Accounting for Sales of SBA Loans

7/8/2010

By Daniel C. Dibella, CPA

Banks that originate Small Business Administration (SBA) loans and sell the guaranteed portion on the secondary market must follow the provisions of Accounting Standards Codification Topic 860, Transfers and Servicing, when accounting for the sale transaction. Generally, the provisions require recognition of the loan sale to be deferred, and recognition of the gain on sale to be deferred, until a 90-day recourse period has expired.

Banks that originate SBA loans and sell the guaranteed portion on the secondary market are not allowed to immediately recognize the sale, or any gain on the sale, as the sale is deemed to have recourse since the selling bank is required by the SBA to refund any purchase premium to the buyer if the loan is paid within 90 days of the sale. When an SBA loan is sold, the transaction should initially be accounted for as a secured borrowing such that the gross loan balance is reported as an asset and the sold portion is reported as a liability. Additionally, any gain from the sale should initially be deferred as a liability. When the 90-day recourse period expires, the sale of the loan and the gain on sale can generally be recognized.

With that said, however, recognition of the transaction as a sale assumes that the transaction qualifies as a “participating interest.” Certain terms, such as a significant differential between the SBA loan’s contractual rate and the rate sold (i.e. interest-only strip), can still preclude sale treatment and require continued accounting of the transaction as a secured borrowing. As accounting for sales and transfers of loans can be complex, contact your accountants to discuss your specific circumstances.