The direction of the two main SBA loan programs diverged a bit in May 2024.
Through May 31, 2024, 504 loan originations slowed further compared to the prior year. 504 originations are now down 1.6% compared to the same point in FY2023, a modest deterioration from the 1.2% decline reported at the end of April 2024. SBA 7(a) originations, on the other hand, improved over the prior month. They are now up 8.5% fiscal year-to-date compared to the same period in FY2023, which is a solid improvement over the 6.5% advance measured at April 30, 2024.
The chart on the right above shows cumulative gross charge-offs on SBA 504 second lien loans by year of origination. As a reminder, an SBA 504 project has three components; an equity portion contributed by the borrower, the second lien portion held by the SBA through a CDC, and the first lien portion originated by a private lender. Comprehensive statistics on the private lender portion are not available, but statistics on the SBA/CDC second lien portion are. Since this is the loan that takes the first loss position, this portion of the loan project is likely to see higher charge-offs than the private lender first lien portion. As shown in the chart above, gross charge-offs for the SBA/CDC portion have been very low since the end of the financial crisis. In fact, cumulative gross charge-offs have been below 1.0% for every fiscal year since FY2013, and below 0.5% since FY2017. There have been no gross charge-offs in any of the fiscal years starting with FY2020.
The slower growth in loan originations in the 504 program in FY2024 is most pronounced among two minority groups. 504 loans to Black borrowers are down 43.5% in FY2024 through May 31, while loans to American Indians are down 29.0% Loans to nonminority borrowers (White and Undetermined) still accounted for 64.0% of all loans so far in FY2024, these categories suffered small declines of 7.2% and 4.4% respectively compared to the prior year. On the other hand, loans to Asian or Pacific Islander borrowers and to Hispanic borrowers increased versus the prior period by 22.4% and 2.5%, respectively.
