Published on December 05, 2023
Written by Total SBA + Servion Commercial Loan Resources
Most financial institutions are struggling to grow deposits - so what is the most profitable way to serve your clients and maximize use of your institution’s liquidity? Suppose in 2024 a lender funds $10,000,000 in SBA 7a loans and sells the $7,500,000 of guarantees. They would end up with $2,500,000 of loans. Therefore, the lender has only used a small number of deposits to generate $10,000,000 in loans for their clients.
In today’s market, the lending in the above example should earn at least 9.0% premium on the $7,500,000 of SBA guarantees sold, or $675,000 in gain. The lender also gets to keep a 1.0% interest strip on that $7,500,000 in guarantees sold, or $75,000. If your net interest margin is 5.0%, then the lender will earn another $125,000 on the $2,500,000 of unguaranteed loan portions retained. In reality, the loans will probably be funded evenly over the year so the accrual of interest and servicing if averaged would be half of those numbers. But still, the lender will have generated $675,000 in gain on sale, $37,500 in servicing and $67,500 in NOI, totaling $775,000 of profits on $2,500,000 in retained balances.
Given the current economic conditions and high-rate environment, many borrowers are stretched and often the only way to help them is through the longer amortizations and flexible terms available through SBA. Plus, the lender may need the SBA guarantee to mitigate the higher risk that exists with some businesses. Lastly, the SBA PPP program was understandably popular with borrowers and now those businesses are expecting lenders to offer SBA programs to help them grow their operations.
There are many ways to continue to serve your customers in today’s market while reducing risk to your institution. Proving solutions through SBA loans is a mutually beneficial way to improve liquidity for you and your customers. By utilizing Total SBA, you can immediately create a highly profitable SBA program without any overhead expense and at the same time provide needed services to your business clients.