A Detailed Look at the Securitization of the Unguaranteed Portion of SBA 7(a) Loans — Bob Coleman’s Interview with Jaime Aldama

February 12, 2025

Bob Coleman
Founder & Publisher

A Detailed Look at the Securitization of the Unguaranteed Portion of SBA 7(a) Loans — Bob Coleman’s Interview with Jaime Aldama

Q. Can you explain in simple terms how Momentus Securities’ new securitization platform will change the landscape for SBA 7(a) lenders?

The concept is quite simple. SBA lenders need capital to support their lending activities. One way for them to replenish their capital is selling their loans on the secondary market. But while these lenders have historically been able to sell the guaranteed portions of their 7(a) loans on the secondary market, it had been cost-prohibitive for them to do so with the unguaranteed portions.

This is where the new securitization platform makes a difference. It streamlines the process and lowers the cost, allowing them to more easily convert their unguaranteed portions into cash. They now have access to private capital markets that were previously unavailable. That can mean more balance sheet capacity, which means lenders can expand their lending efforts.

Q. What specific challenges did smaller, community-focused lenders face in securitizing unguaranteed portions of 7(a) loans before this platform was introduced?

Let me begin by clarifying that the securitizations of unguaranteed portions is not a new concept. While it has been done before, many lenders have consistently faced significant challenges in accessing these tools, primarily due to their high execution costs, complexity and lack of banking coverage. What this platform does is democratize a readily available structuring tool and make it available to, and more affordable for, all lenders.

Q. How does the Master Trust structure employed by your platform contribute to making the securitization process more efficient and cost-effective?

Securitizations come with significant fixed costs — including fees for rating agencies, legal advisors, and investment banking services. Additionally, the process requires coordination with numerous parties.

This platform lowers those fixed costs. It aims to simplify the securitization process, enhance transparency, and improve efficiency by leveraging a standardized, programmatic approach. That allows for core documentation to be reused. Only a small subset of documents will need to be customized for each new issuance to reflect the specific characteristics of each lender and portfolio.

Additionally the platform introduces a new level of transparency and standardization to the process, making it easier for institutional investors and rating agencies to analyze.

Editor Note: We agree to add the statement that Mr. Aldama’s views are his own.