WASHINGTON — The Small Business Administration has given high marks to the Department of Treasury's plan to establish a term asset-backed securities loan facility (TALF), which could bring some relief to credit-starved small businesses.
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.
"This is a big step toward reviving a healthy market for investors who want to purchase secondary market loan pools of SBA loans," said SBA Acting Administrator Sandy Baruah. "I believe it will help restore the flow of buying activity in what has been a disrupted secondary market for SBA-backed loans and generate the liquidity lenders need to step up their lending to small businesses."
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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