One of the more explosive items in SBA’s 82 page order to debar EDF REsource Capital’s further participation in SBA’s 504 loan program is a footnote from page 63.
Writes SBA, “The 504 loan program had upward reestimates’ of $1.5 billion for FY 2009, $1.6 billion for FY 2010, and $1.2 billion for FY 2011.
“In other words, for FY 2009 through FY 2011, the 504 loan program cost the government $4.3 billion more than estimated in the model.”
These are huge numbers. To put this in perspective, SBA’s total budget for FY 2013 is just under $1 billion.
This year’s subsidy for SBA 7(a) and 504 combined is $350 million.
We’re hoping the sentence in the order is some kind of typo, e.g. million, not billion.
If not, that would imply a SBA 504 loan loss rate approaching 33%.
The ramifications of this type of loss rate on SBA 504 loans would be unsustainable for the program.