SBA Form 1086, Secondary Participation Guaranty Agreement
What Is SBA Form 1086?
SBA Form 1086, Secondary Participation Guaranty Agreement is a document used in the 7(a) loan program to document the sales of guarantees in the secondary market – a market where loans and servicing rights are bought and sold between lenders and investors. It is used by the Small Business Administration (SBA) to verify a sale of an SBA loan guarantee by a Lender participant. 7(a) Lenders that sell SBA loans are required to deposit the guaranteed portion of loan payments in a segregated account for the benefit of the investors.
The latest version of the form was released by the SBA in February 2014 with all previous editions obsolete. A fillable SBA Form 1086 is available for download below:
When a lender sells the guaranteed portion of an SBA guaranteed loan, the SBA 1086 is used for the transaction. The form serves as a legal contract in the secondary market transaction between the following parties - the lender, the investor, and the SBA’s Fiscal and Transfer Agent (FTA). By signing the form, the lender agrees to collect and submit information on loan payments to SBA’s FTA monthly.
SBA Form 1086 Instructions
The lender must certify that:
- The loan has been underwritten, closed and serviced in a prudent manner and in accordance with all SBA Loan program requirements; it is not a revolving loan or line of credit facility; it is fully disbursed.
- The lender has no knowledge of a default by borrower (failure to meet the legal obligations of a loan) and has no knowledge that would indicate the likelihood thereof; the lender will not share any premium received from this sale with a service provider, packager, or other loan referral source; the lender has paid the SBA guaranty fee and has no authority to repurchase the guaranteed interest from registered holder without the written consent of the SBA.
The SBA 1086 agreement includes:
1. Section I – Borrower Information and Lender Certification.
This part of the form includes the lender's and the borrower's personal and contact information, the date and the amount of the loan from the SBA Form 750, the disbursements of the loan, the lender's fee, the mortgage and the bond equivalent yield, the taxpayer identification number, the SBA Servicing Office contact information.
2. Section II – Lender, Registered Holder and FTA Rights and Responsibilities.
These include the following:
- Lender’s sale of guaranteed interest;
- Loan servicing;
- Representations and the acknowledgments of the lender and of the registered holder;
- Issuance of guaranteed interest certificates;
- Lender’s and the FTA’s obligations;
- Transferability of guaranteed interest;
- Certificates lost, destroyed, stolen or mutilated;
- Repurchase of the guaranteed interest by the lender and by the SBA;
- Default by the lender and by the FTA;
- Prepayment or refinancing by the borrower;
- Separate or side agreements;
- Indemnity and force majeure;
- Fees and penalties.
- The form must be signed and dated by all parties to the agreement.