The 504 loan program is starting at a much more subdued pace in SBA’s fiscal year 2023 than it did in fiscal year 2022.

This year started, originations, are strong compared to other recent years, but far below the pace set at the start of last year. 504 loan originations are down 55.2% compared to FY2022, though they are up 20.0% compared to the same period on FY2021. 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 $30.14 billion as of March 31, 2022, up 4.1% compared to the $28.94 billion figure at year-end FY2021. Unlike SBA 504 loans, SBA 7(a) loan originations are doing quite well so far in FY2023. In fact, 7(a) loans have jumped 146.5% compared to the previous year. The unpaid principal balance of 7(a) loans is $106.69 billion at March 31, 2021, up 2.7% compared to year-end FY2021.

The 7(a) program has shown steady growth in loan outstandings in recent years that continued through the end of FY2021 (6.8% in FY2021, 2.3% in FY2020, and 2.9% in FY2019). 504 loans have shown accelerating growth, rising 6.4% to $28.9 billion at year-end FY2021, after climbing 5.5% in FY2020 and (0.2%) in FY2019. 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 50% of 504 projects, The total for SBA 504 loan outstandings (1st and 2nd liens combined) would be somewhere in the neighborhood of $68 billion, still below 7(a) totals, but much closer.

Loan originations in the 504 program have slowed noticeably, due to rising interest rates and fears of a recession. Total originations in FY2023 through November 4th are down 55.2% vs the torrid pace set in FY2022. In dollar terms, most of the decline is being led by mid- and large size loans. Although all loan size groups are experiencing significant declines, the largest size loan group is showing the best performance, as loans greater than $2.0M dropped 46.4% while the three other size groupings have declined 60.0% or more compared to last year.