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

Reply by a lender
from Eastern Illinois University in 900 E Diehl Rd, Naperville, IL 60563, USA

I concur with some of the comments above. Although some lenders might come up with some quicker processes for underwriting loans, Banks are still governed by the FDIC and OCC and there are tight standards and policies Banks must follow. Because of that there are always going to be hurdles to jump through and time involved and a human component, at least for the time being. Some of the largest Banks in the country have spent hundreds of millions if not billions at this point trying to fully automate loan and approval processes for commercial loans, and for those Banks that have done so only a fraction of loans submitted end up getting approved. The issue at hand is every business operation is so unique from others, with different procedures, policies, customers, owners, etc. The only way to protect against risk in automated systems is to make the criteria so tight. We are still ways off from tech being able to factor all of these items into underwriting.

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.

Reply by a searcher
from INSEAD in Kirkland, WA, USA

I started my career in securitized products before the financial crisis and the short response is that they won't be part of the new frontier because they've been there, done that. SBA loans (7a and 504) have been securitized for a long time. I wouldn't expect new trends in the ETA space to emerge as a result of securitization given the maturity in this market.

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).

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