WASHINGTON — The Department of Treasury's plan to establish a term asset-backed securities loan facility could bring some relief to credit-starved small businesses, the Small Business Administration said.
Treasury Secretary Henry Paulson said TALF would make loans to investors who purchase asset-backed securities made up of small business loans guaranteed by SBA, auto loans, student loans, or credit card loans. As a result, lenders will find it easier to sell the loans they make, and use the proceeds of those sales to make new loans, according to SBA.
About $4 billion in securities backed by SBA-guaranteed loans are bought and sold in the secondary market each year, with the total outstanding amounting to about $15 billion, SBA said. At present, a share of the current year's volume of loans securitized by lenders, estimated at up to $3 billion, "is essentially frozen," according to SBA. The agency said the resulting lack of liquidity hampers the ability of some of SBA's lending partners to make new SBA-backed loans. The loans that investors will receive from TALF through this new action can be used to purchase these securities from brokers.
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Treasury's actions come on the heels of those already taken by SBA to bolster the secondary market including the recent emergency implementation of LIBOR as a base rate for SBA loans and the development of weighted average coupon pools.
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