We are a bit over a month into the SBA’s fiscal year 2024, and the problem of stale and out-of-date data on the SBA’s website is getting worse.
Through the end of October, loan originations under the 504 loan program, 504 loan originations are down 13.3% compared to the same point in FY2023. While this is a noticeable improvement from the 30.3% decline for the fiscal year ended September 30, 2023, it still represents a further decline in lending activity from a slow prior year. Some of this was due to heightened activity during FY2022 during the COVID-19 pandemic. However, year-to-date activity is also well below comparable periods in the pre-pandemic FY2020. 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 performed well in FY2023. SBA 7(a) originations are also down this year, falling 27.5% compared to the same period in FY2023. The unpaid principal balance of 7(a) loans was $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.
Since peaking during the financial crisis and the 2007 vintage year for SBA 504 loan originations, gross charge-offs for SBA 504 second lien loans have remained very low. In fact, gross charge-offs for the second lien portion of SBA 504 projects remain below 1.0% for every vintage year from 2013 to the current year, and below 0.5% for every year since 2017. While comprehensive charge-off data on the 1st lien, private lender portion of these SBA 504 projects is unavailable, it seems likely that gross charge-off percentages on the first lien portions would be considerably lower than on the second-lien portions.
