Abstract:
SBA secondary market looks into matters related to sale of loans. In this regard, it may be said that the function of the lending bank is instrumental. The article below reveals the role played by the lending bank.
In the SBA secondary market, the primary role is usually played by the lending bank. The function of the lending bank is varied as far as SBA secondary market is concerned.
The multifaceted function of the lending bank comprises retaining relationship with customers throughout the period of processing the SBA loans. The customer is not aware of selling the loan in the secondary market. The loan is usually sold by the lending bank to the coastal securities at a price which is already predetermined and for a predetermined coupon too. It may be noted here that the term of loan maturity is directly proportional to the coupon payment. Higher coupon entails a loan maturity period, which is longer. Consequently, the lending bank also receives a higher price.
Furthermore, as per the generally accepted accounting principles or GAAP, premium is booked by the lending bank for sale of loan. The lending bank is responsible for holding back the coupon. The lending bank holds back coupon pertaining to that part of the coupon, which is not sold and is not guaranteed. This usually depends on parameters that have been slated for sale of loan
Reports suggest that an SBA loan, which has been sold at premium in the secondary market has the following three income sources.
- The servicing fees, which is levied on the portion sold
- From premium income
- The interest earned from the portion of the loan sold.
The SBA loan is then bought by coastal securities, where negotiations actively occur in the secondary market. Documents pertaining to the transfer of loan is made available to Coastal securities for checking the completeness of the same. Thereafter, the fiscal agent as well as the agent responsible for transfer is forwarded the documents. There are two procedures, which Coastal may follow
- The loans are usually sold individually to the investors or
- The loan is clubbed with other SBA loans in the "SBA pool".