Momentus Securities Launches Platform for Single-Lender Securitizations of SBA 7(a) Loans
An innovative platform from Momentus Securities is set to revolutionize the way lenders securitize the unguaranteed portions of U.S. Small Business Administration (SBA) 7(a) loans. By simplifying the securitization process and reducing associated costs, the platform aims to make this option more accessible and efficient for lenders, especially those with smaller portfolios. This breakthrough provides community-focused lenders with greater balance sheet flexibility, enabling them to expand their lending efforts and better serve their communities.
Addressing Liquidity Challenges for SBA 7(a) Lenders
SBA 7(a) loans are the primary tool for delivering financial assistance to America’s small businesses. However, many mission-driven lenders face scale and liquidity limitations. These challenges often restrict their ability to move loans off their balance sheets, limiting the funds available for additional loans to support underserved communities.
Historically, while lenders could sell the guaranteed portions of their 7(a) loans, securitizing the unguaranteed portions was cost-prohibitive. This option was primarily accessible to larger lenders due to the significant fixed expenses involved. For example, traditional single-lender securitizations typically required loan pools averaging $100 million in size, making the process unattainable for smaller, community-centric lenders.
Democratizing Access to Securitization
Momentus Securities’ platform changes the game by reducing transaction costs and simplifying the process. “This single-lender platform is a turning point that democratizes the securitization process,” said Jaime Aldama, President of Momentus Securities. “By emphasizing purpose over profit, we can expand the work of small-balance, community-centric lenders that drive economic growth nationwide.”
By lowering costs, the platform opens the door for smaller lenders, including Community Development Financial Institutions (CDFIs), Community Development Corporations (CDCs), and Minority Depository Institutions (MDIs). These organizations play a critical role in supporting underserved communities, and the platform’s accessibility allows them to secure the liquidity needed to expand their efforts.
SBA’s Commitment to Mission-Driven Lenders
The SBA recognizes the importance of enabling smaller, mission-driven lenders to access the capital markets. Katie Frost, Associate Administrator of the SBA’s Office of Capital Access, highlighted the significance of the platform. “We are committed to ensuring that vital community-focused lenders have the liquidity needed to provide loans,” she said. “Helping them access necessary capital to serve their communities is a top priority for us.”
Innovative Features of the Platform
The platform employs a Master Trust structure, which issues distinct Series Trusts for each participating lender. This structure ensures legal separateness while standardizing and streamlining documentation. The result is a faster, more efficient securitization process completed at a lower cost compared to traditional methods.
Guidehouse, a global consultancy, serves as the platform’s administrator, back-up servicer, and custodian. Paul Burke, Head of Securitization at Guidehouse, expressed enthusiasm about the initiative. “Guidehouse is excited to support the mission of the SBA through innovative capital market solutions like Momentus Securities’ platform,” he said. “This effort increases liquidity options for lenders of all sizes, fostering economic development nationwide.”
Legal counsel for the platform’s development was provided by Katten Muchin Rosenman. The platform’s first transaction has already received SBA approval and is slated to close in the first quarter of 2025.
Connecting Mission-Driven Lenders with Institutional Investors
As an investment bank with a social purpose, Momentus Securities focuses on removing barriers faced by mission-driven lenders. These lenders, including CDFIs, CDCs, MDIs, and community banks, often struggle to scale their operations due to liquidity constraints. Momentus Securities helps solve this problem by creating new opportunities for these organizations to access capital.
Key Services Provided by Momentus Securities:
- Themed Warehousing Lines: Supporting sectors such as affordable housing, healthcare, education, and small businesses.
- Portfolio Aggregation: Combining mission-driven loan portfolios from across the U.S.
- Debt Capital Raising: Facilitating bond and note issuances, private placements, and structured credit transactions.
- Secondary Market Liquidity: Providing liquidity for community-centric organizations focused on underserved areas.
- Capital Raising Services: Leveraging a network of impact-driven institutional investors and foundations.
- Credit Rating Advisory: Assisting clients with first-time ratings, upgrades, and capital structure optimization.
- Liability Management: Helping clients optimize their financial structures and improve overall fiscal strength.
These services not only enhance liquidity for lenders but also create new investment opportunities for institutional investors. By supporting mission-driven initiatives, investors can contribute to community development at an unprecedented scale.
Momentus Securities: A Family of Mission-Driven Organizations
Momentus Securities is part of the Momentus Capital branded family, which includes Capital Impact Partners, a nonprofit CDFI, and CDC Small Business Finance, a leading SBA Community Advantage Small Business Lending Company. This integrated network of organizations is committed to advancing economic opportunity and community development.
Transforming the Landscape of SBA 7(a) Lending
The launch of this platform marks a significant milestone in the securitization of SBA 7(a) loans. By addressing the unique needs of smaller lenders and mission-driven organizations, Momentus Securities is paving the way for a more inclusive and efficient financial ecosystem. The resulting increase in liquidity will empower lenders to expand their outreach, support more small businesses, and drive economic growth in underserved communities.
Read more: Momentus Securities Unveils Innovative Platform for Single-Lender Securitizations of Unguaranteed SBA 7(a) Loans
