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by Dr Thomas J Healy, CMB

SBA Gain on Sale (GOS) Calculations

Tuesday, May 21, 2024

You might think that selling the 75% guaranteed portion of a $1.33 MM SBA loan (i.e. $1MM sale), for a premium of 10%, would give you a gain of $100,000.  You would be wrong.

Accounting rules view this as several transactions:

  1. The actual gain on the sale of the $1MM guaranteed piece of the loans                         $100,000
  2. The creation of the retained servicing rights on only the loan sold (assumed @ 2%)        20,000
  3. Discount on the retained portion ($333,333) of the loan                                                     -23,256

Actual GOS                                                                                                                               $ 96,744

I think #1 and #2 are fairly self-explanatory.  #3 needs a bit of explanation.

ASC 860 (Transfer and Servicing of Financial Assets) requires the seller must “derecognize the carrying value (as defined for the entire financial asset) that relates to only the portion of the financial asset sold. The carrying value of the portion sold is based on the relative fair values of that portion and the entire financial asset on the transfer date.”   

Accordingly, as is shown in the chart above, $1,023,256 is derecognized, leaving the seller with an asset of $310,078, or more precisely, a retained discount of $23,256.


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