SBA Creates Secondary Market Guarantee Program for 504 First Mortgage Loan Pools
Summary
Through a new set of regulations, the U.S. Small Business Administration will create a secondary market guarantee program to provide greater liquidity for lenders and expand access to capital for small businesses.The new program, funded through the American Recovery and Reinvestment Act (ARRA), would encourage sales into the secondary market of the “first mortgage” portion of small business financing made possible through the SBA’s 504 Certified Development Company (CDC) program.The 504 CDC program provides credit for the purchase of real estate and other fixed assets tied to a business’ expansion.To provide greater liquidity for lenders and expand access to capital for small businesses, under the new regulations, portions of eligible 504 first mortgages pooled by originators or broker dealers could be sold with an SBA guarantee to third-party investors in the secondary market.Lenders will retain at least 15% of each individual loan, pool originators will assume 5% of the risk, and the SBA will guarantee the remaining 80%.