Lending to Wisconsin businesses through the U.S. Small Business Administration’s two main programs decreased in fiscal 2023, and fiscal 2024 is off to a mixed start through the first two quarters, according to a BizTimes review of SBA data.
Total loan amounts for Wisconsin borrowers in the SBA’s 7(a) program was $481.4 million in the fiscal year ending Sept. 30, 2023, a decrease of 3.7% from fiscal 2022. The 2023 total is down sharply from nearly $775 million loaned under the program in 2021, but is near the average of $493 million for the five years before the COVID-19 pandemic.
In the first two quarters of fiscal 2024, Wisconsin borrowers received $231.1 million through the 7(a) program, up 0.7% from the same time in 2023.
The average interest rate on 7(a) loans for Wisconsin borrowers has been steadily climbing since the fourth quarter of fiscal 2021, when it was 5%. It started fiscal 2023 with an average of 8% and ended at 9.9%. Both quarters this year have topped 10%.
The 7(a) program provides loans for a number of situations, including both long- and short-term working capital, on a revolving basis, to purchase equipment, furniture, fixtures or supplies; to purchase real estate, including land and buildings; to construct or renovate a building; establish or acquire a business; or to refinance existing debt.
The 7(a) program has a loan maximum of $5 million, although express loans are capped at $500,000. Loan maturity maxes out at 25 years for real estate and 10 years for equipment, working capital or an inventory loan. Interest rates can be variable or fixed and are negotiated with the lender, although the SBA caps them based on loan size and duration.
The SBA’s 504 program, on the other hand, is somewhat more limited to the purchase of existing buildings or land, new facilities, improvement of land, streets, utilities, parking lots, landscaping and existing facilities, and long-term machinery and equipment.
The 504 program loan cannot be used for working capital or inventory, consolidating, repaying or refinancing debt or speculation or investment in real estate.
The maximum loan in the 504 program is $5.5 million. The eligibility requirements also require a business to have a tangible net worth of less than $15 million and net income of less than $5 million after federal taxes for the two years before the application.
Total loan amounts in the 504 program for Wisconsin borrowers declined nearly 38% to $234.4 million in fiscal 2023. Like the 7(a) program, borrowing spiked coming out of the pandemic, reaching almost $388 million in fiscal 2021 before dipping slightly the next year. The 2023 total is still well ahead of the average for the five years before the pandemic of $169 million.
For the first two quarters of fiscal 2024, borrowing in Wisconsin in the 504 program is down about 4.5% to $117 million.
Here is a closer look at the top SBA lenders to southeastern Wisconsin borrowers:
