SBA 504 Prepay & Default Model
SBA 504 loans have a fundamentally different structure than 7(a): 50% bank first lien + 40% CDC debenture (SBA-guaranteed) + 10% borrower equity. The model handles both the guaranteed debenture (where defaults = prepayments) and the unguaranteed first lien (where credit risk is real).
Methodology
Prepayment: Age-based CPR model (no S-curve) because SBA 504 FOIA data does not include interest rates. CPR ramps with loan age, peaks at a calibrated age, then declines for seasoned loans.
CPR(t) = (AgeCPR × SeasoningFactor + TurnoverCPR) × IndustryMult × StateMult × VintageMult × CDCMult × TPLMult
Default: Bathtub CDR with separate parameters for short-term (10-year equipment) and long-term (20-year+ real estate) buckets.
Severity: Calibrated from FOIA chargeoff data, separately for the short-term and long-term buckets.
Multiplier tables cover NAICS industry, state, origination vintage, CDC, and third-party lender.
Key Parameters
| Parameter | Value |
|---|---|
| Term Buckets | Short (≤120mo, equipment), Long (>120mo, real estate) |
Inputs
original_balanceOriginal loan amountterm_months120 (equipment) or 240+ (real estate)loan_age_monthsMonths since originationnaics_code2-digit NAICS industry codeproject_stateState of the projectcdc_nameCertified Development Company namethird_party_lender_nameFirst lien bank nameOutputs
annual_cprAge-based annual CPRannual_cdrBathtub-curve annual CDRexpected_severityExpected loss given defaultlifetime_expected_lossCumulative expected loss for CECLterm_bucketShort (equipment) or Long (real estate)Calibration
Calibrated from funded SBA 504 loans in the FOIA dataset. Excludes cancelled and not-funded loans. Multipliers calculated as relative ratios (group rate / overall rate).
References
- SBA 504 FOIA Loan Data.
- NCUA Credit Union Call Reports (participation performance).
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