The SBA and a gormandizer

gormandizer

(GOR-man-dyz-er)

A greedy person.

From French gourmandise (gluttony). Both a gourmand and a gourmet enjoy good food, but a gourmand is one who eats to excess while a gourmet is considered a connoisseur of good food.

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TIP OF THE WEEK

For SBA loans, the borrower’s ability to repay the loan from the cash flow of the business is the most important consideration in the loan making process.

SBA allows lenders to determine repayment ability through either an analysis of actual cash flow or by using the “rule of thumb” method. “Rule of thumb” cash flow is defined as earnings before interest and taxes, plus depreciation and amortization, less total debt service.

According to the SBA Office of the Inspector General, the “rule of thumb” method should not be used in determining repayment ability for businesses that are on an accrual accounting basis.

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Indices:

PRIME RATE: 3.25

SBA LIBOR Base Rate April 2010 = 3.25%

SBA Fixed Base Rate April 2010 = 6.57%

The maximum rate a lender can charge for a 7(a) loan is one of the above indices plus 2.75%
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504 Debenture Rate for April

The debenture rate is 4.36% but note rate is 4.42% and effective yield

is only 5.774%.

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AHEAD OF THE YIELD CURVE

The Federal Reserve Open Market Committee meets this week and the question is not what they will do but what they will say.


Will they continue to say that they will keep interest rates “exceptionally low” for an “extended period?”

The Fed has repeated the “extended period” language at each meeting since March 2009, over a year ago.

So how long is an extended period?



Eurodollar futures settle at a three- month lending rate that has averaged about 22 basis points more than the Fed's target over the past 10 years. Here is a summary of what the market expects for Eurodollar futures based upon the pit-traded prices at the Chicago Mercantile Exchange:



DEC10- 0.82

DEC11- 2.23

DEC12- 3.35

DEC13- 4.15

DEC14- 4.73

DEC15- 5.11

DEC16- 5.33

DEC17- 5.47

DEC18- 5.60


What does all this mean?



It would appear that the savings from a low variable rate of interest should persist for an “extended period."