With just one month remaining in the SBA fiscal year 2023, loan originations under the 504 loan program remainwell below the level of the prior two years.

Through August 31, 2023, 504 loan originations are down 33.4% compared to the same point in FY2022, though this is a modest improvement from the 33.5% decline as of July 31, 2023. We still 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 well so far in FY2023. Though the pace of originations has slowed compared to the 3.0% rise as of July 31, 2023, originations are still up 2.6% at August 31, 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 loans outstanding 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 August 31st are down 33.4% vs the torrid pace set in FY2022. In dollar terms, most of the decline is being led by large size loans. In percentage terms, all loan size groups are experiencing significant declines. The largest size loan group, loans greater than $2.0M, posted a 39.6% drop in originations YTD in FY 2023, while the three other size groupings have registered declines of 59.2% (loans $150k and under), 41.6% (loans between $150k and $350k), and 42.2% (loans between $350k and $2.0M)compared to last year