12.26.12: SBA 7(a) Premiums Reach the Stratosphere

Secondary market premiums on the sale of SBA 7(a) loan guarantees reached record highs in late December 2012 based on dealer pricing indications.  The chart below shows the monthly trend in premium pricing during 2012:

2012

Premium*

Dec

117.50

Nov

117.00

Oct

117.00

Sep

116.00

Aug

116.00

Jul

115.50

Jun

114.50

May

114.50

Apr

113.50

Mar

113.50

Feb

113.50

Jan

112.50

*Based on Prime + 2.75%, Quarterly Reset, 25-year loan term.

Pricing steadily increased as 2012 progressed as investors sought decent relative yields on investments with short-term rate resets (the investor rate resets quarterly), driving up prices.  The prices provide exceptional guarantee sale profits for institution selling guarantees.  In addition, secondary market prices for larger loan guarantees above $1.5 million historically found lower bids relative to loan guarantees under $1.5 million.  This is no longer the case as pricing is similar across all guarantee sizes.  Note that the profit to guarantee sellers is partially reduced at prices above 110 as 50% of the proceeds above 110 are shared with the SBA.

“We continue to pursue SBA 7(a) loans in the five-state footprint surrounding New York City for our affiliated bank, Country Bank,” said Michael D. Sneden, Executive Vice President at ValueXpress.  “We are working on a $5-million SBA 7(a) loan right now, and at 117.50, that would be a net profit of $426,562 on the $3,750,000 guarantee sale after the split with the government, a nice day’s work!  Plus Country Bank will receive $37,500 annually in servicing fees during the life of the loan.”

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This entry was posted in Commercial Lending, Commercial Real Estate Loans, Michael D. Sneden, News & Recent Closings, SBA, SBA 7(a), SBA Loans, The Banker's Mortgage Conduit, Valuexpress and tagged , , , , , . Bookmark the permalink.

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