SBA 7(a) Weekly Lending Update

So far this new fiscal year $1,554,986,000 in SBA 7(a) loans have been approved.

This is an increase of $373,840,000 over the prior week.

For the fiscal year ending September 30th, $12,630,559,000 in SBA 7(a) loans were approved.

For the fiscal year ending September 30th, 2009, $9,286,218,000 in SBA 7(a) loans have been approved.

The SBA 7(a) loan program had been approving just over $14 billion back in 2006 and 2007.

Changes to the SBA 7(a) loan program

For a summary of the changes to the SBA 7(a) loan program, go here

http://www.sba.gov/idc/groups/public/documents/sba_program_office/bank_5000-1182.pdf

SBA 7(a) Weekly Lending Update

Over a billion dollars in SBA 7(a) loans were approved last week. A billion dollars! $1,171,902,000 to be exact.

For the week ending October 15th, 3,236 loans totaling $1,171,902,000 were approved by the SBA.

The increase can be obviously attributed to the Recovery Act enhancements of the 90 percent guarantee and guarantee fee waiver.

The SBA and self storage- Acquisitions

SBA financial assistance is available to acquire existing self storage facilities.

Down payment requirements will vary depending on the financial performance of the facility to be acquired and the financial strength of the buyer. In most cases, buyers should be prepared to put 15 percent down. The down payment should not come from a borrowed source.

The historical cash flow of the facility will be based upon tax returns.

The seller of the facility is required to sell his entire interest. He can not retain any ownership interest.

The SBA and gallimaufry

gallimaufry
(gal-uh-MAW-free)
A hodgepodge; a jumble.
From Middle French galimafree (stew), probably from galer (to make merry) + mafrer (to gorge oneself).
_____________________________________________________
TIP OF THE WEEK

Lost in the gallimaufry of SBA news is the fact that there are only 73 days left until the 90 percent guarantee and SBA guarantee fee waiver once again expire.

SBA 7(a) loans up to $5,000,000 are especially attractive to both lenders and borrowers right now to refinance any owner-user real estate debt that has a balloon.

Not only can borrowers potentially save up to $166,250 in SBA guarantee fees, they will benefit from a loan that is fully amortized and have a rate of interest that will be "extraordinarily" low for an “extended” period of time.
_________________________________________
Indices:
PRIME RATE= 3.25%
SBA LIBOR Base Rate October 2010 = 3.26%
SBA Fixed Base Rate October 2010 = 5.36%
________________________________________________

504 Debenture Rate for October
The debenture rate is 3.11% but note rate is 3.16% and effective yield is only 4.521%.
________________________________________________
AHEAD OF THE YIELD CURVE

The yield curve is getting steeper.

The slope of the yield curve, the difference between the yields on short- and long-term maturity bonds, has achieved some notoriety as a simple forecaster of economic growth.

The rule of thumb is that an inverted yield curve (short rates above long rates) indicates a recession while a flat curve indicates weak growth, and conversely, a steep curve indicates strong growth.

The yield on the 30-year bond touched a one-month high as the Treasury sold $13 billion of the bonds to pay for all the wonderful things the government is doing to us. This came a day after the Treasury had sold $21 billion of 10 year bonds. The extra yield that investors demand for 30-year bonds compared with 10-year debt touched a record high 1.46 percentage points Friday. The five-year average is a 0.52 percentage point difference.

The 30 year bond closed Friday at 3.99 percent. The securities drew yields of 3.954 percent in August and 3.82 percent in September.

Does this mean things are getting better and rates will really start to go up?

Not necessarily. The yield on the 30-year bond is rising because traders are betting that the Fed will purchase SHORTER-term U.S. notes in a strategy called quantitative easing. Fed Chairman Ben Bernanke said in a speech last week that additional stimulus may be warranted because inflation is too low and unemployment too high.

The futures market also doesn’t think rates are going to go up.

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- 0.35

DEC11- 0.61

DEC12- 1.15

DEC13- 1.90

DEC14- 2.75

DEC15- 3.48

DEC16- 3.98

DEC17- 4.18

DEC18- 4.26


What does all this mean?


It would appear that the savings from lower variable rates of interest should persist. In their last policy notice, the Federal Reserve said rates would remain "extraordinarily" low for an “extended” period.


_________________________________________________
OFF BASE

There is a gallimaufry of polls about who the best team in college football is.

You have the Associated Press poll, the USA Today college football coaches’ poll, and the Harris Interactive poll.

The AP Top 25 College Poll is compiled from votes by 65 sportswriters and broadcasters from across the country.

The USA Today Coaches' Poll is compiled by the USA Today Board of Coaches which is made up of 59 head football coaches.

The Harris Interactive College Football Poll is a weekly ranking compiled by Harris Interactive, a market research company that specializes in Internet research. The Harris Interactive Poll is composed of former players, coaches, administrators, and current and former media who submit votes.

The University of Oregon Ducks is No. 1 in all the polls, but rated eighth in the computer rankings. EIGHTH!

Computer rankings?

Six different computer programs, run by six different people, also rank the best teams. Every week, the six systems input scores, let the computers spit out the rankings and send them to the BCS. That’s it. Nobody at the BCS double-checks the rankings. Only one of the six, Wes Colley, makes his formula fully public.

For each team, the BCS drops the highest and lowest computer ranking to get rid of potential outliers, adds the four remaining numbers, divides them by a hundred to get a percentage, and averages that percentage with the one from the coaches’ poll and Harris Poll. The BCS no longer uses the AP poll.

As a result, Oregon is number two in the BCS standings which just came out for the first time this season.

Oregon plays UCLA Thursday night. The Bruins are 22 point underdogs.

The SBA and self storage- Refinance

The SBA 7(a) loan program can be used to refinance debt on a self storage facility.

The debt must qualify under SBA eligibility criteria.

That means that the original use of the proceeds of the debt to be refinanced must have been for an eligible purpose. Examples of eligible purposes include construction, acquisition and debt refinance. If the debt had been used for a cash distribution to the owners, it may not qualify.

The debt to be refinanced must also be on what the SBA calls "unreasonable" terms. Loans not fully amortized, meaning they have a balloon, are considered unreasonable by SBA.

Applicant's Personal Liquidity

Both SBA 7(a) loan and 504 loan applicants are subject to what is called the "Personal Resources Test."

Does applicant personally have cash that can be used in the lieu of the loan?

If the total financing package:
(1) Is $250,000 or less, the exemption is two times the total financing package or $100,000, whichever is greater;
(2) Is between $250,001 and $500,000, the exemption is one and one-half times the total financing package or $500,000, whichever is greater; or
(3) Exceeds $500,000, the exemption is one times the total financing package or $750,000, whichever is greater.

Total financing package is the total project cost. It typically is the sum of the loan amount and borrower's injection.

7(a) Rate Update

Indices:
PRIME RATE= 3.25%
SBA LIBOR Base Rate October 2010 = 3.26%
SBA Fixed Base Rate October 2010 = 5.36%
Rates can go up to 2.75% over these indices.

504 debenture rate

SBA 504 Debenture Rate for October

The debenture rate is 3.11% but note rate is 3.16% and effective yield is only 4.521%.

Note that debenture fees are increasing. The effective rate chart is based on loans that were actually funded in the October debenture sale. Since there were no loans in the sale that were processed at the higher borrower fee, no rate information is available yet that reflects the new fee. Look for a loan that was processed, closed & funded at the 0.749% fee sometime in November or December.

The SBA and self-storage

If you are trying to figure out where it says SBA loans are now eligible for self-storage or mini-warehouses, you won’t find it.

Sometimes it is not what SBA says, but what they don’t say.

The old SOP (Standard Operating Procedure) used to include this language

“Mini-warehouses, office suites, shopping centers, flea markets, and mobile home parks, are not eligible unless they provide sufficient services. Sufficient services shall be deemed to exist when more than 50% of the business’s revenue for the prior year is derived from the services provided rather than from rental income.”


With the release of the new SOP on October 1st, 2010, that paragraph was deleted.

The deletion was deliberate and represents a change in thinking by the small business administration.

SBA Implements Larger Loan limits Established Under Jobs Bill

SBA has just announced that they have implemented the larger loan limits established under the jobs bill.

Those limits are $5,000,000 for the SBA 7(a) program and $5,000,000 for a 504 debenture.

The press release from SBA will be posted here

http://www.sba.gov/news/

7(a) Rate Update

Indices:
PRIME RATE= 3.25%
SBA LIBOR Base Rate October 2010 = 3.26%
SBA Fixed Base Rate October 2010 = 5.36%

Rates can go up to 2.75% over these indices.

SBA 7(a) Weekly Lending Update

The 90 percent guaranty made a difference.

According to SBA, all of the loan applications placed in the U.S. Small Business Administration’s loan queue by small business borrowers have received final approval. The approvals, which were completed Monday, amount to 1,939 loans for nearly $970 million.

For a copy of the press release from SBA, go here-
http://www.sba.gov/idc/groups/public/documents/sba_homepage/news_release_10-57.pdf

There are only 86 days left until the increased guaranty fee and fee expires.

The SBA and precatory

precatory
(PREK-uh-tor-ee)
1. Expressing a request.
2. Nonbinding: only expressing a wish or giving a suggestion.
From Latin precari (to pray).
_____________________________________________________
TIP OF THE WEEK

New legislation on SBA loans appears to be precatory at this point.

So far the SBA has provided policy guidance allowing

-Waiver of SBA loan fees for SBA 7(a) and 504 loans through December 31, 2010
-a 90 percent guaranty through December 31, 2010
-A new definition of a small business to be a company with net profits less than $5,000,000.

SBA still needs time to implement policies that will

-increase the maximum SBA 7(a) loan amount to $5,000,000
-increase the maximum 504 debenture amount to $5,000,000
-allow 504 loans to be used for the refinance of commercial real loans for the next two years

________________________________________________________________

The first two loan pools under the new SBA First Mortgage Loan Pool Program sold last week.
This is for loans where the debenture funded after February of 2009.
The intent was to stimulate the secondary market for 504 1st trust deeds.
In addition to pool eligible loans, interest appears to be increasing for non-performing and sub-performing 504 1st trust deeds for hospitality.
_________________________________________
Indices:
PRIME RATE= 3.25%
SBA LIBOR Base Rate September 2010 = 3.26%
SBA Fixed Base Rate September 2010 = 5.36%
________________________________________________

504 Debenture Rate for September
The debenture rate is 3.21% but note rate is 3.26% and effective yield is only 4.622%.
________________________________________________
AHEAD OF THE YIELD CURVE

The two-year U.S. Treasury note yield fell to a record low of 0.403 percent this morning. The 30-year T-bond rose almost a full point in price to yield 3.676 percent, down 4 bps.

The bond market is telling us that the Federal Reserve intends to keep interest rates low as they put it two weeks ago at their last meeting “for an extended period.”



This extended period will last until the economy begins to demonstrate sustainable improvement in job creation.

Keep your eye on Friday’s payroll report from the Department of Labor.

Here is a summary of payroll employment and this week’s interesting little table of data:

August (54,000)
July (54,000)
June (175,000)
May 431,000
April 218,000
March 230,000
February (36,000)
January (26,000)
2009
December (150,000)
November (11,000)
October (111,000)
September (215,000)
August (201,000)
July (304,000)
June (443,000)
May (322,000)
April (504,000)
March (699,000)
February (651,000)
January (655,000)
2008
December (681,000)
November (597,000)
October (423,000)
September (403,000)
August (127,000)
July (67,000)
June (100,000)
May (47,000)
April (67,000)
March (88,000)
February- (83,000)
January- (76,000)

What does all this mean?

Overall employment, including government agencies, fell 54,000 for a second month. The decrease reflected a 114,000 drop in temporary workers hired by the government to conduct the 2010 census. Private payrolls climbed 67,000 after a revised 107,000 increase in July that was more than initially estimated.

Things are slowly, too slowly, actually getting better.
In the meantime, interest rates should remain exceptionally low for an extended period.
_________________________________________________
OFF BASE

Pitching always beats batting — and vice-versa.”
-Yogi Berra

The Giants, who have baseball's best pitching staff, are in the playoffs. The Kansas City Royals, the second-best hitting team in the majors, finished last in the American League.

Over the last five seasons, the team that has led the majors in pitching has advanced into the postseason four times. Over that same span, the team that led the majors in home runs was only half as successful.

Five of the last eight World Series teams finished in the top four in their respective leagues in earned-run average. During that same period, none of the majors' top-hitting teams made it that far. And one, the 2008 Texas Rangers, didn't even have a winning record.

This season, no team has been better at keeping things simple than the Giants, who have a 3.38 ERA, the best mark in the majors in seven seasons. They were even better down the stretch, posting a 1.78 ERA in September, the fifth-best mark by any team in any month in the last 90 years. The Giants played 18 games in which no opponent scored more than three runs in a game. No team has done that since the dead-ball era.

Dead ball era by the way was that time in baseball before Babe Ruth started hitting it out.

The Angel’s Brandon Wood finished his season with his own dead-ball era. His batting average ended up at only .146.

Wood joins Ray Oyler as only the second player since 1920 to hit below .150 while getting 200-plus at-bats.

Perhaps the greatest example of the old baseball cliché “good field, no hit,” Ray Oyler was the regular shortstop for the Detroit Tigers in the late 1960’s.

Unable to even hit his weight, Oyler was nicknamed the “woodless wonder." He famously went "0 for August," in the summer of 1968. Tiger’s manager Mayo Smith made one of the boldest and most talked-about managerial moves in baseball history, moving the centerfielder who had never played shortstop to Oyler’s position for the last 9 games of the regular season and for all 7 games of the 1968 World Series.

The next season Oyler played for the new Seattle Pilots. Seattle fans, feeling Oyler was the Pilot most needy of support, organized the "Ray Oyler Fan Club" in spring training.

Oyler almost ruined it by homering to win the Pilots' first home game in the bottom of the ninth inning.