March 17, 2021
C-Suite Wednesday — SBA’s Portfolio Performance in FY 2020
According to the SBA’s Annual Financial Report for FY 2020, the agency’s small business loan portfolio increased nearly 500% last year to $836 billion. This increase was largely caused by the Paycheck Protection Program, which added $513 billion to the portfolio. As a result, the quarterly average loan volume for the SBA’s 7(a) and 504 loan programs decreased slightly to $7.1 billion. Nevertheless, an uptick in new loan volume in Q4 resulted in a $3.6 billion increase over the entire year.
SBA’s portfolio performance was also impacted by pandemic recovery efforts. The CARES Act—which created the Paycheck Protection Program and the Economic Injury Disaster Loan Program—provided debt relief to current borrowers of 7(a) and 504 loans in the form of principal and interest payments. consequently, 7(a) and 504 loan delinquency rates fell to near 0% in the last six months of FY 2020. Delinquency rates for the 7(a) loan program declined from its 3.8% peak in January 2009 to just 0.3% in July 2020. Similarly, delinquency rates for the 504 loan program declined from a 5% peak in February 2010 to 0.02% in July 2020.
The 12-month charge-off rate for the 7(a) loan program sharply declined during the FY 2010 – 2013 period, falling from 4.3% during Q4 of 2010 to 1.2% in Q3 of 2013. However, the rate increased thereafter, until decreasing again in July 2020 to 0.5%. In contrast, the 12-month charge-off rate for the 504 loan program continuously increased from FY 2008 to FY 2013, peaking at 4.4% in January 2013, but dropping to 0.3% in July 2020.
According to experts, previous economic crises saw elevated defaults which impacted the secondary market for several years. However, CARES Act loans and 1112 payments have resulted in low defaults. Default rates are expected to rise to a higher than normal level in late 2022 or early 2023. However, voluntaries are expected to stay low.
For a more in-depth analysis of SBA 7(a) and 504 historical loan failure and charge-off data, consider purchasing Coleman’s 2021 SBA Franchise and NAICS 7(a) & 504 Loan Performance Reports.