2024-22040. 504 Debt Refinancing

Table 1A—504 Refinancing Lending Activity From 2018 to 2021

[Note: Table 1B on next page contains 2022 through YTD FY 24]

504 Cohort	2018	2019	2020	2021
Total Number of 504 Loans	5,874	6,099	7,119	9,676
Total Dollar Volume of 504 Loans Approved	$4,753,644,000	$4,958,552,000	$5,826,885,000	$8,218,105,540
Number of 504 Debt Refinancing with Expansion	181	181	236	301
Dollar Volume of 504 Debt Refinancing with Expansion	$212,098,000	$192,968,000	$296,392,000	$389,801,000
Number of 504 Debt Refinancing Without Expansion	181	166	386	693
Dollar Volume of 504 Debt Refinancing Without Expansion	$154,062,000	$154,842,000	$370,160,000	$709,020,000

Table 1B—504 Refinancing Lending Activity From 2022 to YTD 2024 (May 31st)

504 Cohort	2022	2023	FY 2024 YTD (as of May)	Totals FY 2019-YTD FY24 (May)
Total Number of 504 Loans	9,254	5,924	3,306	47,252
Total Dollar Volume of 504 Loans Approved	$9,207,996,290	$6,419,378,000	$3,619,017,000	$43,003,577,000
Number of 504 Debt Refinancing with Expansion	336	176	96	1,507
Dollar Volume of 504 Debt Refinancing with Expansion	$454,568,000	$287,427,000	$156,938,000	$1,990,192,000
Number of 504 Debt Refinancing Without Expansion	829	392	286	2,933
Dollar Volume of 504 Debt Refinancing Without Expansion	$959,897,000	$473,275,000	$333,791,000	$3,155,047,000

Prior to the change increasing the amount of existing indebtedness eligible for a debt refinance with expansion project from 50 percent of the project cost to 100 percent of the project cost, of the debt refinance with expansion loans, only 16 refinanced a debt that equaled 50 percent of the expansion costs. If these borrowers had been able to refinance 100 percent of the expansion costs instead of 50 percent, and assuming that all these borrowers did so, these borrowers would have been able to borrow $15 million more over five years, or about $3 million more annually. Since the passage of the Economic Aid Act, there have been 4,312 refinancing 504 loans approved of which 1,507 were debt refinancing with expansion and 2,933 were debt refinancing without expansion. In dollars approved, this is a combined amount of 504 refinancing loans totaling $5,145,239,0000 of which $1,990,192,000 was for refinancing with expansion and $3,155,047,000 was for refinancing without expansion.

Table 2A—504 Loan Activity by Cohort Years August to July 2018 to July 2021

[Note: Table 2B below contains July 2021 through YTD FY 24]

Cohorts	Aug'18-Jul'19	Aug'19-Jul'20	Aug'20-Jul'21
Total Number of 504 Loans	6,153	6,836	9,572
Total Dollar Volume of 504 Loans Approved	$5,063,078,000	$5,575,249,000	$7,934,192,540
Number of 504 Debt Refi With Expansion	183	243	295
Dollar Volume of 504 Debt Refi With Expansion	$191,786,000	$309,027,000	$362,039,000
Number of 504 Debt Refi Without Expansion	160	302	66
( print page 79738)
Dollar Volume of 504 Debt Refi Without Expansion	$157,880,000	$295,396,000	$601,831,000

Table 2B—504 Loan Activity by Cohort Years August to July 2021 to YTD 2024 (May) ¹

Cohorts	Aug'21-Jul'22	Aug'22-Jul'23	Aug'23-May 24
Total Number of 504 Loans	9,392	6,253	4,312
Total Dollar Volume of 504 Loans Approved	$9,248,887,290	$6,624,952,000	$4,745,370,000
Number of 504 Debt Refi With Expansion	332	183	135
Dollar Volume of 504 Debt Refi With Expansion	$446,975,000	$305,619,000	$207,621,000
Number of 504 Debt Refi Without Expansion	934	388	383
Dollar Volume of 504 Debt Refi Without Expansion	$1,057,386,000	$432,638,000	$475,326,000
1  As shown in Tables 2A and 2B, 504 Loan Activity by Cohort Years August to July 2018 to YTD 2024 (Feb), Data as of 9/15/2023, total dollar volume is lifetime gross approval amount including increases.

This direct final rule is necessary to implement the Economic Aid Act in full and provide economic relief to small businesses still adversely impacted by COVID-19. SBA anticipates that making these changes to the 504 debt refinancing programs will continue to result in benefits to small businesses by providing greater flexibility to restructure debt.

To assess the impact of the interim final rule, SBA evaluated 504 loan activity (including the number of loans and dollar volume of both debt refinance with expansion and debt refinance without expansion) between August 2018 and May 2024. Because the interim final rule was published on July 29, 2021, with immediate effectiveness, the first full month during which the modifications to 504 debt refinancing were available was August 2021, with August 2021 through July 2022 being the first 12-month period during which the modifications to 504 debt refinancing were available to 504 applicants. SBA divided the data into five cohorts of 12 months each, with the first cohort beginning in August 2018 and the last cohort beginning February 2024. See Tables 2A and 2B.

As an appropriate baseline for evaluation of the impacts of the direct final rule that would be made permanent in this rule, SBA considers the state of 504 lending for debt refinance with expansion and without expansion before July 2021. SBA examines the 12-month periods from August 1, 2018, through July 31, 2019, to the period from August 1, 2022, to July 31, 2023, noting that external influences from the pandemic and from payments made on behalf of borrowers by SBA under section 1112 of the Coronavirus Aid Recovery, and Economic Security Act (section 1112 payments) that ended in September 2021 occurred. The section 1112 payments required SBA to make principal and interest payments on 504 loans for certain periods of time depending on the when the 504 loan was approved, which would have made a 504 loan an attractive option for small businesses and consequently would have increased 504 loan volume. Further, interest rates on 504 loans in these two periods differ, from a range of approximately 4.0 to 5.0 percent in the earlier period to rates up to 7.0 percent in the later period, as do rates on alternatives to 504 loans. These changes mean that lending total volume by fiscal year comparisons may not be appropriate for assessment of impact. The current direct final rule is a drafting correction update for the previous final rule with the estimates of activity updated accordingly. The chart below also provided in the current rulemaking below shows these percentages for five August-July cohorts prior to the final rule published October 12, 2023. It is still current as the July 2024 data is not yet available.

	2018-19	2019-20	2020-21	2021-22	2022-23
Dollar Volume of 504 Debt Refi with Expansion as Percentage of Dollar Volume of Total 504 Loans	3.79	5.54	4.56	4.83	4.61
Dollar Volume of 504 Debt Refi without Expansion as Percentage of Dollar Volume of Total 504 Loans	3.12	5.30	7.59	11.43	6.53