Loan originations under the 504 loan program remain well below the level of the prior two years so far in FY2023.

Through July 31, 2023, 504 loan originations are down 33.5% compared to the same point in FY2022, though this is a modest improvement from the 34.2% decline as of June 30, 2023. We still believe this slowdown is primarily due to the rapidly rising interest rate environment and fears of a recession. Unpaid Principal Balance of SBA 504 loans stood at $32.00 billion as of December 31, 2022, up 3.7% compared to the $30.87 billion figure at year-end FY2022. Unlike SBA 504 loans, SBA 7(a) loan originations are doing well so far in FY2023. Though the pace of originations has slowed compared to the 6.6% rise as of June 30, 2023, originations are still up 3.0% at July 31, 2023 compared to the same period in FY2022. The unpaid principal balance of 7(a) loans is $108.43 billion at December 31, 2022, up 1.2% compared to year-end FY2022.

The 7(a) program has shown steady growth in loans outstanding in recent years that continued into FY2023 (up 1.2% year-to-date in FY2023, 3.1% in FY2022, and 6.8% in FY2021). 504 loans have shown accelerating growth, rising 3.7% year-to-date in FY2023, 6.7% to $30.9 billion at year-end FY2022, and 6.4% in FY2021. Of course, the published 504 loan figures in the chart above include only the CDC/SBA second lien portion of a 504 loan package, If we include the private lender portion of the same loan projects, which typically accounts for roughly 50% of 504 projects, The total for SBA 504 loan outstandings (1st and 2nd liens combined) would be somewhere in the neighborhood of $72 billion, still below 7(a) totals, but equal to approximately 67% of the 7(a) balance.

The slower growth in loan originations in the 504 program in FY2023 is evident across almost all minority groups. Although 504 loans to non-minority borrowers still accounted for 33.3% of all loans so far in FY2023, Black borrowers were the only categories showing an increase, rising 28.4% compared to the prior year. The Asian & Pacific Islander and Hispanic groups showed significant declines, as did the undetermined and White groups compared to the same period in FY2022. Although loans to the American Indian group declined 6.9% compared to the prior year, this drop was not nearly as severe as those for the other groups.