Secondary Market Update — CARES Act Causes SBA Loan Default Rates to Drop

December 18, 2020

Caity Roach

Secondary Market Update — CARES Act Causes SBA Loan Default Rates to Drop

Yesterday was the first day of Coleman and Government Loan Solutions’ 13th Annual 2020 SBA Secondary Market Summit. Session 1 included keynote presentations by Bob Judge, Chris Hurn, Jon Winick, and Coleman staff.

Here are the highlights from the presentation:

  • 1 out of 4 SBA secondary market participants polled during the Summit say that they have seen lower secondary market prices in highly impacted COVID-19 industries.

  • In FY 2020, the secondary market saw CPR hovering around 17% until March. In March the CPR dropped to 12% as defaults dropped by half. By June, prepayments dipped below 6%. In the last 2 months, voluntaries have come back up and are now in the 10% range.

  • The COVID-19 pandemic has had an unusual effect on defaults. Previous economic crises saw elevated defaults which impacted the secondary market for several years. However, CARES Act loans and 1112 payments have resulted in low defaults.

  • Next year, defaults are expected to rise to a higher than normal level, possibly dipping into the low-teens. However, voluntaries are expected to stay low.

  • The keynote speakers do not anticipate secondary market prices to be heavily impacted by PPP Forgiveness.

  • Future small business relief legislation including additional funds for PPP and 1112 payments may impact when loan defaults will begin to rise. 

Session 2 of the Secondary Market Summit will begin today at 2:00 PM ET with Coleman’s Secondary Market Person of the Year Hall of Fame Induction. Keynote speakers will then present an analysis of the SBA 504 secondary market, USDA secondary market, and the effect of PPP defaults on the secondary market. Click here to sign up for today’s virtual event.