A lender's transfer of all or part of a loan to another party, so that the buyer, not the lender that made the loan, holds that share of it.
Lenders sell loans to free up money and capital for new lending, or to stay under a limit. A sale can cover the whole loan or a share of it.
SBA 7(a) loans are the common case for a small business. A lender that wants to sell the guaranteed portion signs a Secondary Participation Guarantee Agreement with SBA and the buyer, and must first disburse the full loan to the borrower. A lender may also sell part of a 7(a) loan to another participating SBA lender. If it keeps unguaranteed principal equal to at least 10 percent of the outstanding balance, it gives SBA written notice. If it keeps less, it needs SBA’s written consent. In both cases the selling lender normally keeps the note and services the loan.
Sales also explain how a small bank handles a large request. Under the national bank lending limit rule, a share sold to another lender without recourse, with credit risk shared pro rata, does not count toward the seller’s limit for that borrower.
For the borrower the loan terms do not change. Ask who will service the loan after closing, since that is who you will deal with.
How it shows up in the data here
A sale changes what the public files show. Call Reports list balances a bank holds on the report date, so a loan that was sold is gone from the seller's book. HMDA and SBA files record loans made, whoever holds them later. A lender with many loans made and a small book may be selling what it makes. Compare both on any lender page, or see SBA 7(a) lenders by loans. Sales themselves are not a field here.
Go further
- SBA 7(a) lenders by loans: Lenders ranked by 7(a) loans made, from SBA's file.
- Methodology: Which figures are loans held and which are loans made.
- Loan participations, explained: A participation lets one lender make a loan that is too large for it to hold alone. The borrower signs with one lender. Behind that lender, others own pieces of the loan and share its risk.
- How to read SBA 7(a) and 504 loan data: The SBA publishes the 7(a) and 504 loans it guarantees, lender by lender, every quarter. It is the best public record of who lends to small businesses, and it is easy to misread.
- The legal lending limit, explained: A bank may not lend more than a set share of its capital to one borrower. The rule explains why a large loan gets shared, and why a lender can say a request is too big for it.
Related terms
- Loan servicing: The work of running a loan after it closes: collecting payments, releasing draws, tracking the borrower's reporting and collateral, and handling changes or a default.
- Loan participation: A loan in which other lenders buy shares from the lender that made it, under a written agreement that keeps the first lender in the loan for its whole life.
- Originating lender: The lender the borrower first contracts with, which then sells participations in the loan to other lenders and stays in the loan itself.
- Participant lender: A lender that buys a share of a loan another lender originated. It takes part of the credit exposure, usually without dealing with the borrower directly.
- Legal lending limit: The most a bank may have outstanding to one borrower by law. For national banks it is 15 percent of capital and surplus, plus 10 percent more when the extra is fully secured by readily marketable collateral.
- Portfolio lender: A portfolio lender is a lender that keeps the loans it makes on its own books instead of selling them to an investor.
Sources
Plain definitions for orientation, not legal, tax or credit advice. A lender's own policy decides what it will do.