February 18, 2020
By Caity Witucki
Contributing Editor, Hot Topic Tuesday
Hot Topic Tuesday — SBA Loan Delinquency Rates Continue to Steadily Decline
On December 30, 2019, the SBA released its annual Financial Report for FY 2019. Among other things, the annual Financial Report provides insight into the SBA’s loan delinquency rates, which are a general indicator of the future liabilities for the SBA loan programs.
According to the report, delinquency rates for the SBA’s major loan programs have been steadily declining since reaching cyclical peaks in 2009 and 2010 respectively. Delinquency rates for the 7(a) loan program have declined from the 3.8 percent peak in 2009 to 0.8 percent in 2019. Similarly, delinquency rates for the 504 loan program have declined from a 5 percent peak in 2010 to 0.7 percent in 2019.
Delinquency rates are also a leading indicator of the Agency’s chargeoff rate. As reported by the SBA’s Financial Report, the 12-month charge-off rate for the 7(a) loan program sharply declined during the FY 2010-2013 period, falling from 4.3 percent during the fourth quarter of 2010 to 1.2 percent in the third quarter of 2013. However, the rate increased thereafter, until decreasing in 2019 to 1 percent. 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 percent in 2013, but dropping to 0.3 percent in 2019.
According to the report, neither of these trends are surprising. “The latent rise of the 7(a) charge-off rate in 2013 is attributable to recession-era loans that were charged-off after efforts to recover delinquent balances had been exhausted,” the report explains. “Now that this effort to charge-off the recession-era loans is complete, the charge-off rate mirrors the delinquency rate for FY 2019.”
Likewise, the 504 program’s steady decline was predictable. “This trend is not surprising since the 504 loan program is an economic development program with a commercial real estate focus,” says the report. “As such, recovery rates of defaulted 504 loans are, with some noticeable time lag, significantly impacted by the pricing trend in this sector.”
Current quarterly information on the status of the SBA’s loan portfolio, including delinquency and charge-off rates, will be made available on the SBA’s website after each quarter.