SBA 504 loan originations are up 6.1% compared to the prior year at August 31.
They were up only 0.9% compared to the prior year when we reported last month. Despite the year-over-year improvement, this is well below the origination levels produced during the pandemic years of FY2021 and FY2022. Likewise, SBA 7(a) originations are now up 16.2% fiscal year-to-date compared to the 13.2% reported last month (through July 31).
The 7(a) program has shown steady growth in loans outstanding in recent years that continued into FY2024 (up 1.2% year-to-date in FY2023, 3.1% in FY2022, and 6.8% in FY2021). 504 loans had shown accelerating growth, rising 9.7% in FY2023, 6.7% in FY2022, and 6.4% in FY2021. However, after two years reduced origination volumes following the big jump in originations during the COVID pandemic, the outstanding loan balances in the 504 program have begun to decline, falling 6.4% fiscal-year-to-date in FY2024. We continue to note that 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 projects supported by the SBA 504 second lien loans at March 31, 2024 would be roughly $79 billion, equal to approximately 70% of the 7(a) balance.
Charge-off rates for the major SBA loan programs remain very low. The chart to the left shows charge-off rates for the CDC/SBA-held second lien position (504 Regular), as well as charge-off rates in the short-lived FMLP program (504 First Lien), authorized in 2009 and ending in 2012. This program held pools of 504 first liens. There was a substantial jump in charge-offs for this dormant program in the most recently reported quarter, but we feel the performance of the second lien loans, which show a very low (0.05%) and declining charge-off rate, are much more indicative of the credit quality within the 504 program.
