Linda R. Nelson, the Arkansas SBA District Director, discusses the benefits of participating in the SBA's loan guarantee programs and secondary market for lenders. She outlines that the programs provide rewards for lenders through premium income, opportunities to sell other bank products, and helping communities. Participating allows lenders to increase assets and access capital to make more SBA loans. Selling loans on the secondary market provides lenders with a return on investment, interest income, and ongoing servicing fees. The secondary market had $3.4 billion in loan sales in 2002, though Arkansas participation was low. Keeping relationships with borrowers allows identifying problems and opportunities for additional loans.

1. Linda R. Nelson
Arkansas SBA District Director

2. RI$K
• Rewards
• Increased assets (loans)
• Secondary market
• Keep the relationship

3. Rewards
Premium income from secondary
market
Opportunity to sell other bank
products
Communities benefit*
Small businesses – healthier and
wealthier

4. Increased Assets
Increased liquidity
Access to “free” money for SBA loan
making
Spiraling loan portfolio – 25%
original investment*
Loans outside of bank policy

5. Cowasocky

6. Process
 Simplified and streamlined
 Same forms all styles
 Up to $350,000 – provides pre-screening
 Rely on bank policy for many issues
 Thru 9-30-2014 – no guaranty fee lender or borrower
 $150,000 and below
 Thru 9-30-2014 – no guaranty fee borrower
 Veterans $350,000 and below – via SBA Express
 SBA Express up to $350,000
 50% guaranty
 Can be revolving line of credit

7. Secondary Market
Sell guaranteed portion
Full disbursement or later
Yourself or through a broker
Anyone except your trust
department
Keep servicing and get paid for it

8. How It Works
Transparent to borrower
Lock in a price quote for 90 days
Helps in your pricing to borrower
Three sources of income:
Premium
Interest on unguaranteed portion
Servicing fee on guaranteed portion

9. Example - Premium
 Loan: $234,300
 75% guaranty: $175,725
 15 year maturity
 Priced at prime + 2.75: 6%
 Monthly pay, quarterly adjustment
 Price: 110 @ prime + .75%: 4%
 SBA’s ongoing guaranty fee: .55%
 Net servicing fee to you: 1%

10. Premium – Year One Return
Premium $175,725 x 10% : $17,572.50
Interest income 6% x $58,575: $3,514.50
Servicing fee 1% x $175,725: $1,757.25
Total: $22,844.25
ROI of $58,575: 39%

11. Premium – Year Two Return
Interest income 6%: $3,514.50
Servicing fee 1%: $1,757.25
ROI each year: 9%
PLUS
$175,725 FREE MONEY to relend in
another SBA loan – ROI expands based on
initial $58,575 and expanding portfolio

12. Par – Returns
Year 1 ROI: 9%
ETC., each year

13. Arkansas
 Secondary Market in 2002: 41 of 300 7a loans were
sold, $18 million out of $102 million
 2002 Market handled 11,000 plus loans for $3.4 billion
 Arkansas: .4% of loans and .5% of dollars
 Texas sold $318 million
 Our neighbors use this

14. Keep the Relationship
 Site visits allow you to know of problems AND if they
are growing
 Unplanned growth can be bad – if not properly funded
 Opportunity for more loans
 Use ASBTDC to support and help them plan it
 Ability to do things during life of the loan for business
benefit
 If answer has to be “no” – you don’t have to take all the
blame

15. Keep the Guarantee
Use SBA Organizational Tabs
 Equity injection proof
 Use of proceeds
 Collateral positions
 Preference
 Verification of income (cash flow)
 Business valuations
 Timely site visits
 “Evaporation before liquidation”

16. Win-Win For All
Small business as a whole
Individual borrower
Profits for you
Guaranteed income for investor
The community – local, county,
state, country

17. AND
 CRA credit
 As investor:
 “Whole” loan – may book as loan and increase loan to
deposit ratio
 “Pool” – higher yield investment than many and no risk
to capital
 Steady cash flow
 Variable rates eliminate interest rate risk

18. AND
 Allow flexibility in pricing loans with price locked in
 Increasing competitiveness
 Can combine fixed and adjustable rates
 Less work – no renewals
 Use the time to develop more customers
 Steady fee income

19. AND
It’s not the fittest that survive – it’s those who can adapt
Linda Nelson
Linda.nelson@sba.gov
(501)324-7379 ext. 225
www.sba.gov/ar