Investors who are looking for safe investments with a reasonable return are attracted to these loans because of the Government's full Faith and Credit guarantee against default. The existence of the secondary market makes guaranteed loan notes more liquid. By reselling the guaranteed portions, lenders reduce interest rate exposure, increase their lending capabilities, and generate fees. Advantages of Using the Secondary Market. The existence of the secondary market is a strong inducement for lenders to become involved in guaranteed lending.
Lenders can transfer risk of interest rate increases on the guaranteed portion of a fixed rate loan.
Increased Liquidity . Selling the loan on the secondary market frees the funds for additional lending or investing activity. Increased Lending or Investing Capabilities . Since the guaranteed portion of the loan is generally not applied against a bank's lending limit, it can be used to expand lending capabilities. Increased Return on Investment .