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Small Business Administration (SBA) Loan Pool Securities

Questions about SBA loan pool securities have arisen the last few months as credit unions struggle to find additional investment options. Are these securities right for you? Taking a look at the structure and offerings will help credit unions make that decision.

Like mortgages, SBA loans are securitized and offered as investments. Three major types of business loans are securitized and offered in the secondary market: SBA guaranteed loans, SBA unguaranteed loans, and conventional loans.

The most widely used SBA loan program is the Basic Loan Guaranty-7(a) Program or simply the 7(a) program. Securitization of these loans is done on both a guaranteed and unguaranteed basis as to principle and interest. These instruments are offered by a few major underwriters and are usually floating rate, typically based on either the Prime Rate or Libor.

SBA Pools that are unconditionally guaranteed as to principal and interest payments by the full faith and credit of the U.S. government are of most interest to investors due to the high credit quality these securities provide. While these are promoted as fairly liquid by the dealers due to the low amount of offerings (relative to demand), they are not as liquid as agencies.

Currently, most SBA pools are offered at a fairly high premium so consideration of pre-payment speed forecasts and other factors is very important.

For more information on SBA investment offerings join SunCorp for a discussion of SBA offerings in a webinar on Tuesday, November 13th at 2:30 p.m. MT, 1:30 p.m. PT.

Registration for the session is available from our Online Learning Center (http://suncorp.webex.com).

 

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