One of the more popular aspects of SBA participation for lenders is the secondary market for 7(a) guaranteed loan sales. Since the 7(a) loan guarantee carries the full faith and credit of the United States government, essentially it has the financial risk equivalent to a U.S. treasury bond.
U.S. Treasury notes are priced by the capital markets around the world as a solid, liquid investment, and when sold at regular auctions, always has a large number of buyers with a low risk tolerance. But SBA loans are priced by lenders based on their own cost of funds plus a risk- premium on each deal, limited only by the SBA’s rate cap.
In the capital markets, investors can buy these loans, which have the same risk exposure as a Treasury note, but the SBA guarantee loan tranche has a much higher financial yield since bankers have priced underlying loans according to their credit risks.
Accordingly, there is an active market of investors that purchase the guaranteed loan strips from participating SBA lenders. SBA uses a single-servicing agent to manage the payment stream for this marketplace, so as to deliver payments of principal and interest from the servicing lender to the investor pool very efficiently.
A bank can sell the guaranteed portion of their 7(a) loans at any time during the life of the loan, although as the loan term unwinds, the curb appeal on most loans starts to fade. Selling lenders are entitled to earn a premium on loan sales up to 10 percent of the guaranteed loan amount, plus if bids are higher, split one-half of the premium portion paid over ten percent with SBA.
Since 2013, SBFI has been polling SBA participating lenders about their expectations of the secondary participation in the advancing period, and this year, our partner in this endeavor is Government Loan Solutions and 504 Fund Advisors.
Results of these surveys are published here and will be updated annually as we track lender insight and how these expectations trend over time. These results can be important to participants and policymakers alike, and serve as a litmus test of the effectiveness of program goals and lender engagement.
In addition, SBFI offers ongoing analysis of SBA lending performance through publication of trending loan approval volumes and analysis of previous statistics.
Read more at SBA Guaranteed Lending Programs
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