September 30 marks the end of the SBA’s fiscal year 2023, and loan originations under the 504 loan program concluded the year at substantially lower levels than in the prior two years.
For the full fiscal year 2023, 504 loan originations are down 30.3% compared to FY2022, though this is a modest improvement from the 33.4% decline as of August 31, 2023. We believe the slowdown in FY2023 was primarily due to the rapidly rising interest rate environment, fears of a recession, and a pullback from the efforts to counteract the impact of the COVID-19 pandemic. 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 performed well in FY2023. SBA 7(a) originations increased 7.1% in FY2023 compared to the same period in FY2022. The unpaid principal balance of 7(a) loans was $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.
The majority of SBA 504 loans have traditionally gone to male-owned business. However, despite some setbacks from time to time, the general trend over the past ten years has seen a steady increase in the percentage of loans going to women-owned businesses. Loan originations to companies owned 50% or more by females increased to 11.2% in FY2023 from 9.7% in FY2022, while loans to business owned less than 50% by women slipped modestly to 18.4% from 19.6%. As a result, loans to male-owned businesses dropped to 70.4% in FY2023 from 70.8% in FY2022 and 87.0% in FY2014.
