1: Secondary Market Guarantee

Guarantee timely payment of principal and interest on trust certificates representing an ownership interest in a pool of guaranteed portions of loans made under SBA's section 7(a) guaranteed loan program.

Other Information:

When Congress enacted the Small Business Secondary Market Improvements Act of 1984, it authorized SBA to guarantee the timely payment of principal and interest on trust certificates representing an ownership interest in a pool of guaranteed portions of loans made under SBA's section 7(a) guaranteed loan program (``SBA 7(a) loans''). Congress anticipated that the timely payment guarantee could be structured so that SBA would have no additional budgetary exposure and no need for any direct taxpayer subsidy of this cost. SBA established the Master Reserve Fund (``MRF''), which has served as a self-funding mechanism to cover the cost of the timely payment guaranty. Borrower payments on the guaranteed portion of pooled SBA 7(a) loans, as well as any SBA guaranty payments on defaulted SBA 7(a) loans, are deposited into the MRF and all payments to investors (``Registered Holders'') are made from the MRF. Interest earned while the payments are in the MRF is used, as needed, to make the timely payments to the Registered Holders. In its 18 year existence, there have always been sufficient funds in the MRF to meet SBA's timely payment obligations.

Stakeholder(s):

• •  (Beneficiary)

Objective(s):

1: Businesses & Jobs

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