Section 05
Who Flips Your Loan
How this works
The 7(a) guaranty is tradeable. A Treasury-backed income stream sells at a premium on the secondary market — roughly $109 for every $100 of guaranteed principal at FY25 volume-weighted averages. On a $1M loan with an 85% guaranty, that premium is about $76,500, booked by the originating lender at sale. Loan-level sale dates and per-loan premiums are not published in any SBA release, so the premium dollars are an estimate over aggregated distributions; the binary sold-flag itself is OBSERVED at loan level.
The 7(a) program is built around a liquid secondary market. The guarantee turns ten-year illiquid paper into a security and broadens the capital base that funds the program. Whether a given lender chooses to sell is a function of how that lender is funded.
Deposit-funded banks can hold a 7(a) loan for a decade against checking-account liabilities. Selling is optional. Lenders without deposit funding — non-depository SBLCs in particular — operate off warehouse lines and the proceeds of each prior sale. For those lenders the sale is how the funding cycle completes. HYPOTHESIS: gain-on-sale economics appear central to the business model of high-sale lenders, and the pricing patterns in the rest of this section are consistent with that framing, though the public data does not distinguish funding sources directly.
The FY25 league table ranks lenders on volume alone. It does not reveal which funding model produced the loan.
Top-12 lenders, two funding profiles
“Lender identity explains 69% of the variance in whether a 7(a) loan ends up on the secondary market.”
The univariate R² of the sold-flag across eight candidate factors comes out at 0.689 for lender identity. Subprogram explains 0.282. Rate structure, 0.077. State, 0.057. Term, 0.097. Size band, 0.018. Lender identity dominates every borrower-side input tested by a factor of seven or more (OBSERVED). (7(a), FY25, n=65,529, univariate R² on sold-flag, 8 candidate factors)
INTERPRETATION: the lender’s funding model appears to shape pricing before the borrower sees a final quote. The same underlying deal can end up on a held balance sheet or in a pool certificate depending on which lender writes it, and the channel is a strong correlate of the rate the borrower ultimately pays.
Chart 6A
Volume rank does not distinguish retained-book lenders from originate-to-distribute lenders.
Huntington funded 6,524 7(a) loans in FY2025 and sold 148 out of 16,406 three-year variable originations. Lendistry funded 1,774 and sold 2,840 of 2,843. Both appear on the same league table. One runs a retained-book model; the other runs a high-sale, originate-to-distribute model. Row order alone does not surface that distinction.
The sorting mechanism
Retained-book lenders hold the loan and collect coupon income for up to ten years — the 7(a) cap on most working-capital and acquisition paper. High-sale lenders book a one-time gain-on-sale at or shortly after funding, retain a thin servicing strip, and redeploy capital into the next origination. Two revenue-model orientations sit inside the same program and the same league table.
Balance-sheet structure appears to drive the split. Non-depository SBLCs have no deposits and operate off warehouse lines, so sales complete the funding cycle. Deposit-funded banks can choose, and the money-center franchises in the data mostly choose to retain. The bifurcation in Chart 6A is consistent with a charter-and-funding constraint rather than a borrower characteristic.
Inside every size band, the sold cohort pays 51 to 77 basis points more than the held cohort on comparable deals (OBSERVED). (7(a), FY25, n=56,741, variable funded; 6 size bands) INTERPRETATION: the gap does not appear to be a credit premium — collateral presence shifts the rate by two points and the spread by 201 basis points, a much larger effect. A candidate explanation is that sold-channel pricing tracks pool investors’ coupon demand while held-channel pricing tracks the lender’s own cost of funds. Both channels quote a single term sheet to the borrower.
FY25 estimated up-front premium captured by originating lenders on 7(a) guaranteed-portion sales is ~$1.15 billion, roughly 46 percent of FY25 Year-1 industry lender revenue on the full 7(a) book. For Newtek, Readycap, Lendistry, Northeast, and BayFirst, the estimated premium share runs past 70%. The revenue composition is the clearest quantitative signature of the originate-to-distribute model — 10-Q disclosures remain the primary external confirmation for the specific firms.
Chart 6B
Within every size band, sold loans price higher than held loans.
The gap persists across size bands and across credit controls — collateral presence shifts the rate by two points but shifts the spread by 201 basis points, a much larger effect. INTERPRETATION: pool investors treat the SBA guaranty as covering collateral-shortfall risk and bid on coupon, so a Prime+3.00% variable 7(a) is a more valuable cash-flow stream than an identical Prime+1.50% and commands a higher premium. Sold-channel lenders book that premium at closing; held-channel lenders earn net interest on the coupon over the loan’s life. The borrower signs one term sheet either way.
| Size band | n sold | n held | Sold vs held spread | Sold | Held | Gap (bps) |
|---|---|---|---|---|---|---|
| $0-$150K | 9,590 | 18,329 | P+4.03% | P+3.37% | +65 | |
| $150K-$350K | 4,571 | 6,201 | P+3.16% | P+2.40% | +77 | |
| $350K-$500K | 3,035 | 2,973 | P+2.62% | P+1.96% | +66 | |
| $500K-$1M | 2,785 | 2,569 | P+2.24% | P+1.73% | +51 | |
| $1M-$2M | 1,884 | 1,528 | P+2.09% | P+1.49% | +60 | |
| $2M-$5M | 1,838 | 1,438 | P+1.89% | P+1.14% | +75 |
Five observations from the pooled data
First.The secondary-market sale rate appears to saturate near 60% of originations inside a homogeneous bucket. In the $500K–$1M variable 7(a) Guaranty cohort (FY25, n=5,210), sold-rate climbs from 3% at P+<0.5% to 60% at P+1.5–2.0%, then flattens across the P+1.5% to P+3.5% band. Above P+3.5% it does not rise further. INTERPRETATION: pool investors price prepayment — 52% of P+2.75%+ loans pay off before half their term — and the premium bid caps out. Originations above that ceiling end up retained by the originating lender.
Second. Live Oak Bank originates two distinguishable cohorts inside one charter. Sold and held cohorts price 65 to 106 basis points apart in every size band (OBSERVED). (7(a), FY23–25, n=4,506, Live Oak funded variable; 6 size bands)
| Size band | Sold spread | Held spread | Within-lender gap |
|---|---|---|---|
| $0-$150K | P+3.17% | P+2.10% | +107 bps |
| $150K-$350K | P+2.86% | P+1.90% | +96 bps |
| $350K-$500K | P+2.36% | P+1.67% | +69 bps |
| $500K-$1M | P+1.45% | P+0.61% | +84 bps |
| $1M-$2M | P+1.27% | P+0.51% | +76 bps |
| $2M-$5M | P+1.31% | P+0.23% | +108 bps |
INTERPRETATION: Live Oak’s sold cohort appears priced to clear the secondary market, while its held cohort appears priced closer to deposit funding costs. The 65- to 106-basis-point gap is consistent with a deposit-funded bank that routes a growing share of its book through the secondary-market channel.
Third.Newtek Bank NA’s sold-cohort pricing clusters at exactly P+3.00% median across all six size bands (OBSERVED). That sits right below the P+3.5% ceiling at which prepayment risk appears to cap the premium bid. The held cohort is the residual: sub-$150K loans at P+5.14% that did not clear the pool market at prevailing bids. Live Oak and Newtek show two distinct pricing fingerprints consistent with the same mechanism — the secondary-market bid sets a coupon ceiling, and lenders price their sold cohorts against that ceiling in different ways.
Fourth.FA$TRK (SBA Express) sits outside this secondary-market economy. FY25 variable 7(a) sale rate: Guaranty 61.9% (n=37,904), FA$TRK 0.7% (n=18,382). FA$TRK loans run smaller (~$150K vs ~$500K+) and concentrate in two deposit-funded banks — Huntington (19,765 FY23–25 FA$TRK variable, 0.8% sold) and M&T (5,223, 0.2% sold). Pool investors do not materially bid on small-balance single-obligor tranches. The premium-pricing framework in this section does not apply to FA$TRK originations.
Fifth. The aggregate sale rate rose from 37.4% in FY23 to 47.7% in FY25 — ten points in two years (OBSERVED), concentrated in the sub-$150K band where non-depository SBLCs scaled (Readycap, Lendistry, BayFirst, Celtic, and Northeast all run 95%+ sub-$150K sale rates). INTERPRETATION: the rise tracks growing non-depository share. If non-depository SBLCs acquire bank charters and deposit funding, the bifurcation may compress; without that shift, the sale rate is likely to stay elevated. (7(a), FY23 and FY25, n=91,847, funded variable; FY23 n=42,275 / FY25 n=49,572)
Taken together: the secondary market pays for coupon, the sale rate saturates near 60% inside homogeneous buckets, and non-depository SBLC growth explains most of the recent aggregate rise. Live Oak, Newtek, and Huntington occupy three different positions in the same program because their balance-sheet structures differ.
Chart 6C
The aggregate sale rate rose ten points between FY23 and FY25.
The FY22 → FY23 trough coincides with the Fed’s fastest tightening. INTERPRETATION: investor premium bids compressed as spread-to-alternatives narrowed, and deposit-funded banks retained a larger share of what they wrote. FY24–25 reverses that pattern as non-depository SBLC originations scaled. The most likely explanation for the ten-point rise is supply-side composition — growing non-depository share — with a demand-side component as investor appetite recovered.
Industry revenue decomposition
Estimated $1.15 billion in FY25 up-front premium, about 46% of Year-1 industry revenue.
Estimated FY25 up-front premium captured by originating lenders on 7(a) guaranteed-portion sales comes to about $1.15 billion, roughly 46 percent of FY25 Year-1 industry lender revenue on the full 7(a) book (honest range 40–52%). Per-loan premiums are not published, so this is a model output over the aggregated SBA 7(a) Premium Tables distribution; the finding holds across the honest range. (7(a), FY25, n=26,166, $12.46B sold guaranteed at vol-wtd ~109.2 per SBA 7(a) Premium Tables PDF)
For Newtek, Readycap, Lendistry, Northeast, BayFirst, and Celtic, estimated gain-on-sale premium runs past 70% of Year-1 revenue. HYPOTHESIS: these lenders operate an originate-to-distribute model in which premium is the dominant Year-1 revenue line; the pricing patterns in Chart 6A and 6B are consistent with that framing, and Newtek’s public 10-Q disclosures provide external confirmation for at least one entity in the set.
FY25 sector — Year-1 7(a) lender revenue
Newtek — FY2024 worked example
| FY | Sold guaranteed | Loans sold | Vol-wtd premium | Est. up-front premium |
|---|---|---|---|---|
| FY2021 | $10.82B | 13,101 | ~113.0 | ~$1.41B |
| FY2022 | $12.47B | 16,713 | ~111.5 | ~$1.43B |
| FY2023 | $9.25B | 15,815 | ~108.0 | ~$0.74B |
| FY2024 | $10.73B | 23,188 | ~108.3 | ~$0.89B |
| FY2025 | $12.46B | 26,166 | ~109.2 | ~$1.15B |
Chart 6E
In FY25 H2, the sale rate on $1M+ variable 7(a) loans fell twelve points versus H1.
The prior three years held H1/H2 parity within four points. FY25 breaks that pattern: H1 62.0%, H2 49.9%, a 12.1 pp gap on $1M+ variable 7(a) (OBSERVED). Two candidate mechanisms appear in the data. INTERPRETATION: rate-cycle inflection is the leading candidate — the Fed cut 100 bps from Sep24 to Dec24, and high-coupon paper retains more balance-sheet value when the investor bid is falling. Data-recency artifact (public release as of 2025-12-31, late-FY25 originations have had less time to settle) explains roughly 2–3 points based on prior-year H1/H2 differentials. The residual roughly nine points is consistent with a behavioral shift toward retention through the cut cycle.
FY2022
Gap -3.1 pp
FY2023
Gap -3.6 pp
FY2024
Gap +3.2 pp
FY2025
Gap +12.1 pp
Top-12 high-sale lenders — FY23–25 funded variable 7(a)
Ranked by sale rate with n ≥ 50 floor. Spread and size are raw cohort averages across the FY23–25 funded-variable pool. (7(a), FY23–25, n=41,512, funded variable; n ≥ 50)
| # | Lender | Type | n | Sale % | Avg spread | Avg size |
|---|---|---|---|---|---|---|
| 1 | Lendistry SBLC, LLC | nonbank | 2,843 | 99.9% | P+4.44% | $205K |
| 2 | Northeast Bank | bank | 5,180 | 99.1% | P+2.97% | $137K |
| 3 | Readycap Lending, LLC | nonbank | 6,704 | 98.8% | P+4.48% | $366K |
| 4 | BayFirst National Bank | bank | 6,947 | 98.6% | P+4.29% | $158K |
| 5 | Newtek Small Business Finance, Inc.† | nonbank | 549 | 98.5% | P+3.28% | $582K |
| 6 | Harvest Small Business Finance, LLC† | nonbank | 961 | 95.7% | P+2.51% | $500K |
| 7 | Celtic Bank Corporation | bank | 2,917 | 92.7% | P+2.84% | $290K |
| 8 | SouthState Bank, N.A. | bank | 1,063 | 84.7% | P+2.59% | $1.07M |
| 9 | Newtek Bank, National Association† | bank | 5,685 | 74.8% | P+3.01% | $420K |
| 10 | Byline Bank | bank | 1,161 | 71.7% | P+2.67% | $793K |
| 11 | Live Oak Banking Company† | bank | 4,506 | 64.6% | P+1.92% | $1.37M |
| 12 | KeyBank, N.A. | bank | 2,106 | 30.7% | P+2.29% | $648K |
Top-12 retained-book lenders — FY23–25 funded variable 7(a)
Every row below sold zero loans or sub-1% of its FY23–25 funded-variable pool. Money-center franchises tend to run small-ticket Express programs as deposit-customer acquisition tools; regional banks tend to run larger-ticket 7(a) as a relationship product. Both operate in the sub-1%-sale bucket but with different commercial orientations. (7(a), FY23–25, n=31,306, funded variable; flip ≤ 0.2%; n ≥ 50)
| Lender | HQ | n | Sale % | Avg rate | Avg size |
|---|---|---|---|---|---|
| The Huntington National Bank† | OH | 16,406 | 0.9% | 10.22% | $205K |
| TD Bank, National Association | NY | 7,975 | 0.0% | 11.61% | $99K |
| Manufacturers and Traders Trust Company | NY | 4,499 | 0.2% | 11.89% | $128K |
| JPMorgan Chase Bank, National Association | CA | 3,885 | 0.0% | 12.00% | $205K |
| Wells Fargo Bank National Association | CA | 3,485 | 0.0% | 13.42% | $28K |
| U.S. Bank, National Association | CA | 2,896 | 0.0% | 10.68% | $208K |
| Zions Bank, A Division of | UT | 1,780 | 0.0% | 10.71% | $221K |
| First Bank of the Lake† | CA | 1,419 | 4.4% | 11.13% | $681K |
| Bank of America, National Association | CA | 1,018 | 0.0% | 9.76% | $338K |
| PNC Bank, National Association | TX | 962 | 0.0% | 12.22% | $64K |
| Banco Popular de Puerto Rico | PR | 846 | 0.0% | 12.03% | $130K |
| Comerica Bank | TX | 488 | 0.0% | 9.17% | $586K |
Cohort summary — bimodal distribution
Lenders with n ≥ 50 funded variable 7(a) in FY23–25, grouped by sale-rate cohort. Lenders in the 90%+ sale cohort price 64 bps higher on average than hold-to-maturity peers and originate at 2.2× the mean loan size. The mixed middle (5–50%) is the thinnest cohort, consistent with the bimodal distribution visible in Chart 6A.
| Cohort (sale %) | Lenders | Total loans | Mean rate | Mean spread | Mean avg size |
|---|---|---|---|---|---|
| 0-5% (hold-to-maturity) | 89 | 54,571 | 9.88% | P+1.908% | $456K |
| 5-50% (mixed) | 39 | 12,651 | 9.88% | P+1.930% | $626K |
| 50-90% (mostly flip) | 99 | 29,995 | 10.19% | P+2.244% | $941K |
| 90%+ (pure flipper) | 44 | 34,967 | 10.46% | P+2.547% | $1.02M |
Two-cohort structure
Newtek, Live Oak, Columbia — three distinct sold/held pricing patterns.
Newtek Bank NA’s 74.8% aggregate sale rate is the volume-weighted average of two distinct book shapes. The sold cohort prices at P+3.00% essentially flat across size bands; the retained cohort holds the sub-$150K tail — 1,419 loans at an average P+5.14% that did not clear the pool market at prevailing bids.
| Newtek size band (FY23–25, n=5,685) | Sale % | Sold spread | Unsold spread | Rate gap (pp) |
|---|---|---|---|---|
| $0-$150K | 60.6% | P+3.01% | P+5.49% | +2.48 |
| $150K-$350K | 82.5% | P+3.01% | P+3.88% | +0.87 |
| $350K-$500K | 91.0% | P+3.01% | P+3.02% | +0.01 |
| $500K-$1M | 87.5% | P+3.00% | P+3.05% | +0.05 |
| $1M-$2M | 86.7% | P+3.01% | P+3.04% | +0.03 |
| $2M-$5M | 86.0% | P+3.01% | P+2.96% | -0.05 |
Newtek’s aggregate 74.8% blends an Express book (52.5% sale rate) with an above-$350K standard book (75–85% sale rate). One charter, two cohorts with distinct pricing characteristics.
Columbia Bank shows a similar shape at smaller scale: 12.8% overall sale rate (n=1,347), sold loans average $1.07M at 10.03%, retained loans average $69K at 12.51%. The sold cohort is a million-dollar-plus acquisition product; the retained cohort is a small-ticket working-capital product that did not clear the pool market. Same program line, two products.
Live Oak’s pattern differs again. 72.9% of its 4,502 funded variable-rate loans sit below cluster median (per Section 3); 38% sit below cluster p25. Volume-weighted, Live Oak’s book is below the 7(a) median even at a 64.6% aggregate sale rate. Newtek’s flat sold-cohort ceiling and Live Oak’s left-skewed pricing distribution are the two clearest within-lender shapes in the book; Columbia’s two-product split is a smaller-scale echo of the Newtek pattern.
Section 6 handoff
The league table blends three funding profiles.
Non-depository SBLCs sell 97% of variable-rate 7(a) (n=12,933). Banks sell 38% (n=129,869). CDCs operating 7(a) sell 52% (n=164). The same guaranty, three different balance-sheet constraints.
Section 3 handoff
How the sale channel maps onto spread dispersion.
Section 3 reports 220 bps of p10–p90 spread dispersion on comparable deals. 52.8% of FY25 variable 7(a) dollars ($14.7B) moved through the secondary market, and the sold cohort prices 51–77 bps above the held cohort in every band. The dispersion and the sale channel are closely linked.
Section 2 handoff
A useful diligence question.
“Does this lender sell more than 90% of its variable-rate 7(a) book over the last three fiscal years?” If yes, the rate appears to track pool investors’ yield demand more than the lender’s own cost of funds. A comparison quote from a retained-book lender helps borrowers triangulate. FA$TRK originations sit outside this framework.
Methodology & data
- Source data
- SBA’s public 7(a) lending disclosure, loan-level, through 2025-12-31. Secondary-market flag is binary Y / blank. No loan-level premium is published in any SBA release. Premium distributions come from the SBA 1086 Premium Heat Maps PDF (gross-loan bands × price bands × FY). Any premium-per-loan stat is a model output over the aggregate distribution, shipped with its estimation sidebar.
- Par sold on a 1086
- Equals
gross_approval × guaranty_pct.gross_amountalone overstates by 25–50% (the retained unguaranteed portion). Small Loans (85% guaranty) and the Feb–Sep FY21 90% window (Economic Aid Act, expired Oct 1 2021) change the ratio; we use the actualguaranty_pct. - PPP excluded
- Separate 7(a) authority, CARES Act 100% guaranty, never sold on 1086s. The heat-map dataset filters PPP at source.
- Settlement vs approval windows
- PDF counts FY25 1086 settlements at 26,166 loans / $12.46B par. Our loan-level approval-cohort counts variable-rate funded 7(a) with sold-flag set at 23,929 loans FY25 / ~$12.2B guaranteed. Both are correct under their windows — PDF = settlement date, loan-level = approval date. Expected gap 5–10%; ~9% observed.
- What the data does not show
- Sale date is not published at loan level — we can flag which loans sold but not when. Per-loan premium is not published. Broker-channel flag is not in the public release at loan level (Form 159 is filed but not published). Lender concentration of FY25 sold volume is not separately disclosed.
- Full methodology
- Methodology index carries the full rule set, regulatory citations (13 CFR §§ 120.600–660; § 120.612; § 120.223; § 120.425), and the SHARED-METHODOLOGY cross-reconciliation table.
What to watch in next year's data
Four data points worth watching as FY26 originations settle.
- Whether the non-depository 97% sale rate compresses if SBLCs acquire bank charters and deposit funding. Newtek Bank NA’s 74.8% already sits below Newtek Small Business Finance’s 98.5%. A Lendistry, Readycap, or BayFirst charter event would be the first external signal of convergence between bank and non-depository sale rates.
- Whether the sold-cohort spread gap (Chart 6B) widens or compresses as rates fall. The gap widened from roughly 6 bps in FY21–22 to roughly 75 bps in FY24–25. Easing rates could compress the premium share of industry Year-1 revenue mechanically.
- Whether the FY25 H2 collapse on $1M+ variable 7(a) was rate-cycle-driven or a data-recency artifact. FY26 H1 settlement data resolves this.
- Whether SBA publishes Form 1086 settlement data at the line-item level, including premium price by originating lender. Form 1086 is already filed and settled through Guidehouse; publication is a disclosure-policy choice. Until then, the ~$1.15B sector figure carries its honest range and lender-level premium stays at distribution-aggregate level.
Up next
06Lender League Table
Combined, 7(a)-only, and 504 CDC league tables. Ranked by funding rate, with median spread and size mix for 151 lenders that cleared the reporting floor.