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

Through June 30, 2023, 504 loan originations are down 34.2% compared to the same point in FY2022, though this is a modest improvement from the 35.8% decline as of May 31, 2023. We 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 quite well so far in FY2023. Though the pace of originations has slowed compared to the 9.7% jump at May 31, 2023, originations are still up 6.6% at June 30, 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.

Some interesting patterns emerge when looking at the age of the businesses being funded. Loans going to fund established businesses 2 or more years old have declined almost 40% compared to this time last year, and funds to start-ups are down almost 18%. However, loans funding a change of ownership have risen a bit over 5% compared to the same period in FY 2022. The businesses seeing the most growth however, are new businesses or businesses less than 2 years old. This category has grown more than 36% in FY2023 compared to the prior year.