I am pleased to report that the gap between small (less than $1.5 million) SBA 7(a) guarantee bids and large (more than $3 million) guarantee bids has shrunk dramatically. You may remember that back in June I wrote: Initially, secondary market prices for larger loan guarantees above the previous limit of $1.5 million found lower bids relative to loan guarantees under $1.5 million. As the guarantee amount increased, the gap increased between a $1.5-million guarantee bid and a $4.5-million guarantee bid. It was not uncommon to find a $1-million, 25-year term, Prime + 2.75% floating rate, quarterly adjustable loan guarantee bid at 113, while at the same time, a $4.5-million 25-year term, Prime + 2.75% floating rate, quarterly adjustable loan guarantee struggled to receive a 107 bid.
On behalf of one of our banking partners, we recently sold a $4.5-million guarantee (essentially the largest guarantee attainable, on a $5-million Jobs Act loan with a 90% guarantee) for a price of 111.30, a four-point increase from June and only 2 points lower than an equivalent $1.5-million guarantee. The transaction was structured as a Prime plus 2.75% floating rate deal.
“Naturally, our client was ecstatic with these results,” said Michael D. Sneden, Executive Vice President of ValueXpress. “We have 8 bidders for our guarantees and they compete aggressively to win. As a result, we are able to provide the highest prices to our clients.”