Loan originations under the 504 loan program remain well below the level of the preceding year so far in FY2023, and are currently just slightly above where they were at the same point in FY2020.

Through April 30, 2023, 504 loan originations are down 39.2% compared to the same point in FY2022, though this is a modest improvement from the 39.8% decline as of March 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 19.5% jump at March 31, 2023, originations are still up 10.7% at April 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 loan outstandings 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.

Loan originations in the 504 program have slowed noticeably, due to rising interest rates and fears of a recession. Total originations in FY2023 through April 30th are down 39.2% vs the torrid pace set in FY2022. In dollar terms, most of the decline is being led by large size loans. Although all loan size groups are experiencing significant declines, the largest size loan group is showing the biggest decline, as originations of loans greater than $2.0M dropped 73.6% while the three other size groupings have declined between 43.5% and 45.7% compared to last year.