SBA 7(a) Loan Origination and Sale Accounting: A Simplified Look at Frequent Accounting “Surprises” Often Encountered by Community Banks

It seems that virtually all community banks are looking for ways to stabilize and enhance revenue streams during this environment of compressed interest rate margins. To that end, many community banks have considered an originate and sell model for loans under the SBA 7(a) program, which can serve to not only bolster profitability, but can also provide a much needed lending platform to the bank’s small business owner customers, stimulating job growth in their local communities and potentially accumulating CRA benefits along the way. Demand for the sale of guaranteed loans is strong, with investors willing to pay meaningful premiums as the primary risk associated with these loans is simply that of prepayment. Sounds great, right? Not so fast…let’s take a look at a few of the accounting and financial reporting implications that all too often result in a “surprise” for many banks after this business model is up and running.