SBA 7(a) Weekly Lending Update

SBA loan approvals jumped up last week to $329,597,000.

That brings the year to date total to $15,293,205,000. 

There are 14 weeks left in the government's fiscal year and the authorized limit for the 7(a) program is $17,500,000,000.

The SBA and contumacious

contumacious

(KON-tuh-may-shuhs)

Stubborn, insubordinate.

From Latin contumacia, from contumax, contumac- (insolent).
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TIP OF THE WEEK

The contumacious recovery in the economy prompted the Federal Reserve last week to reiterate that interest rates will remain low for an “extended period.”

SBA 7(a) loans for real estate purchase, real estate debt refinance, business debt refinance, business acquisition, equipment purchase and working capital provide attractive rates that will persist for some time.

The 504 debenture rate is also attractive for real estate purchase and real estate debt refinance.

For every $1,000,000 dollars borrowed to purchase or refinance real estate, the monthly payment is around $6,000.
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Indices:
PRIME RATE= 3.25%
SBA LIBOR Base Rate June 2011 = 3.19%
SBA Fixed Base Rate June 2011 = 5.73%
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504 Debenture Rate for June
The debenture rate is 3.675% but note rate is 3.729% and effective yield is only 5.521%.
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AHEAD OF THE YIELD CURVE

The Federal Reserve Open Market Committee met last week for two days.

When they were done meeting they said that “economic conditions--including low rates of resource utilization and a subdued outlook for inflation over the medium run--are likely to warrant exceptionally low levels for the federal funds rate for an extended period.”

So how long is an extended period? The Fed has kept its target rate locked at zero to 0.25 percent since December 2008.

The futures market gives us a hint that an extended period looks to be a few more years.

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:

DEC11- 0.52
DEC12- 0.91
DEC13- 1.73
DEC14- 2.71
DEC15- 3.59
DEC16- 4.23
DEC17- 4.61
DEC18- 4.77

What does all this mean?

I don’t know.

It would appear that the savings from lower variable rates of interest should persist.
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OFF BASE

The contumacious owner of the Los Angeles Dodgers forced the team into bankruptcy this morning.

Their only real asset is announcer Vin Scully, who has been painting pictures with his words since 1950 when he joined the Dodgers.

Unfortunately Vin has not announced a World Series game on television since 1988 when the Dodgers last went to the fall classic.

There is now an on-line petition to try and get Fox Sports to bring back Vin Scully for one last World Series.

Go here if you’d like to have Vin Scully announce the World Series one last time:
http://www.petitiononline.com/ScullyWS/petition.html

SBA 7(a) Weekly Lending Update

$265,643,000 in SBA 7(a) loans were approved last week.

That brings the year to date total to $14,963,608,000. 

SBA 7(a) loans can be used for real estate purchase or refinance, business debt refinance, equipment purchase, business acquisitions and working capital.

504 debt refinance

SBA just released a further set of enhancements to the regulations governing the Temporary 504 Refinance Program. 
In short, the further enhancements allow:
- Submission of an application subject to an appraisal
- A clarification on the handling of multiple note refinancings

Anyone who owns their own building and has a balloon coming due should seriously consider a refinance with a 504 loan.

504 debenture rate

SBA 504 debenture rate for June


The debenture rate is 3.675%, the note rate is 3.729% and the effective yield is 5.521%.

SBA 7(a) Weekly Lending Update

SBA 7(a) loan approvals jumped up last week to $290,785,000.

That brings the year to date total to $14,697,965,000.

More and more borrowers and lenders are turning to the SBA 7(a) loan program to refinance debt, fund working capital, buy equipment, acquire businesses and buy real estate.

The SBA and epiphenomenon

epiphenomenon

(ep-i-fuh-NOM-uh-non, nuhn)

A secondary phenomenon, one resulting from another. 2. An additional symptom appearing during the course of an illness, but not necessarily related to it.

From Greek epi- (upon, after, over) + phainomenon (that which appears), from phainesthai (to appear).
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TIP OF THE WEEK

Tantalizingly low interest rates are one epiphenomenon of this economy. And it looks like rates will remain low for quite a while.

For every $1,000,000 dollars borrowed to purchase or refinance real estate, the monthly payment is around $6,000.
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Indices:
PRIME RATE= 3.25%
SBA LIBOR Base Rate June 2011 = 3.19%
SBA Fixed Base Rate June 2011 = 5.73%
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504 Debenture Rate for May

The debenture rate is 3.79% but note rate is 3.85% and effective yield is only 5.639%.
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AHEAD OF THE YIELD CURVE
So are we headed for a double dip recession?

The economy has visibly slowed as only 54,000 jobs were created last month compared to 232,000 in April.

The yield curve is telling us no. We are not headed for a double dip recession.

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 in about a year, and yield curve inversions have foreshadowed each of the last seven recessions. One of the recessions predicted by the yield curve was the most recent one. The yield curve inverted in August 2006, a bit more than a year before the current recession started in December 2007.

Over the past month, the yield curve became flatter, as longer term rates have dropped.

Last week’s $13 billion auction of 30 year Treasury bonds drew a yield of 4.238 percent. It was up to 4.79 percent at the February auction.

So while the yield curve has become flatter, it has not inverted.
Here is what the 30 year bond has been doing:

2001- 5.49
2002- 5.43
2003- ND
2004- ND
2005- ND
2006- 4.91
2007- 4.84
2008- 4.18
2009- 3.89
2010- 4.61

What a minute, why no numbers for 2003, 2004, and 2005?

One month after the 9/11 attacks, the Treasury 30 year bond is discontinued. When the Treasury mothballed the 30-year bond in 2001, experts speculated it was trying to drive down long-term interest rates, which had remained stubbornly high while the Federal Reserve was slashing short-term interest rates to revive the economy. When the Treasury discontinued the 30-year bond in 2001, its yield fell 35 basis points in one day. Why? A shrinking supply of the 30-year Treasury bond caused increased demand to drive rates down.

What does all this mean?

I don’t know.

Fed policy makers are due to meet in Washington on June 21-22. Futures contracts showed the likelihood of an increase in the Fed funds target by the March 2012 meeting fell to 21 percent. The Fed’s target rate for overnight lending between banks has stayed at zero to 0.25 percent since December 2008.

One of the reasons the Fed is keeping rates low is because of “low rates of resource utilization.”

Keep your eyes and ears open for Wednesday’s release on capacity utilization. This is one of the Federal Reserve’s favorite measures of inflationary expectations.

Last month capacity utilization, which measures the amount of a factories and plants in use, fell to 76.9 percent last month from 77 percent in March. The capacity utilization rate had been steadily climbing since reaching a historic low in August of 2009 of only 68.2%. The Federal Reserve watches capacity utilization rates to see if production constraints are threatening to cause inflationary pressures. Bottlenecks or shortages often lead to inflationary pressures that would drive prices even higher. Several analysts have pointed to a rate between 81% and 82% as a tipping point over which inflation is spurred.

The Ceridian-UCLA Pulse of Commerce Index tends to lead industrial production which in turn dictates capacity utilization rates. This index is based on real-time diesel fuel consumption data for over the road trucking and serves as an indicator of the state and possible future direction of the U.S. economy. By tracking the volume and location of fuel being purchased, the index closely monitors the over the road movement of raw materials, goods-in-process and finished goods to U.S. factories, retailers and consumers. The Ceridian-UCLA Pulse of Commerce Index™ (PCI), issued last week by the UCLA Anderson School of Management and Ceridian Corporation fell 0.9 percent on a seasonally and workday adjusted basis in May, after falling 0.5 percent in April.

It looks like interest rates should remain low for, as the Federal Reserve likes to say, an “extended period.”

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OFF BASE

Today marks the last day Babe Ruth ever wore a Yankees uniform. In 1948 an ailing Babe Ruth made his final appearance at Yankee Stadium. With the crowd of 49,641 singing Auld Lang Syne, and members of the 1923 Yankees team (the first to play in the stadium) looking on, the New York Yankees retired Ruth's uniform number 3 during ceremonies that also commemorate the 25th anniversary of the Stadium. Fewer than two months later, the 53-year-old Ruth would die from throat cancer.

Tonight Reno Aces pitcher Armando Galarraga faces the Tucson Padres. The last time Armando pitched for the Aces he gave up 10 runs in only four innings. 5 of those runs came on two homers. It certainly has been an interesting year for the former Detroit Tigers pitcher. It was almost exactly a year ago that he pitched the near perfect game while on the Tigers. A wrong call made by the umpire in the top of the ninth with two outs gave him the imperfect game instead.

The Sky Isn't Falling After All

Here is some good news to counter all recent gloomy economic news.

When reporting SBA 7(a) loan volume, the SBA gives us GROSS loan approvals, before cancellations. Taking into account cancellations, net approvals are only about $13.3 billion, and at the current pace SBA should not run out of loan authority for the 7(a) program.

SBA 7(a) Weekly Lending Update

Will the SBA 7(a) program run out of money before its fiscal year ends on September 30th?

So far SBA has approved $14,407,180,000 in SBA 7(a) loans.  That leaves only $3,092,820,000 left for the next 16 weeks. 

In the last two weeks, SBA has approved $462,855,000 in SBA 7(a) loans.   

7(a) Rate Update

Indices:

PRIME RATE= 3.25%
SBA LIBOR Base Rate June 2011 = 3.19%
SBA Fixed Base Rate May 2011 = 5.73%

Lenders can charge up to 2.75% over these indices