Despite the sharp reduction in economic activity caused by the COVID-19 pandemic and the distractions caused by the PPP and EIDL programs, SBA 504 loan activity has remained strong.
Through August 28, 2020, SBA 504 loan originations were up 14.7% compared to the prior year, reaching $5.20 billion year-to-date in FY2020 versus $4.53 billion during the same period in FY2019. Through July 31, 2020, SBA 504 loan originations were up 15.0% compared to the prior year. 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 11.0% through August 28, 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.
Loan originations in the 504 program are growing substantially so far eleven months into FY2020. Total originations in 2020 through August 28th are well in excess of the volumes achieved at this point in any of the last five years. It appears that most of the growth is being led by mid- and large size loans. In fact, loans between $350k and $2 million are up 15.8% year-to-date, and loans of greater than $2 million are up 13.7% compared to the prior year. These two categories account for roughly 59% and 32% of year-to-date growth, respectively.
SBA Announces New Reduced 504 Loan Debenture Rates, Charles Abell, U.S. Small Business Administration
The U.S. Small Business Administration announced the updated interest rates for the 504 Loan Program offered by Certified Development Companies (CDC). Small businesses can now apply for the lowest interest rates since July 2018 as the program is now allowing 20 and 25-year interest rates at 2.214% and 2.269%, respectively.