Article by Roger Schlueter
Banks do not tell you if they are planning to sell the guaranteed portion of your SBA Guaranteed Loan. Usually we are talking about the SBA 7a Program but any Guaranteed Loan can be sold off if it has the Full Faith and Credit of the United States backing their Guarantee. The Sale is a seamless process and the Bank will remain as the service provider of the loan so the borrower will not know the loan has been sold. The Bank gets more liquidity because it gets the Guaranteed portion back to re-lend whether that amount is 75% or 85%.
The Secondary Market for SBA Guaranteed Loans is very active and quite liquid. The Bank sells the Guaranteed Portion of the SBA Loan and gets that amount back to re-lend. The Bank also gets a premium for selling the Note which is usually up to 10%. The bank also gets a servicing fee of 1% because they retain the servicing on the loan. The unguaranteed portion of 15% to 25% will remain with the bank and the bank will continue to collect interest on this portion at approximately prime + 2.75%.
Example:
Bank’s Loan is $100,000 at 6% interest for 25 years. The Guaranteed Portion is 85% (because the loan is $150,000 or less ). The Bank will sell off the 85% Guaranteed Portion or $85,000 to a Broker who will have investors that will Competitively Bid on the Deal. So the Bank will get back the $85,000 plus the bank will receive a Premium of up to 10% of the Guaranteed Portion or $8,500. The bank will also receive a 1% Servicing Fee of $850 and will still receive the Interest on the Unguaranteed Portion of $15,000, the interest will be $900 a year.
Banks Receives: $85,000 Guaranteed Portion
$ 8,500 Premium ( up to 10%), One Time
$ 850 Servicing Fee of 1%, Annually
$ 900 Interest on Unguaranteed Portion at 6%, Annually
Total Dollars $95,250 Total Received First Year of Sale
There are many ways to look at the Return that this sale provides but the $95,250 is 12.06% increase from the $85,000. Not a bad Return on your money.
After the Bank Sells Your Loan there will be a Prepayment Penalty for the first thee years because of the Sale.
Please send any questions to roger@schlueterfinancial.com or rps_bus_loans@yahoo.com and please look at my website at schlueterfinancial.com