LOANS RECEIVABLE

12 Months Ended

Dec. 31, 2020

4. LOANS RECEIVABLE

Loans receivable consist of the following:


	December 31,
	2020		2019
	(in thousands)
SBA 7(a) loans receivable, subject to credit risk	$	32,226	$	25,689
SBA 7(a) loans receivable, subject to loan-backed notes	23,631		27,598
SBA 7(a) loans receivable, Paycheck Protection Program	14,484		—
SBA 7(a) loans receivable, subject to secured borrowings	8,786		12,644
SBA 7(a) loans receivable, held for sale	4,009		1,601
Loans receivable	83,136		67,532
Deferred capitalized costs, net	884		1,145
Loan loss reserves	(885)		(598)
Loans receivable, net	$	83,135	$	68,079

SBA 7(a) Loans Receivable, Subject to Credit Risk—Represents the unguaranteed portions of loans originated under the SBA 7(a) Small Business Loan Program which were retained by the Company.

SBA 7(a) Loans Receivable, Subject to Loan-Backed Notes—Represents the unguaranteed portions of loans originated under the SBA 7(a) Small Business Loan Program which were transferred to a trust and are held as collateral in connection with a securitization transaction. The proceeds received from the transfer are reflected as loan-backed notes payable (Note 6). These loans are subject to credit risk.

SBA 7(a) Loans Receivable, Paycheck Protection Program—Enacted in March 2020, the Coronavirus Aid, Relief and Economic Security Act (the “CARES Act”) implemented the PPP, a SBA 7(a) loan program that provides small businesses with uncollateralized and unguaranteed loans at an interest rate of 1.00%. The loans will be fully forgiven, subject to certain limitations, when used by the borrower for payroll costs, interest on mortgages, rent, and utilities. For those loans that are forgiven, the SBA will remit 100% of the remaining outstanding principal plus accrued interest to us. For those loans whose borrowers do not meet the criteria required for forgiveness, repayment obligations commence after the applicable deferment period in equal installments over the remaining term to maturity. A substantial portion of the loans that we originated under the PPP have a two-year term and originally had a deferment period of six months; however, as a result of amendments to the PPP, these loans now are deferred for up to 16 months. All loans approved by the SBA after June 5, 2020 have a five-year term and deferment period of 16 months. Loans originated under the PPP are fully guaranteed by the SBA provided that originating lenders follow the requirements set forth therein. Accordingly, there is no credit risk associated with these loans since the SBA has guaranteed payment of the principal and interest. Neither the government nor lenders charged borrowers any fees in connection with the PPP loans; however, the SBA paid lenders a fee upon funding loans under the PPP.

As a SBA 7(a) licensee, we are an authorized lender under the PPP and have originated $16.0 million loans under the program with $14.5 million outstanding as of December 31, 2020. We expect a significant portion of these loans will be forgiven and repaid, either in part or in full, by the SBA, including both principal and accrued interest.

SBA 7(a) Loans Receivable, Subject to Secured Borrowings—Represents the government guaranteed portions of loans originated under the SBA 7(a) Small Business Loan Program which were sold with the proceeds received from the sale reflected as secured borrowings—government guaranteed loans. There is no credit risk associated with these loans since the SBA has guaranteed payment of the principal.

SBA 7(a) Loans Receivable, Held for Sale— Represents the government guaranteed portion of loans held for sale at the end of the period or that had been sold but in respect of which proceeds had not been received as of the end of the period.

Other

As of December 31, 2020 and 2019, our loans subject to credit risk were 99.1% and 98.7%, respectively, concentrated in the hospitality industry. As of December 31, 2020 and 2019, 98.8% and 99.6%, respectively, of our loans subject to credit risk were current. We classify loans with negative characteristics in substandard categories ranging from special mention to doubtful. As of December 31, 2020 and 2019, $1.4 million and $1.4 million, respectively, of loans subject to credit risk were classified in substandard categories.