4.9.14: Fixed-Rate SBA 7(a) Loans Becoming More Prevalent

The attractive premium income achieved by selling the guaranteed portion of variable rate SBA 7(a) loans has kept fixed-rate 7(a) loans from becoming a significant portion of overall 7(a) loan origination. SBA lenders have been known to suggest to borrowers that fixed-rate 7(a) loans “don’t exist.”

Variable and fixed rates are available in the 7(a) program. Both are subject to a maximum rate set by the SBA (currently Prime + 2.75% for variable and 8.26% for fixed rates on long-term loans > $50,000 as of April 2014). Both the fixed and floating rate maximums are in excess of market rates.

With competition fierce for owner-occupied commercial loans with good credit characteristics, some SBA 7(a) lenders are adding the fixed-rate option to their 7(a) product line. Helping advance the market are 7(a) loan guarantee dealers that are making markets on the buying and pooling of fixed-rate 7(a) guarantees for sale to investors. One dealer is offering to buy 7(a) guaranteed loans with initial fixed-rate periods of 3 years and 5 years, followed by quarterly adjustments for the balance of the 25-year term. In addition, the dealer is offering a 25-year fixed for life purchase; however, the par price is a 6.25% rate.

Although fixed-rate premiums are significantly lower than floating rates, some borrowers simply will not close a floating rate deal. A banker recently told me that he closed a 5-year fixed-rate deal with a 25-year term at 5.25% for a good client, sold the guaranty for 103 and now services the loan for a 1% fee. While not a great execution, the banker did not want the client to close elsewhere and potentially lose the relationship.

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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