SBA Form 1086: Completing, Signing, and Settling the Participation Agreement

SBA Form 1086, the Secondary Participation Guaranty Agreement, is the contract a 7(a) lender uses to sell the government-guaranteed portion of a loan to an investor on the SBA secondary market. Four parties sign it: the lender, the investor (called the Registered Holder), the SBA, and the Fiscal Transfer Agent. Guidehouse currently serves as the SBA’s Fiscal Transfer Agent and central registry for guaranteed loan interests.¹ The current version of the form is dated 12-23 and expires in February 2027; you download it from the SBA’s FTA Wiki.²

Prerequisites Before You Execute the Form

Federal regulations impose three requirements before a lender can execute the SPGA. You must submit a copy of the proposed Form 1086, the promissory note, and any other documents the SBA requires to the Fiscal Transfer Agent. You must have fully disbursed the loan proceeds to the borrower; export working capital loans are the one exception. And every guarantee fee owed to the SBA on the loan must be paid in full.³ Skip any of these and the FTA will not accept the form for settlement.

Confirm the loan’s current status through SBA Form 1502 reporting data before you start. The 1502 shows the guaranteed portion’s closing balance, payment history, and any delinquency codes, and the FTA cross-checks all of it during review.⁴ A mismatch between the 1502 balance and the figures on Form 1086 is a common reason transactions stall.

Filling In the Loan Block

The first block captures the basic loan data: the ten-digit SBA loan number, the borrower’s legal name, the original principal amount, the note interest rate (including the base rate index and spread), and the maturity date. Every figure must match the underlying promissory note and the SBA’s Loan Authorization exactly. A discrepancy in the principal balance or interest rate will flag the submission during FTA review.⁵

Seller and Purchaser

The Seller section identifies the lending institution by legal name, address, and federal tax identification number. The Purchaser section mirrors that structure for the investor and adds a contact person and their taxpayer ID. The FTA uses these tax IDs for payment routing and IRS reporting after settlement, so get them right the first time.

Sale Terms and the Servicing Fee

Enter the exact percentage of the guaranteed portion being sold. Only the guaranteed portion is eligible for secondary market sale. For most 7(a) loans the SBA guarantees up to 85 percent of loans of $150,000 or less and up to 75 percent above that threshold, though the percentage varies by loan type: SBA Express carries a 50 percent guarantee, and International Trade or Export Working Capital loans can go up to 90 percent.⁶

You also disclose the servicing fee you retain, expressed as a percentage of the outstanding guaranteed balance. It’s deducted from the investor’s share of each payment, and the purchaser needs the figure to calculate net yield. Calculate accrued interest from the borrower’s last payment date through the settlement date so the wire amount at closing is accurate.

Pricing

Lenders sell the guaranteed portion at par (100 percent of the outstanding balance), at a premium above par, or occasionally at a discount. A premium sale maximizes immediate income; a par sale preserves more servicing income over time. One cost worth pricing in: the SBA charges the lender a premium fee equal to half of any premium that exceeds 110 percent of the guaranteed balance, payable at settlement.⁷

Signatures and Payment Routing

Form 1086 has four signature blocks: the Registered Holder (investor), the Lender, the SBA (signed by the Administrator), and the Fiscal Transfer Agent, whose signature is an “Examined and Accepted” certification.⁸ A broker or dealer may facilitate the transaction. The form states expressly that the lender will not send payments directly to the Registered Holder or to any broker or dealer; every payment runs through the FTA.

Submitting the Form and Settling

The lender submits the completed document package to Guidehouse. The FTA Wiki portal at catran.sba.gov is the primary channel for secondary market participants to access resources and initiate transactions.⁹ Once the FTA has everything, settlement moves fast:

Within two business days of receiving the complete package, the FTA notifies the purchaser that the loan is cleared for settlement.
One business day before the scheduled settlement date, the purchaser submits a Purchaser’s Confirmation of Sale and pays the FTA’s settlement fee of $75.
On settlement day, the purchaser wires the settlement amount to the FTA’s bank before 1:00 p.m. EST. The FTA wires funds to the lender the same day.
Within two business days of settlement, the FTA issues the purchaser a Guaranteed Interest Certificate, the formal proof of ownership of the guaranteed portion.

Those timelines come from the SBA’s Secondary Market Loan Sales guide.⁷ Incomplete documentation is the most common cause of delay. Before you submit, verify that the note, Loan Authorization, and any payment modification agreements are all in the package.

Servicing After the Sale

Selling the guaranteed portion does not end your involvement with the loan. You remain the primary servicer, collecting payments, managing escrow if applicable, and handling any workout or modification. The Form 1086 agreement makes this servicing obligation permanent for the life of the loan.

Each month you file SBA Form 1502 with the FTA, reporting interest and principal payments on the guaranteed portion, the closing balance, and any status changes such as delinquency or payoff. You deduct your servicing fee from the borrower’s payment before remitting the investor’s share to the FTA, which passes it through to the Registered Holder.⁴

Late remittances carry consequences. The 1502 instructions specifically provide for a remittance penalty if the lender does not forward secondary market payments according to the terms set out in Form 1086.⁴ Persistent servicing failures can cost you the SBA guarantee itself, the worst outcome available in the program.⁵

Default and Repurchase

When a borrower whose guaranteed portion has been sold falls into default, the SBA strongly encourages the original lender to repurchase the guaranteed portion directly from the investor. If the lender refuses, the SBA will purchase the guaranteed portion from the Registered Holder after receiving the required documentation.¹⁰ The lender starts that process by notifying the SBA in writing that it will not purchase from the secondary market holder, then submits documents to the National Guaranty Purchase Center in Herndon, Virginia:

A Transcript of Account. The SBA recommends Form 1149. Incomplete transcripts delay the purchase and can result in the lender being invoiced for interest that accrues during the delay.
An executed copy of the original Loan Authorization.
Copies of all deferments and term changes, with proof that the investor approved each modification as Form 1086 requires.
Redirection of any post-purchase collections to the SBA’s Denver Finance Center using SBA Form 172.

The earliest a lender can request the SBA to purchase is after an uncured default exceeding 60 days.¹⁰

Restrictions Worth Knowing

A lender (or its associate) that originated a 7(a) loan cannot purchase the guaranteed portion of that same loan on the secondary market. Buy back your own guaranteed portion and you lose the unconditional SBA guarantee on it.³ The default repurchase process above is a separate mechanism governed by specific SBA procedures and does not trigger this prohibition.

The sale terms between lender and purchaser also cannot require the lender or the SBA to repurchase the guaranteed portion except as provided in the SPGA itself. Any side agreement purporting to create a repurchase obligation beyond the form’s terms is unenforceable under 13 CFR 120.613.³

1
U.S. Small Business Administration. 7(a) Secondary Market
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U.S. Small Business Administration. FTA Wiki – Downloads and Resources
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eCFR. 13 CFR Part 120 Subpart F – Secondary Market
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U.S. Small Business Administration. SBA Form 1502 and Instructions
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U.S. Small Business Administration. SBA Form 1086 – Secondary Participation Guarantee Agreement
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U.S. Small Business Administration. Types of 7(a) Loans
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U.S. Small Business Administration. Guide to SBA 7(a) Secondary Market Loan Sales
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U.S. Small Business Administration. SBA Form 1086 (12-23)
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U.S. Small Business Administration. SBA FTA Wiki
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U.S. Small Business Administration. Guaranty Purchase Process