SBA 504 loan originations remained strong through the third month of the 2020 fiscal year.
Through January 3, 2020, SBA 504 loan originations were up 37.7% compared to the prior year, reaching $1.70 billion year-to-date in FY2020 versus $1.24 billion during the same period in FY2019. The unpaid principal balance of outstanding 504 loans stood at $25.77 billion as of September 30, 2019, down 0.2% compared to the $25.83 billion figure at year-end FY2018. In contrast, SBA 7(a) loan originations are down 11.4% year-to-date (through January 3) to $5.57 billion and the unpaid principal balance of 7(a) loans is $95.10 billion at September 30, 2019, up 2.9% compared to year-end FY2018.
While 7(a) loans 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.
The strong growth in loan originations in the 504 program three months into FY2020 is largely driven by existing businesses. However, loans that facilitate a change in ownership, while still a modest 2.3% of all 504 loan originations, have jumped 449.0% compared to the same time in FY2019. Loans to start a business are also up substantially, rising 55.6% compared to the prior year. Still, loans to existing businesses, which account for 76.1% of YTD originations, are also growing at a strong 44.1% pace. Loan originations to new businesses, however, have declined 59.2% YTD.
News Blurb of the Week – Strengthening the Community Reinvestment Act by Staying True to Its Core Purpose, FRB Governor Lael Brainard, at the Urban Institute, Washington, D.C.
January 8, 2020 – Good morning. I am pleased to be here at the Urban Institute to discuss how to strengthen the Community Reinvestment Act (CRA), which is a key priority for the Federal Reserve. The CRA plays a vital role in bringing banks together with community members, small businesses, local officials, and community groups to make investments in their community’s future.1 That is why we are committed to getting CRA reform done right.