Two months into fiscal year 2025, SBA 504 loan originations are up 18.6% through November 30, 2024 compared to the prior year.
This represents a significant acceleration compared to the 8.8% rise posted as of October 31, 2024. Year-to-date results are the best since the origination levels produced during the pandemic years of FY2022. The SBA’s other major loan program, SBA 7(a) loans, slowed significantly to a still impressive 26.1% increase compared to the prior fiscal year, down from the torrid 75.6% jump in originations in recorded in October.
The 7(a) program has shown steady growth in loans outstanding in recent years that continued into FY2024 (up 5.3% in FY2024, 3.1% in FY2023, 3.1% in FY2022, and 6.8% in FY2021). 504 loans posted a 4.1% decline in originations in FY2024 compared to the prior year, after rising 9.7% in FY2023, 6.7% in FY2022, and 6.4% in FY2021. However, as noted above, origination volumes in the 504 program have started strong in FY2025 following two years of lower volumes. If this trend continues, it should lead to renewed growth in loans outstanding. We continue to note that 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 projects supported by the SBA 504 second lien loans at September 30, 2024 would be roughly $81 billion, equal to approximately 70% of the 7(a) balance.
Charge-off rates for the major SBA loan programs remain very low. The chart to the left shows charge-off rates for the 7(a) program, the CDC/SBA-held second lien position (504 Regular), as well as charge-off rates in the short-lived FMLP program (504 First Lien), authorized in 2009 and ending in 2012. This program, which held pools of 504 first liens, saw a spike in charge-offs in FY2024, though in most years charge-offs have been near 0.0%. 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 CDC second lien loans leads to a presumption that charge-off rates would be considerably lower than for the second lien loans.
