SBA Secondary Market

Abstract:

The SBA secondary market looks into matters related to the sale of loans. In this regard, the role of the lending bank is instrumental, as the article below reveals.

The bank plays a primary role with varied functions, that comprise of retaining relationships with customers throughout the SBA loan processing period.

SBA Loan Process

The following points summarize what typically occurs during the process:

• The loan is usually sold by the bank to coastal securities.
• The price is already predetermined for a predetermined coupon.
• The term of the loan maturity is directly proportional to the coupon payment.
• The higher the coupon, the longer the maturity period.
• The bank receives a higher price.
• In accordance with GAAP (Generally Accepted Accounting Principles), premium for the sale is booked by the bank.
• The bank is responsible for holding back the coupon, and does so when part of the coupon is not sold or guaranteed. This normally depends on parameters that have been slated for the sale.
• Customers are generally not aware that loans are being sold in the secondary market.

Reports suggest that an SBA loan, which has been sold at premium in the secondary market, has the following income sources:

• Servicing fees, which are levied on the portion sold
• Interest earned from the portion sold
• Premium income

As purchase for loans is in progress, negotiations actively occur in the market, and documents pertaining to the transfer are made available to the coastal securities for verification. Thereafter, the fiscal agent and the agent responsible for the transfer are forwarded the documents.

There are two procedures that the coastal securities may follow:

• Selling the loans individually to investors, or
• Clubbing the loans with other SBA loans in the "SBA pool".