SBA 504 loan origination growth accelerated into the fourth month of the 2020 fiscal year.
Through January 31, 2020, SBA 504 loan originations were up 62.0% compared to the prior year, reaching $2.18 billion year-to-date in FY2020 versus $1.35 billion during the same period in FY2019. The unpaid principal balance of outstanding 504 loans stood at $25.83 billion as of December 31, 2019, up 0.2% compared to the $25.77 billion figure at year-end FY2019. In contrast, SBA 7(a) loan originations are down 4.0% year-to-date (through January 31) to $7.03 billion and the unpaid principal balance of 7(a) loans is $95.37 billion at December 31, 2019, up 3.0% compared to year-end FY2019.
While 7(a) loan outstandings continue to grow at solid pace (2.9% in FY2019 and 7.2% in FY2018), 504 loans have remained in a fairly tight range between $25 billion and $27 billion over the last nine years. Of course, the chart above includes only the CDC/SBA second lien portion of a 504 loan package, which typically amounts to roughly 40% of the financing. The first lien loan, usually supplied by a bank or other private sector lender, typically provides another 50% of the project funding.
Charge-off rates for the major SBA loan programs remain very low. The chart to the left shows charge-off rates for the CDC/SBA-held second lien position, as well as charge-off rates in the short-lived FMLP program, authorized in 2009 and ending in 2012. This program held pools of 504 first liens. While accurate data on the privately-held 504 first lien loans is not available, the fact that these loans are in a last loss position after the second lien loans leads to a presumption that charge-off rates would be considerably lower than for the second lien loans.
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