The 2020 fiscal year for the SBA that ended on September 30 closed with substantial SBA 504 loan activity.
Through September 30, 2020, SBA 504 loan originations were up 17.5% compared to the prior year, reaching $5.83 billion year-to-date in FY2020 versus $4.96 billion during the same period in FY2019. Last month, through August 28, 2020, SBA 504 loan originations were up 14.7% compared to the prior year, revealing that 504 volumes ended the year on an upswing. The unpaid principal balance of outstanding 504 loans stood at $25.72 billion as of March 31, 2020, down 0.2% compared to the $25.83 billion figure at year-end FY2019. SBA 7(a) loan originations are down 2.7% through September 30, 2020 compared to the same period in 2019 and the unpaid principal balance of 7(a) loans is $95.64 billion at March 31, 2020, up 0.6% compared to year-end FY2019.
While 7(a) loan outstandings were still growing at solid pace through the end of FY2019 (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 published 504 loan figures in 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. If the first lien loan and borrower investment were included, the 504 loan totals would be closer to 7(a) loan totals.
The strong growth in loan originations in the 504 program in FY2020 is largely driven by existing businesses, which accounted for 85.2% of the dollar volume of originations in FY2020. However, loans to new business or businesses existing for less than two years, while still a small 1.2% of all 504 loan originations, have jumped 246.7% compared to the same time in FY2019. Loans facilitating a change of ownership are also up substantially, rising 195.3% compared to the prior year. Still, loans to existing businesses also grew at a strong 27.0% pace in FY2020.
The Fed Wants to Push the Reset Button on Community Reinvestment Regulation Update
As of last week, the Federal Reserve is attempting to push the reset button on what has been a multi-year process to update regulations around a decades-old piece of civil rights legislation, the Community Reinvestment Act. The process has the potential to affect hundreds of billions of dollars a year in credit to low and moderate income communities.