Friday, April 27, 2012

SBA 7(a) Weekly Lending Update

SBA 7(a) loan approval volume increased to $308,476,000 for week ending April 20.  That brings the year to date total to only $7,492,500,000.  That's a 42% decrease from the same period last year.  While a lot of that volume last year was driven by stimulus act incentives such as an increased percent of guaranty, it should noted that the year before that volume for the same period was even higher than it is now.  It was $8,301,686,000 for the same period in 2010.

SBA 504 loan approval is still somewhat robust as borrowers and lenders rush to get in their deals before the temporary debt refinance provisions expire.

Tuesday, April 24, 2012

SBA Loan Basics for Borrowers- The SBA Guaranty Fee

What is the SBA guaranty fee?
lender must pay a fee to SBA for each loan guaranteed under the 7(a) program. This fee is known as the SBA Guaranty Fee.

Think of it as like an insurance premium. SBA uses these fees to pay for when they have to honor the guaranty for a lender.

The total loan amount determines the percentage that is used to calculate this fee. The guaranty fee is based on the guaranteed portion of the loan and not the total loan amount.

For Loans of $150,000 or less the guaranty fee is 2% of guaranteed portion

For Loans between $150,001 to $700,000 the guaranty fee is 3% of guaranteed portion

For Loans between $700,001 to $5,000,000 the guaranty fee is 3.5% of guaranteed portion up to $1,000,000 PLUS 3.75% of the guaranteed portion over $1,000,000

For example, the guaranty fee on a $100,000 loan with an 85% guaranty would be 2% of $85,000 or $1,700.

The guaranty fee on a $2,000,000 loan with a 75% guaranty ($1.5 million guaranteed portion) would be 3.5% of $1,000,000 ($35,000) PLUS 3.75% of $500,000 ($18,750), which totals $53,750.

While many think that this fee seems high in comparison to other financing options, they forget that the SBA loan is  amortized over a longer term and NEVER has a balloon.

Sunday, April 22, 2012

The SBA and scuttlebutt



1. Rumor, gossip.
2. A drinking fountain or a cask of drinking water on a ship.

From scuttle (a small opening in the deck or hull of a ship) + butt (cask).  

The word arose from the sailors' habit of gathering around the scuttlebutt on a ship's deck. Things haven't changed much with time. Now we have water cooler gossip in modern offices.



The scuttlebutt is that commercial real estate is the place to be.

Costar’s Commercial Repeat-Sale Indices are up 4% from the same period last year.  While their U.S. Composite Index is still 33.6% below the peak before the recession, slow but stable pricing growth is signaling that the recovery is becoming broader.

If you would like a copy of the Costar Commercial Repeat Sale Indices April report, let me now.

SBA loans are perfect for financing and re-financing OWNER-USER commercial real estate.


SBA LIBOR Base Rate April 2012 = 3.24%
SBA Fixed Base Rate April 2012 = 5.02%


504 Debenture Rate for April 

The debenture rate is 2.67% but note rate is 2.72% and effective yield is only 4.749%. 



The scuttlebutt is that the economy is sputtering.

Last week the Federal Reserve reported that capacity utilization, which measures the amount of a plant in use, dropped to 78.6 percent last month from 78.7 percent in February.

Capacity utilization is one of the Federal Reserve’s favorite economic indicators.  The Federal Reserve watches capacity utilization rates to see if production constraints are threatening to cause inflationary pressures. Bottlenecks or shortages often drive prices higher. Several analysts have pointed to a rate between 81% and 82% as a tipping point over which inflation is spurred.

Here is what capacity utilization rates have done:
1997- 83.6
1998- 83.0
1999- 82.4
2000- 82.6
2001- 77.4
2002- 75.6
2003- 74.6
2004- 79.2
2005- 80.7
2006- 82.4
2007- 81.5
2008- 79.9
2009- 67.3
2010- 74.8
2011- 76.7
2012- 78.6

What does all this mean?

I don't know.

We are no where close to any real inflation in the economy.

The Labor Department just said that consumer prices increased 2.7 percent in the 12 months ended in March, the smallest 12-month gain in a year.

Capacity utilization at 78.6% is still 1.7 percentage points below its average from 1972 to 2010 and below the pre-recession levels of 81.3% in December 2007.   While capacity utilization has increased 11.8 percentage points from the record low set in June 2009 and is up 2.1 percentage points above its level from a year earlier it still has a ways to go. 

It’s like losing those last five pounds.

Keep your eyes and ears open for Friday’s report on the first quarter Gross Domestic Product.

Gross Domestic Product, or GDP, is a measure of a country's industrial output.  Some people are high-fiving each other now that the Fed is predicting growth of 2.0-2.3% this year, which is up from the 1.7% growth recorded in 2011.

This is not something to cheer about.

How bad are we doing? If our economy's projected growth rate doubles to 4% it would still be 30% behind its growth rate from before the recession and half of what it was back in the '80s.

Federal Open Market Committee meets this week and will on Wednesday announce their intentions with respect to interest rates.

Interest rates will obviously have to remain low for some time.



You may have heard the scuttlebutt that Jamie Moyer became the oldest pitcher to ever win a major league game.  Jamie was 49 years and 150 days old when he won the game last week.

The second oldest pitcher is Jack Quinn who was 49 years and 70 days old when he won a game for the Brooklyn Dodgers back in 1932.

Jack Quinn is also the second oldest player to ever hit a home run.   He did it when he was 46 years old while playing for the Philadelphia A’s. 

The secret to Quinn’s longevity was the spitball.   It had become an illegal pitch.

In August 1920, Ray Chapman was famously struck in the temple and killed by a spitball thrown by pitcher Carl Mays.  Following the 1920 season, the spitball was banned, except for existing spitballers who were allowed to keep throwing the pitch legally until they retired.

One of the most famous spitballers was Preacher Roe, who played for the Brooklyn Dodgers in the 1950s and was featured in Roger Kahn’s classic “The Boys of Summer”.

While Quinn was grandfathered in and could legitimately throw the spitter, Preacher had to use some subterfuge. 

The nickname preacher?  When an uncle who had never seen the boy before asked him his name, he replied “preacher” because he was fond of a Methodist minister and his wife who took him on horse-and-buggy rides. 

Thursday, April 19, 2012

SBA 7(a) Weekly Lending Update

Only $231,889,000 in SBA 7(a) loans were approved for the week ending April 13.  That brings the year to date total to $7,184,889,000.

That means lenders are eagerly seeking new deals.

Thursday, April 12, 2012

504 Debenture Rate for April

504 Debenture Rate for April 

The debenture rate is 2.67% but note rate is 2.72% and effective yield is only 4.749%. 

Wednesday, April 11, 2012

SBA self-storage options- 7(a) or 504?

We have financed millions of dollars in SBA loans for self-storage facilities since SBA began allowing it.

All of them have been done as a SBA 7(a) loan.

Borrowers typically have two SBA loan options-
-the SBA 7(a) loan
-the SBA 504 loan

 The SBA 7(a) loan seems to be a better fit.

Why?  A complicating factor of the SBA 504 program is that it has a job creation provision.   The requirement that borrowers create jobs does not seem to work well for self-storage operations.

SBA 7(a) Weekly Lending Update

SBA 7(a) loan approvals went on spring break last week as loan approvals totaled only $201,854,000 for the week ending April 6.  Year to date total is now $6,952,135,000.  The week before SBA 7(a) loan approvals were at $368,124,000 for the week.

Sunday, April 8, 2012

The SBA and volte-face



A reversal in policy or opinion; about-face.

From French, from Italian voltafaccia, from voltare (to turn), from Vulgar Latin volvitare, frequentative of Latin volvere (to turn) + faccia (face).



SBA has once again changed it rules for eligible passive companies (real estate holding entities) and operating concerns. 

The last SOP (Standard Operating Procedures) restricted SBA lenders from utilizing an EPC-OC structure for mixed-purpose loans that included use of proceeds by the OC for purposes such as business acquisition, purchase of intangible assets or goodwill.

This volte-face once again allows the OC to utilize loan proceeds for "working capital and/or the purchase of other assets, including intangible assets," provided that the OC is a co-borrower with the EPC on the loan.

A completely new and improved SOP 50-10-5 E is expected soon from SBA.



SBA LIBOR Base Rate April 2012 = 3.24%
SBA Fixed Base Rate April 2012 = 5.02%


504 Debenture Rate for March

The debenture rate is 2.51% but note rate is 2.55% and effective yield is only 4.591%.

The effective yield for the temporary debt refinancing available with a 504 loan is 4.793%.



Unemployment continues to fall.  Or does it?

Last month unemployment fell to 8.2 percent, the lowest since January 2009, from 8.3 percent.

The jobless rate dropped as unemployed workers stopped looking for work and left the labor force.  They've given up.  In other words, a shrinking percentage of our country is looking for work or employed.

Only one president since World War II - - Ronald Reagan -- has been re-elected with a jobless rate above 6 percent. Reagan won a second term in 1984 with 7.2 percent unemployment in the month of the election, after the rate had fallen almost three percentage points in the previous 18 months.

In the last 24 months, 3.45 million jobs have been created.  That’s not even keeping up with population growth.  The United States has added 3 million people a year since the recession began four years ago.  We will add 30 million people in the next 10 years. 

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

March 120,000
February 240,000
January 243,000
December 203,000
November 157,000
October 112,000
September 158,000
August 104,000
July 127,000
June 20,000
May 25,000
April 232,000
March 194,000
February 235,000
January 68,000
December 121,000
November 93,000
October 210,000
September (41,000)
August (1,000)
July (66,000)
June (175,000)
May 431,000
April 218,000
March 230,000
February (36,000)
January (26,000)
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)
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?

I don’t know.

There are a total of 12.67 million Americans unemployed and 5.3 million have been unemployed for more than 6 months. These numbers are declining, but still very high.

Keep your eye on Thursday’s auction of 30 year Treasury bonds.

Last month, a $13 billion auction of 30-year bonds was sold at a yield of 3.383 percent, the highest since August.   This was a jump of 23 basis points.  

Since then the yield curve has flattened a bit.

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.  A steeper curve indicates stronger growth.

Last month’s 120,000 increase in payrolls was the fewest in five months.

It would appear that interest rates will continue to remain low for some time.



If you need to do a volte-face with the whole Easter thing, you might want to consider what Ronald Reagan had to say about it:

Meaning no disrespect to the religious convictions of others, I still can't help wondering how we can explain away what to me is the greatest miracle of all and which is recorded in history. No one denies there was such a man, that he lived and that he was put to death by crucifixion. Where ... is the miracle I spoke of? Well consider this and let your imagination translate the story into our own time -- possibly to your own home town. A young man whose father is a carpenter grows up working in his father's shop. One day he puts down his tools and walks out of his father's shop. He starts preaching on street corners and in the nearby countryside, walking from place to place, preaching all the while, even though he is not an ordained minister. He never gets farther than an area perhaps 100 miles wide at the most. He does this for three years. Then he is arrested, tried and convicted. There is no court of appeal, so he is executed at age 33 along with two common thieves. Those in charge of his execution roll dice to see who gets his clothing -- the only possessions he has. His family cannot afford a burial place for him so he is interred in a borrowed tomb. End of story? No, this uneducated, property-less young man has, for 2,000 years, had a greater effect on the world than all the rulers, kings, emperors; all the conquerors, generals and admirals, all the scholars, scientists and philosophers who have ever lived -- all of them put together. How do we explain that -- unless He really was what He said He was?"

Friday, April 6, 2012


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Wednesday, April 4, 2012

SBA revised rules for eligible passive companies and operating companies as co-borrowers

On April 2, 2012, the Small Business Administration published a "Direct Final Rule" in the Federal Register, (Vol. 77, No. 63, April 2, 2012) which provides much-anticipated clarification to the EPC rule set forth at 13 CFR 120.111.

This makes the EPC rule consistent with industry practice as it existed prior to the issuance of SOP 50 10 5(D) in the Fall of 2011.

The clarification provides Lenders with the ability to structure mixed-purpose loans for their borrowers without imposing undue hardship by either requiring the loan to be split into two loans or requiring that the loan be restructured.

A new and improved SOP 50-10-5 E will be out soon!

SBA 7(a) Weekly Lending Update

SBA 7(a) loan approvals jumped to $368,281,000 for the week ending March 30.  Year to date approvals now total $6,750,281,000.

SBA 504 loan approvals are at $2,711,396,000.  This is up from both last year and the year before.