What is SBA 7(a) Secondary Market?
The SBA 7(a) secondary market is where lenders sell the government-guaranteed portion of SBA 7(a) loans to investors. The SBA guarantees 50-85% of each 7(a) loan (up to 75% for loans over $150K). This guaranteed portion can be separated from the unguaranteed portion and sold in the secondary market as a fully government-backed instrument, meaning the investor bears zero credit risk on the guaranteed portion. Prices are quoted as a premium over par (e.g., 110 = 110% of guaranteed balance). Because the government guarantee eliminates credit risk, defaults on the guaranteed portion are economically equivalent to prepayments; the government pays the investor at par.
How LoanBook Uses SBA 7
LoanBook provides a dedicated SBA trading portal with proprietary 7(a) and 504 prepay/default models calibrated from SBA FOIA loan records. The platform includes SBA lender quality scoring (composite 0-100 scores for SBA lenders), vintage analysis, NAICS sector performance, and lender quality multipliers that adjust prepay/default projections by originating bank quality.
Frequently Asked Questions
Why are SBA 7(a) defaults treated as prepayments?
The government guarantee means the investor is paid at par when a borrower defaults. From the investor's perspective, they receive their money back early, which is the definition of a prepayment. So Total CPR = Voluntary CPR (refinance/payoff) + Involuntary CPR (defaults). CDR is effectively 0% and loss severity is 0% on the guaranteed portion.
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