactions we process involve Visa or
MasterCard. If we or our bank sponsor fail to comply with the applicable
requirements of the Visa and MasterCard credit card associations, Visa or
MasterCard could suspend or terminate our registration. The termination of our
registration or any changes in the Visa or MasterCard rules that would impair
our registration could require us to stop providing payment processing services,
which would have a material adverse effect on our business.

WE AND OUR ELECTRONIC PAYMENT PROCESSING SUBSIDIARIES RELY ON OTHER CARD
PAYMENT PROCESSORS AND SERVICE PROVIDERS. IF THEY NO LONGER AGREE TO, OR ARE
UNABLE TO, PROVIDE THEIR SERVICES, OUR MERCHANT RELATIONSHIPS COULD BE ADVERSELY
AFFECTED AND WE COULD LOSE BUSINESS.

Our electronic payment processing business relies on agreements with
several other large payment processing organizations to enable us to provide
card authorization, data capture, settlement and merchant accounting services
and access to various reporting tools for the merchants we serve. We also rely
on third parties to whom we outsource specific services, such as reorganizing
and accumulating daily transaction data on a merchant-by-merchant and card
issuer-by-card issuer basis and forwarding the accumulated data to the relevant
bankcard associations. Many of these organizations and service providers are our
competitors. The termination by our service providers of these arrangements with
us or their failure to perform these services efficiently and effectively may
adversely affect our relationships with the merchants whose accounts we serve
and may cause those merchants to terminate their processing agreements with us.

ON OCCASION, WE EXPERIENCE INCREASES IN INTERCHANGE AND SPONSORSHIP FEES.
IF WE CANNOT PASS THESE INCREASES ALONG TO OUR MERCHANTS, OUR PROFIT MARGINS
WILL BE REDUCED.

Our electronic payment processing subsidiaries pay interchange fees or
assessments to card associations for each transaction we process using their
credit, debit and gift cards. From time to time, the card associations increase
the interchange fees that they charge processors and the sponsoring banks. At
their sole discretion, our sponsoring banks have the right to pass any increases
in interchange fees on to us. In addition, our sponsoring banks may increase
their Visa and MasterCard sponsorship fees, all of which are based upon the
dollar amount of the payment transactions we process. If we are not able to pass
these fee increases along to merchants through corresponding increases in our
processing fees, our profit margins in this line of business will be reduced.

UNAUTHORIZED DISCLOSURE OF MERCHANT OR CARDHOLDER DATA, WHETHER THROUGH
BREACH OF OUR COMPUTER SYSTEMS OR OTHERWISE, COULD EXPOSE US TO LIABILITY AND
BUSINESS LOSSES.

Through our electronic payment processing subsidiaries, we collect and
store sensitive data about merchants and cardholders and we maintain a database
of cardholder data relating to specific transactions, including payment, card
numbers and cardholder addresses, in order to process the transactions and for
fraud prevention and other internal processes. If anyone penetrates our network
security or otherwise misappropriates sensitive merchant or cardholder data, we
could be subject to liability or business interruption. We cannot guarantee that
our systems will not be penetrated in the future. If a breach of our system
occurs, we may be subject to liability, including claims for unauthorized
purchases with misappropriated card information, impersonation or other similar
fraud claims.

WE HAVE POTENTIAL LIABILITY IF OUR MERCHANTS REFUSE OR CANNOT REIMBURSE
CHARGE-BACKS RESOLVED IN FAVOR OF THEIR CUSTOMERS.

If a billing dispute between a merchant and a cardholder is not ultimately
resolved in favor of the merchant, the disputed transaction is "charged back" to
the merchant's bank and credited to the account of the cardholder. If we or our
processing banks are unable to collect the charge-back from the merchant's
account, or if the merchant refuses or is financially unable due to bankruptcy
or other reasons to reimburse the merchant's bank for the charge-back, we bear
the loss for the amount of the refund paid to the cardholder's bank.

WE FACE POTENTIAL LIABILITY FOR CUSTOMER OR MERCHANT FRAUD.

Credit card fraud occurs when a merchant's customer uses a stolen card (or
a stolen card number in a card-not-present transaction) to purchase merchandise
or services. In a traditional card-present transaction, if the merchant swipes
the card, receives authorization for the transaction from the card issuing bank
and verifies the signature on the back of the card against the paper receipt
signed by the customer, the card issuing bank remains liable for any loss. In a
fraudulent card-not-present transaction, even if the merchant receives
authorization for the transaction, the merchant is liable for any loss arising

from the transaction. Many of our business customers are small and transact a
substantial percentage of their sales over the Internet or by telephone or mail
orders. Because their sales are card-not-present transactions, these merchants
are more vulnerable to customer fraud than larger merchants and we could
experience charge-backs arising from cardholder fraud more frequently with these
merchants.

Merchant fraud occurs when a merchant, rather than a customer, knowingly
uses a stolen or counterfeit card or card number to record a false sales
transaction or intentionally fails to deliver the merchandise or services sold
in an otherwise valid transaction. Anytime a merchant is unable to satisfy a
charge-back, we are responsible for that charge-back. We have established
systems and procedures to detect and reduce the impact of merchant fraud, but we
cannot assure you that these measures are or will be effective. Failure to
effectively manage risk and prevent fraud could increase our charge-back
liability.

RISKS RELATING TO OUR WEBSITE HOSTING BUSINESS

CRYSTALTECH OPERATES IN A COMPETITIVE INDUSTRY WHERE TECHNOLOGICAL CHANGE
CAN BE RAPID.

The website hosting business and its related technology involve a broad
range of rapidly changing technologies. CrystalTech's equipment and the
technologies on which it is based may not remain competitive over time, and
others may develop superior technologies that render CrystalTech's products
non-competitive without significant additional capital expenditures.

CRYSTALTECH'S WEBSITE HOSTING BUSINESS DEPENDS ON THE EFFICIENT AND
UNINTERRUPTED OPERATION OF ITS COMPUTER AND COMMUNICATIONS HARDWARE SYSTEMS AND
INFRASTRUCTURE.

Despite precautions taken by CrystalTech against possible failure of its
systems, interruptions could result from natural disasters, power loss, the
inability to acquire fuel for our backup generators, telecommunications failure,
terrorist attacks and similar events. CrystalTech also leases telecommunications
lines from local, regional and national carriers whose service may be
interrupted. Our business, financial condition and results of operations could
be harmed by any damage or failure that interrupts or delays our operations.

OF PRIMARY IMPORTANCE TO CRYSTALTECH'S WEBSITE HOSTING CUSTOMERS IS THE
INTEGRITY OF ITS INFRASTRUCTURE AND THE PRIVACY OF CONFIDENTIAL INFORMATION.

CrystalTech's infrastructure is potentially vulnerable to physical or
electronic break-ins, viruses or similar problems. If a person circumvents
CrystalTech's security measures, he or she could jeopardize the security of
confidential information stored on CrystalTech's systems, misappropriate
proprietary information or cause interruptions in CrystalTech's operations. We
may be required to make significant additional investments and efforts to
protect against or remedy security breaches. Security breaches that result in
access to confidential information could damage our reputation and expose us to
a risk of loss or liability. The security services that CrystalTech offers in
connection with customers' networks cannot assure complete protection from
computer viruses, break-ins and other disruptive problems. Although CrystalTech
attempts to limit contractually its liability in such instances, the occurrence
of these problems may result in claims against CrystalTech or us or liability on
our part. These claims, regardless of their ultimate outcome, could result in
costly litigation and could harm our business and reputation and impair
CrystalTech's ability to attract and retain customers.

CRYSTALTECH'S BUSINESS DEPENDS ON MICROSOFT CORPORATION FOR THE LICENSE TO
USE SOFTWARE AS WELL AS OTHER INTELLECTUAL PROPERTY IN ITS WEBSITE HOSTING
BUSINESS.

CrystalTech's website hosting business is built on a technological
platform relying on the Microsoft Windows(R) products that CrystalTech currently
licenses. As a result, if we are unable to continue to have the benefit of that
licensing arrangement or if the Microsoft Windows(R) products upon which
CrystalTech's platform is built become obsolete, our business could be
materially and adversely affected.

CRYSTALTECH DEPENDS ON THE SERVICES OF A FEW KEY PERSONNEL IN MANAGING ITS
WEBSITE HOSTING BUSINESS, AND THE LOSS OF ONE OR MORE OF THEM COULD MATERIALLY
IMPAIR ITS ABILITY TO MAINTAIN CURRENT LEVELS OF CUSTOMER SERVICE AND THE PROPER
TECHNICAL OPERATIONS OF ITS BUSINESS.

We will depend upon the continued management by Tim Uzzanti of the
operations of CrystalTech's website hosting business, along with two or three
other individuals to supervise CrystalTech's technical operations and the
customer technical service response. If we were to lose the services of one or
more of these persons, our website hosting business could be significantly
diminished.

RISKS RELATING TO OUR NEW BUSINESSES

THE NEW BUSINESSES WE PLAN TO DEVELOP OR ORGANIZE, NAMELY INSURANCE SALES,
TAX PREPARATION SERVICES AND FINANCIAL INFORMATION SERVICES WILL BE BUSINESSES
WHICH ARE NEW TO US AND WE MAY INCUR SIGNIFICANT LOSSES PRIOR TO BECOMING
PROFITABLE IF EVER.

We do not have any experience in conducting our proposed new businesses in
any meaningful manner in the past. Our investment in and operation of these
businesses may result in losses due to our lack of knowledge and experience.

WE CANNOT ASSURE THAT THE INSURANCE, TAX PREPARATION OR FINANCIAL
INFORMATION SERVICES WE PLAN TO OFFER WILL BE PRICE COMPETITIVE OR ACCEPTED BY
OUR CUSTOMERS.

Despite our efforts to design, market and deliver integrated services to
our customers, our proposed new services may not be widely accepted and we may
not be able to compete with other larger and better capitalized providers of
such services.

WE WILL DEPEND ON THIRD PARTIES, PARTICULARLY PROPERTY AND CASUALTY
INSURANCE COMPANIES, TO SUPPLY THE PRODUCTS MARKETED BY OUR AGENTS.

Our future contracts with property and casualty insurance companies
typically will provide that the contracts can be terminated by the supplier
without cause. Our inability to enter into satisfactory arrangements with these
suppliers or the loss of these relationships for any reason would adversely
affect the results of our new insurance business.

TERMINATION OF OUR PROFESSIONAL LIABILITY INSURANCE POLICY MAY ADVERSELY
IMPACT OUR FINANCIAL PROSPECTS AND OUR ABILITY TO CONTINUE OUR RELATIONSHIPS
WITH INSURANCE COMPANIES.

We will need to obtain professional liability insurance in connection with
the operation of this business. If we are unable to obtain or if we lose such
insurance after we obtain it, it is unlikely that our relationships with
insurance companies would continue. We are currently in the process of obtaining
professional liability insurance to cover the operations of the insurance agency
and meet applicable state licensing requirements but no assurances can be given
that we will be able to obtain such insurance. Once obtained, our failure to
maintain this insurance would have a material adverse impact on the business.

IF WE FAIL TO COMPLY WITH GOVERNMENT REGULATIONS, OUR INSURANCE AGENCY
BUSINESS COULD BE ADVERSELY AFFECTED.

Our insurance agency business will be subject to comprehensive regulation
in the various states in which we plan to conduct business. Our success will
depend in part upon our ability to satisfy these regulations and to obtain and
maintain all required licenses and permits. Our failure to comply with any
statutes and regulations could have a material adverse effect on us.
Furthermore, the adoption of additional statutes and regulations, changes in the
interpretation and enforcement of current statutes and regulations or the
expansion of our business into jurisdictions that have adopted more stringent
regulatory requirements than those in which we currently conduct business could
have a material adverse effect on us.

WE DO NOT HAVE ANY CONTROL OVER THE COMMISSIONS OUR INSURANCE AGENCY
EXPECTS TO EARN ON THE SALE OF INSURANCE PRODUCTS WHICH ARE BASED ON PREMIUMS
AND COMMISSION RATES SET BY INSURERS AND THE CONDITIONS PREVALENT IN THE
INSURANCE MARKET.

Our insurance agency expects to earn commissions on the sale of insurance
products. Commission rates and premiums can change based on the prevailing
economic and competitive factors that affect insurance underwriters. In
addition, the insurance industry has been characterized by periods of intense
price competition due to excessive underwriting capacity and periods of
favorable premium levels due to shortages of capacity. We cannot predict the
timing or extent of future changes in commission rates or premiums or the effect
any of these changes will have on the operations of our insurance agency.

RISKS RELATING TO OUR COMMON STOCK

THREE OF OUR SHAREHOLDERS, ALL OF WHOM ARE EXECUTIVE OFFICERS AND
DIRECTORS, BENEFICIALLY OWN APPROXIMATELY 42% OF OUR COMMON STOCK AND WILL BE
ABLE TO CONTROL THE OUTCOME OF MOST SHAREHOLDER ACTIONS.

Because of their ownership of our stock, Messrs. Sloane, Wasserman and
Rubin will be able to control or have significant influence over all actions
requiring shareholder approval, including the election of directors, the
adoption of amendments to the certificate of incorporation, approval of stock
incentive plans and approval of major transactions such as a merger or sale of
assets. This could delay or prevent a change in control of our company, deprive
our shareholders of an opportunity to receive a premium for their shares of
common stock as part of a change in control and have a negative effect on the
market price of our common stock.

THERE IS A SMALL TRADING MARKET FOR OUR COMMON STOCK, AND YOU MAY NOT BE
ABLE TO RESELL YOUR SHARES AT OR ABOVE THE PRICE YOU PAY FOR THEM.

The price of our common stock is subject to fluctuations based on, among
other things, economic and market conditions for companies in similar industries
to ours and the stock market in general, as well as changes in investor
perceptions of us. While we are a publicly-traded company, the volume of trading
activity in our stock is relatively small. The current public float of our
common stock is approximately 18,500,000 shares, and the average daily trading
volume of our common stock from January 1, 2004 through June 30, 2004 was
approximately 77,000 shares. Even if a more active market develops, there can be
no assurance that such a market will continue or that our shareholders will be
able to sell their shares at or above the offering price.

FUTURE ISSUANCES OF OUR COMMON STOCK OR OTHER SECURITIES, INCLUDING
PREFERRED STOCK, MAY DILUTE THE PER SHARE BOOK VALUE OF OUR COMMON STOCK OR HAVE
OTHER ADVERSE CONSEQUENCES TO OUR COMMON SHAREHOLDERS.

Our board of directors has the authority, without the action or vote of
our shareholders, to issue all or part of the approximately 5,800,000 authorized
but unissued shares of our common stock. If issued, these common shares would
represent approximately 17% of our outstanding common stock. Our business
strategy relies upon investment in and acquisition of businesses using the
resources available to us, including our common stock. We have made acquisitions
during 2002, 2003 and 2004 involving the issuance of our common stock, and we
expect to make additional acquisitions in the future using our common stock.
Additionally, we anticipate granting additional options or restricted stock
awards to our employees and directors in the future. We may also issue
additional securities, through public or private offerings, in order to raise
capital to support our growth, including in connection with possible
acquisitions or in connection with purchases of minority interests in affiliated
companies or capcos. Future issuances of our common stock will dilute the
percentage of ownership interest of current shareholders and could decrease the
per share book value of our common stock. In addition, option holders may
exercise their options at a time when we would otherwise be able to obtain
additional equity capital on more favorable terms.

Pursuant to our certificate of incorporation, our board of directors is
authorized to issue, without action or vote of our shareholders, up to 1,000,000
shares of "blank check" preferred stock, meaning that our board of directors
may, in its discretion, cause the issuance of one or more series of preferred
stock and fix the designations, preferences, powers and relative participating,
optional and other rights, qualifications, limitations and restrictions thereof,
including the dividend rate, conversion rights, voting rights, redemption rights
and liquidation preference, and to fix the number of shares to be included in
any such series. The preferred stock so issued may rank superior to the common
stock with respect to the payment of dividends or amounts upon liquidation,
dissolution or winding-up, or both. In addition, the shares of preferred stock
may have class or series voting rights.

THE AUTHORIZATION AND ISSUANCE OF "BLANK CHECK" PREFERRED STOCK COULD HAVE
AN ANTI-TAKEOVER EFFECT DETRIMENTAL TO THE INTERESTS OF OUR SHAREHOLDERS.

Our certificate of incorporation allows our board of directors to issue
preferred stock with rights and preferences set by the board without further
shareholder approval. The issuance of shares of this "blank check" preferred
stock could have an anti-takeover effect detrimental to the interests of our
shareholders. For example, in the event of a hostile takeover attempt, it may be
possible for management and the board to impede the attempt by issuing the
preferred shares, thereby diluting or impairing the voting power of the other
outstanding shares of common stock and increasing the potential costs to acquire
control of us. Our board has the right to issue any new shares, including
preferred shares, without first offering them to the holders of common stock as
they have no preemptive rights.

WE KNOW OF NO OTHER PUBLICLY-HELD COMPANY THAT SPONSORS AND OPERATES
CAPCOS AS A MATERIAL PART OF ITS BUSINESS. AS SUCH, THERE ARE, TO OUR KNOWLEDGE,
NO OTHER COMPANIES AGAINST WHICH INVESTORS MAY COMPARE OUR CAPCO BUSINESS,
OPERATIONS, RESULTS OF OPERATIONS AND FINANCIAL AND ACCOUNTING STRUCTURES.

In the absence of any meaningful peer group comparisons for our capco
business, investors may have a difficult time understanding and judging the
strength of our business. This, in turn, may have a depressing effect on the
value of our stock.

SUBSTANTIAL SALES OF SHARES MAY IMPACT THE MARKET PRICE OF OUR COMMON
STOCK.

If our shareholders sell substantial amounts of our common stock, the
market price of our common stock may decline. These sales also might make it
more difficult for us to sell equity or equity-related securities in the future
at a time and price that we deem appropriate. We are unable to predict the
effect that sales may have on the then prevailing market price of our common
stock. This risk is compounded by the fact that Messrs. Sloane, Rubin and
Wasserman, each of whom are executive officers and directors, own approximately
42% of our common stock, and sales by any one of them of substantial numbers of
shares, or the perception that such sales could occur, could adversely affect
the market price.

PROVISIONS OF OUR CERTIFICATE OF INCORPORATION AND NEW YORK LAW PLACE
RESTRICTIONS ON OUR SHAREHOLDERS' ABILITY TO RECOVER FROM OUR DIRECTORS.

As permitted by New York law, our amended and restated certificate of
incorporation limits the liability of our directors for monetary damages for
breach of a director's fiduciary duty except for liability in certain instances.
As a result of these provisions and New York law, shareholders have restrictions
and limitations upon their rights to recover from directors for breaches of
their duties. In addition, our certificate of incorporation provides that we
must indemnify our directors and officers to the fullest extent permitted by
law.

WE MAY NOT BE ABLE TO COMPLY IN A TIMELY MANNER WITH ALL OF THE RECENTLY
ENACTED OR PROPOSED CORPORATE GOVERNANCE REQUIREMENTS.

Beginning with the enactment of the Sarbanes-Oxley Act of 2002, in July
2002, a significant number of new corporate governance requirements have been
adopted or proposed by the SEC and the Nasdaq Stock Market. Although we
currently expect to comply with all current and future requirements, we may

not be successful in complying with these requirements in the future. In
addition, certain of these requirements may require us to make changes to our
corporate governance.

WHERE YOU CAN FIND MORE INFORMATION;
INCORPORATION BY REFERENCE

We file annual, quarterly and current reports, proxy statements and
other information with the Securities and Exchange Commission. Our file number
under the Securities Exchange Act is 1-16123. You may read and copy, upon
payment of a fee set by the SEC, any document that we file with the SEC at its
public reference rooms in Washington, D.C. (450 Fifth Street, N.W., 20549) and
Chicago, Illinois (Citicorp Center, 500 West Madison Street, 14th Floor, Suite
1400, 60661). You may also call the SEC at 1-800-432-0330 for more information
on the public reference rooms. Our filings are also available to the public on
the Internet, through the SEC's EDGAR database. You may access the EDGAR
database at the SEC's web site at http://www.sec.gov.

The SEC allows us to "incorporate by reference" into this prospectus
the information we file with them. This means that we can disclose important
business, financial and other information in our SEC filings by referring you to
the documents containing this information. All information incorporated by
reference is part of this prospectus, unless that information is updated and
superseded by the information contained in this prospectus or by any information
filed subsequently that is incorporated by reference or by any prospectus
supplement. Any prospectus supplement or any information that we subsequently
file with the SEC that is incorporated by reference will automatically supersede
any prior information that is part of this prospectus or any prior prospectus
supplement. We incorporate by reference the documents listed below and any
future filings made with the SEC under Sections 13(a), 13(c), 14 or 15(d) of the
Securities Exchange Act of 1934 until the termination of this offering:

o Proxy Statement filed June 18, 2004.

o The description of our Common Stock contained in our Registration
Statement on Form 8-A, filed September 18, 2000, which registered
our common stock under Section 12(b) of the Securities Exchange
Act of 1934.

o Quarterly Reports on Form 10-Q for the periods ended March 31 and
June 30, 2004.

o Annual Reports on Form 10-K for the year ended December 31, 2003,
filed March 30, 2004.

o Current Reports on Form 8-K dated August 18 and July 13, 2004
relating to the acquisition of CrystalTech Web Hosting, Inc.

o Current Reports on Form 8-K filed August 23, August 25, and
August 26, 2004.

This prospectus is part of a Registration Statement on Form S-3 we have
filed with the SEC relating to our common stock registered under the Securities
Act of 1933. As permitted by SEC rules, this prospectus does not contain all of
the information contained in the Registration Statement and accompanying
exhibits and schedules we file with the SEC. You may refer to the registration
statement, the exhibits and schedules for more information about us and our
common stock. The registration statement, exhibits and schedules are also
available at the SEC's public reference rooms or through its EDGAR database on
the internet.

You may obtain a copy of these filings at no cost by writing to us at
Newtek Business Services, Inc., 100 Quentin Roosevelt Boulevard, Suite 408,
Garden City, New York, Attention: Ellen Merryman, or by telephoning us at (516)
794-0100. In order to obtain timely delivery, you must request the information
no later than five business days prior to the date you decide to invest in our
common stock.

You should rely only on the information incorporated by reference or
provided in this prospectus or any prospectus supplement. We have not authorized
anyone to provide you with different information. We are not making an offer of
these securities in any state where the offer is not permitted. You should not
assume that the information in this prospectus or any prospectus supplement is
accurate as of any date other than the date on the front of this prospectus.

SPECIAL NOTE OF CAUTION REGARDING FORWARD-LOOKING STATEMENTS

Certain statements contained in (i) this prospectus, (ii) any
applicable prospectus supplement and (iii) the documents incorporated by
reference into this prospectus, may constitute "forward-looking statements"
within the meaning of the federal securities laws. Forward-looking statements
are based on our management's beliefs, assumptions and expectations of our
future economic performance, taking into account the information currently
available to them. These statements are not statements of historical fact.
Forward-looking statements involve risks and uncertainties that may cause our
actual results, performance or financial condition to be materially different
from the expectations of future results, performance or financial condition we
express or imply in any forward-looking statements. Some of the important
factors that could cause our actual results, performance or financial condition
to differ materially from our expectations are:

o The performance of our consolidated operating companies, aspects
of which are outside our control.

o Losses by the capcos due to investments in riskier early-stage and
start up businesses could make it significantly more difficult for
the capcos to meet minimum state statutory investment benchmarks
and thus subject the capcos to decertification and further
financial loss.

o The degree and nature of our competition and that of our
consolidated operating companies.

o The lack of widespread acceptance of the commercial use of the
Internet, which may be material to one or more of our consolidated
operating companies.

o Our ability, and that of our consolidated operating companies, to
attract and retain key managerial and technical personnel.

o Changes in government regulation of our business and those of our
consolidated operating companies.

When used in our documents or oral presentations, the words
"anticipate", "estimate", "expect", "objective", "projection", "forecast",
"goal", or similar words are intended to identify forward-looking statements. We
qualify any such forward-looking statements entirely by these cautionary
factors.

PLAN OF DISTRIBUTION

We are registering all 69,444 shares on behalf of the selling
shareholder. The selling shareholder named in the table below or pledgees,
donees, transferees or other successors-in-interest selling shares received from
the named selling shareholder as a gift or other non-sale-related transfer after
the date of this prospectus may sell the shares from time to time. The selling
shareholder may also decide not to sell all the shares he is allowed to sell
under this prospectus. The selling shareholder will act independently of us in
making decisions with respect to the timing, manner and size of each sale. The
sales may be made on one or more exchanges or in the over-the-counter market or
otherwise, at prices and at terms then prevailing or at prices related to the
then current market price, or in negotiated transactions. The selling
shareholder may effect such transactions by selling the shares to or through
broker-dealers. Our common stock may be sold by the selling shareholder in one
or more of, or a combination of, the following transactions:

o a block trade in which the broker-dealer so engaged will attempt
to sell our common stock as agent but may position and resell a
portion of the block as principal to facilitate the transaction,

o purchases by a broker-dealer as principal and resale by such
broker-dealer for its account pursuant to this prospectus,

o an exchange distribution in accordance with the rules of such
exchange,

o ordinary brokerage transactions and transactions in which the
broker solicits purchasers, and

o in privately negotiated transactions.

To the extent required, this prospectus may be amended or supplemented
from time to time to describe a specific plan of distribution. In effecting
sales, broker-dealers engaged by the selling shareholder may arrange for other
broker-dealers to participate in the resales.

The selling shareholder may enter into hedging transactions with
broker-dealers in connection with distributions of our common stock or
otherwise. In such transactions, broker-dealers may engage in short sales of the
shares in the course of hedging the positions they assume with the selling
shareholder. The selling shareholder also may sell shares short and redeliver
our common stock to close out such short positions. The selling shareholder may
enter into option or other transactions with broker-dealers which require the
delivery to the broker-dealer of our common stock. The broker-dealer may then
resell or otherwise transfer such shares pursuant to this prospectus. The
selling shareholder also may loan or pledge the shares to a broker-dealer. The
broker-dealer may sell our common stock so loaned, or upon a default the
broker-dealer may sell the pledged shares pursuant to this prospectus.

Broker-dealers or agents may receive compensation in the form of
commissions, discounts or concessions from the selling shareholder.
Broker-dealers or agents may also receive compensation from the purchasers of
our common stock for whom they act as agents or to whom they sell as principals,
or both. Compensation as to a particular broker-dealer might be in excess of
customary commissions and will be in amounts to be negotiated in connection with
our common stock. Broker-dealers or agents and any other participating
broker-dealers or the selling shareholder may be deemed to be an "underwriter"
within the meaning of Section 2(11) of the Securities Act of 1933 in connection
with sales of the shares. Accordingly, any such commission, discount or
concession received by it and any profit on the resale of our common stock
purchased by it may be deemed to be underwriting discounts or commissions under
the Securities Act of 1933. Because a selling shareholder may be deemed to be an
"underwriter" within the meaning of Section 2(11) of the Securities Act of 1933,
the selling shareholder will be subject to the prospectus delivery requirements
of the Securities Act of 1933. In addition, any securities covered by this
prospectus which qualify for sale pursuant to Rule 144 promulgated under the
Securities Act of 1933 may be sold under Rule 144 rather than pursuant to this
prospectus. The selling shareholder has advised us that they have not entered
into any agreements, understandings or arrangements with any underwriters or
broker-dealers regarding the sale of their securities. There is no underwriter
or coordinating broker acting in connection with the proposed sale of shares by
the selling shareholder.

Our common stock will be sold only through registered or licensed
brokers or dealers if required under applicable state securities laws. In
addition, in certain states our common stock may not be sold unless they have
been registered or qualified for sale in the applicable state or an exemption
from the registration or qualification requirement is available and is complied
with.

Under applicable rules and regulations under the Securities Exchange
Act of 1934, any person engaged in the distribution of our common stock may not
simultaneously engage in market making activities with respect to our common
stock for a period of two business days prior to the commencement of such
distribution. In addition, the selling shareholder will be subject to applicable
provisions of the Securities Exchange Act of 1934 and the associated rules and
regulations under the Securities Exchange Act of 1934, including Regulation M,
which provisions may limit the timing of purchases and sales of shares of our
common stock by the selling shareholder. We will make copies of this prospectus
available to the selling shareholder and have informed him of the need for
delivery of copies of this prospectus to purchasers at or prior to the time of
any sale of our common stock.

We will file a supplement to this prospectus, if required, pursuant to
Rule 424(b) under the Securities Act of 1933 upon being notified by the selling
shareholder that any material arrangement has been entered into with a
broker-dealer for the sale of shares through a block trade, special offering,
exchange distribution or secondary distribution or a purchase by a broker or
dealer. Such supplement will disclose:

o the name of such selling shareholder(s) and of the participating
broker-dealer(s),

o the number of shares involved,

o the price at which such shares were sold,

o the commissions paid or discounts or concessions allowed to such
broker-dealer(s), if any,

o that such broker-dealer(s) did not conduct any investigation to
verify the information set out or incorporated by reference in
this prospectus, and

o other facts material to the transaction.

We will bear all costs, expenses and fees in connection with the
registration of our common stock. The selling shareholder will bear all
commissions and discounts, if any, attributable to the sales of the shares. The
selling shareholder may agree to indemnify any broker-dealer or agent that
participates in transactions involving sales of the shares against certain
liabilities, including liabilities arising under the Securities Act of 1933.

SELLING SHAREHOLDER

On July 9, 2004, Newtek Business Services, Inc. completed the
acquisition of the business of CrystalTech Web Hosting, Inc., a Phoenix based
company engaged in the business of providing website hosting services, pursuant
to an asset purchase agreement by and among them. Pursuant to the terms of the
asset purchase agreement, as a portion of the purchase price Tim Uzzanti
received 69,444 shares of our common stock, which have been registered for
resale with the use of this prospectus. Newtek Business Services, Inc. has
agreed with the selling shareholder to file a registration statement to register
for resale the shares of common stock set forth below. The selling shareholder
has not had a material relationship with Newtek Business Services, Inc. within
the past three years other than as a result of ownership of our shares and as an
employee of CrystalTech following its acquisition on July 9, 2004. Shares may
also be sold by donees, pledges and other transferees or successors-in-interest
of the selling shareholder.

The following table sets forth the name of the selling shareholder, the
number of shares owned by the selling shareholder as of the date of this
Prospectus, and the number of shares of our common stock expected to be owned by
selling shareholder after this offering is completed. The number of shares in
the column "Number of Shares Being Offered" represents all of the shares the
selling shareholder may offer under this prospectus. We do not know how many
shares or how long the selling shareholder may continue to offer under this
prospectus. We do not know how long the selling shareholder will hold the shares
before selling them, and we currently have no agreements, arrangements or
understandings with the selling shareholder regarding the sale of any of the
shares, except as indicated below. The shares being offered by this prospectus
may be offered from time to time by the selling shareholder named below. Because
the selling shareholder may sell all, some or none of the shares or may acquire
or dispose of other shares of common stock, we cannot estimate the aggregate
number of shares that will be sold in this offering or the number or percentage
of shares of common stock that the selling shareholder will own upon completion
of this offering.

SHARES BENEFICIALLY OWNED SHARES BENEFICIALLY OWNED
PRIOR TO OFFERING AFTER OFFERING
NAME OF ------------------------- NUMBER OF SHARES -------------------------
SHAREHOLDERS NUMBER PERCENT BEING OFFERED NUMBER PERCENT
------------------------------ -------------- ----------------- ------------------------- --------------- ----------------

Tim Uzzanti 555,555* 1.68% 69,444 486,111 1.47%

* Pursuant to the asset purchase agreement relating to the acquisition of
CrystalTech Web Hosting, Inc., 486,111 of the pre-offering shares may be
released from escrow if certain profitability benchmarks and conditions
subsequent are attained. If such conditions are not attained the shares will be
returned to the Company.

USE OF PROCEEDS

Newtek Business Services, Inc. will not receive any of the proceeds
from the sale of the shares by the selling shareholder. LEGAL MATTERS

Cozen O'Connor, Washington, D.C., will pass on the validity of our
common stock being registered.

EXPERTS

The consolidated financial statements as of December 31, 2003 and 2002
and for each of the three years in the period ended December 31, 2003
incorporated in this Prospectus by reference to the Annual Report on Form 10-K
for the year ended December 31, 2003 have been so incorporated in reliance on
the report of PricewaterhouseCoopers LLP, independent registered public
accounting firm, given on the authority of said firm as experts in auditing and
accounting.

DISCLOSURE OF COMMISSION POSITION ON
INDEMNIFICATION FOR SECURITIES ACT LIABILITY

Our certificate of incorporation and our Bylaws provide that our
directors, officers, employees or agent shall be indemnified as to any
threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative, as long as the director, officer,
employee or agent acted in good faith and in a manner reasonably believed to be
in our best interests. Our Bylaws also authorize us to purchase and maintain
insurance on behalf of any of our directors or officers against any liability
asserted against that person in that capacity, whether or not we would have the
power to indemnify that person.

In addition, the New York Business Corporation Law empowers us to
indemnify and advance expenses to our directors, officers, employees or agents.
Additionally, the New York Business Corporation Law states that indemnification
and advancement of expenses permitted by that Law is not exclusive to any other
rights which those seeking indemnification or advancement of expenses may be
entitled pursuant to any bylaw, agreement, vote of shareholders or disinterested
director or otherwise.

Insofar as indemnification for liabilities arising under the Securities
Act, may be permitted to our directors, officers, and controlling persona
pursuant to the foregoing provisions, or otherwise, we have been advised that in
the opinion of the SEC such indemnification is against public policy as
expressed in the Securities Act and is, therefore, unenforceable.

------------------------------------------

YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS PROSPECTUS.
WE HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH INFORMATION DIFFERENT FROM
THAT CONTAINED IN THIS PROSPECTUS. THE SELLING SHAREHOLDER IS OFFERING TO SELL,
AND SEEKING OFFERS TO BUY SHARES OF NEWTEK BUSINESS SERVICES, INC. COMMON STOCK
ONLY IN JURISDICTIONS WHERE OFFERS AND SALES ARE PERMITTED. THIS INFORMATION
CONTAINED IN THIS PROSPECTUS IS ACCURATE ONLY AS OF THE DATE OF THIS PROSPECTUS,
REGARDLESS OF THE TIME OF DELIVERY OF THIS PROSPECTUS OR ANY SALE OF NEWTEK'S
COMMON STOCK.