Could SBA 7a Loans be Part of the New Frontier for Structured Finance?

March 17, 2025
by a searcher from Chapman University in Montclair, NJ, USA
I recently came across an article in the Wall Street Journal titled “They Crashed the Economy in###-###-#### Now They’re Back and Bigger Than Ever,” which sparked an interesting connection during a recent meeting. A digital small business broker claimed they could secure loan approvals for their clients in as little as one week. This got me thinking: could SBA 7(a) loans represent the next frontier for structured finance?
Structured finance, once vilified as a key catalyst of the 2008 financial crisis, has been quietly regaining traction, re-establishing itself in the portfolios of sophisticated investors. In particular, asset-backed securities (ABS) have seen a resurgence in popularity. I’m wondering if Wall Street is extending securitization practices to SBA 7(a) loans — a development that could reshape this space entirely.
What’s especially intriguing is how some brokerages promise lightning-fast approval times for SBA 7(a) loans, slashing traditional timelines to just one week. While this acceleration could unlock new opportunities for small businesses, it also raises a critical question: could the rapid expansion and securitization of these loans carry risks reminiscent of the practices that led to the financial collapse of 2008?
I explore these questions in my latest blog post. Read it here- redacted@MaciPeterson/could-sba-7a-loans-be-part-of-the-new-frontier-for-structured-finance-1128829eb216
from Eastern Illinois University in 900 E Diehl Rd, Naperville, IL 60563, USA
Also, the SBA market has been securitized for a long-time. Since it is a government backed security I do not expect SBA loans to take down the economy from an investment perspective. The investors are guaranteed their principal return by the SBA. The SBA has historically taken in well more each year in guarantee fees then they have ever had to pay out in losses, so the program is actually profitable. Now if an economic crash comes we could seek a large pickup in defaults for small businesses that are over-leveraged, but that happens with any downturn.
Just some comments from my 30 years in banking and finance. I hope it provides some perspective.
from INSEAD in Kirkland, WA, USA
The guaranteed portion of 7a loans has an active and liquid secondary market known as Pool Certificates. They were one of the handful of asset classes that the Fed was comfortable lending against to buy asset-backed securities under the TALF program at the height of the financial crisis. I haven't seen numbers in a while, but I'm guessing annual Pool Certificate issuance is well over $5B per year.
Unguaranteed portions get securitized too, especially on real estate (see an example here https://www.harvestsbf.com/projects-6).
The SBA has a whole secondary market and securitization guide posted on their website that covers Pool Certificates and unguaranteed securitizations (https://www.sba.gov/sites/default/files/###-###-#### /Secondary%20Market%20Program%20Guide%20June%202020%20%28508%20Compliant%29.pdf).