Form 1086 has been updated to include clarifications to prevailing program rules along with additional lender certifications. In a program notice to SBA employees and SBA Lenders, the SBA updated Form 1086, Secondary Participation Guaranty Agreement (Form 1086) that is used in the 7(a) loan program to document sales of guarantees in the secondary market. More important, the revised form removes all reference to a warranty period for loans sold at a premium in the secondary market. A change in financial accounting rules issued in June 2009 restricted lenders from recognizing gain from premiums earned on secondary market sales until the end of the warranty period. SBA solicited public comment by Federal Register Notice on March 19, 2010 on just how this accounting rule change should be applied to SBA secondary market sales (FR Vol. 75, No 53, pages 13329-13330). On review of submitted comments, SBA concluded that it is in the best interest of the program at this time to remove the warranty provisions from the form.
As a result, 7(a) lenders will be able to record the gain on secondary market sales of guarantees in the same quarter in which the sale occurs. Previously, the warranty period of 90 days required the gain to be recorded in the next accounting quarter after the guarantee sale. The new rule is effective for loan sales after February 15, 2011.