SBA Hot Topic Tuesday — Delinquencies Up 38%: SBA Calls for Vigilance in 504 Program Oversight

September 16, 2025

by Bob Coleman
Founder & Publisher

SBA Hot Topic Tuesday — Delinquencies Up 38%: SBA Calls for Vigilance in 504 Program Oversight

At last week’s SBA 504 Connect Quarterly Update, the Office of Credit Risk Management (OCRM) delivered a clear message: while the 504 program is growing, lenders and Certified Development Companies (CDCs) must prepare for heightened oversight. Delinquencies have surged 38% year-over-year and liquidations have jumped over 200%. In response, the SBA is rolling out new oversight tools to strengthen compliance, promote transparency, and provide lenders with actionable guidance.

Rising Portfolio Stress Indicators
OCRM’s balance sheet review showed that the outstanding gross balance of the 504 portfolio is up 7% year-over-year. However, several key risk markers are also trending higher:

  • Stress loans increased by 31%
  • Delinquencies rose by more than 38%
  • Deferred loans grew by 25%
  • Active defaults climbed 33%, driven largely by a 200%+ spike in liquidations

These figures suggest that while the portfolio is expanding, borrower challenges are beginning to surface. SBA officials underscored that lenders and CDCs must remain vigilant, particularly in identifying early signs of repayment risk.

  • SBA’s New Oversight Framework: OCRM is transforming its reviews into more than a compliance check. The new framework is designed as a coaching tool that equips CDCs to proactively manage portfolio risk. Key elements include:
  • Standardized Review Templates: SBA will now apply a consistent format across 504, 7(a), and Community Advantage lenders. This ensures fairness and allows CDCs to benchmark their performance against peer institutions.
  • Five-Quarter Trend Analysis: Reviews will no longer focus on a single snapshot. Instead, SBA will track data over five quarters, giving CDCs a clearer view of borrower performance trends and emerging risks.
  • Guided Reporting with Direct Links: Reports will now point lenders to specific CFR sections and portal locations where data was sourced. This innovation reduces confusion, shortens review cycles, and helps CDCs verify findings quickly.
  • Risk-Based Reviews: SBA is tailoring oversight based on portfolio risk levels. CDCs with higher concentrations of stress loans or delinquencies can expect deeper dives, while strong performers will see more streamlined reviews.

Why It Matters
The SBA’s balance sheet shows the overall 504 portfolio is up 7% year-over-year, but the quality of that growth is under pressure. Cash flow performance has slipped, with FY2025 projections at $220 million, well below prior years. Rising defaults and liquidations suggest that some borrowers are struggling to sustain payments in today’s economic environment.