SBA Loans Are Good For the Economy

It's a Merry Christmas for SBA lenders and borrowers!

SBA 7(a) loan approvals totaled $454,408,000 for the week ending December 13th.

This strong SBA 7(a) loan volume is great for everybody.

The correlation coefficient between SBA 7(a) loan approvals and the economy's gross domestic product is a statistically significant 0.86.

The SBA and tintinnabulate

Tintinnabulate

tin-ti-NAB-yuh-layt

To ring; to tinkle.

From Latin tintinnabulum (bell), from tintinnare (to jingle)

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TIP OF THE WEEK 

It’s time to tintinnabulate.

Christmas is upon us and the New Year begins soon.

A whole new game with new rules starts at the beginning of the year with the Small Business Administration’s new Standard Operating Procedures 50-10-5(F).

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Indices:

PRIME RATE= 3.25%
SBA LIBOR Base Rate December 2013 = 3.17%
SBA Fixed Base Rate December 2013 = 5.39%

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SBA 504 Loan Debenture Rate for December  

The debenture rate is only 3.36% but note rate is 3.44% and the effective yield is 5.458%

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AHEAD OF THE YIELD CURVE 

The bond market tintinnabulates as the yield curve gets steeper.

Last week the U.S. government sold $13 billion of 30-year Treasury bonds at a yield of 3.90%.   In November the 30 year Treasury bonds drew a yield of 3.81%  while in October it was 3.758%.   It was as low as 2.73% earlier this year. 

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 while a flat curve indicates weak growth and a steep curve indicates strong growth.

Here is what the 30 year Treasury bond has been doing and this week’s interesting little table:

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

2011- 2.89

2012- 2.77

2013- 3.25

Wait 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.

The December auction bid-to-cover ratio, which gauges demand by comparing total bids with the amount of securities offered, was at 2.35, versus a bid-to-cover ratio of 2.16 at the November sale.   This is still off from an average of 2.48 at the past 10 auctions.

What does this mean?

I don’t know.

Treasury prices have declined on expectations the Federal Reserve might move this week or early next year to begin scaling back its monthly bond purchases, pushing longer term yields higher. 

What about short term yields for variable rates?

Keep your eyes and ears open for this week’s Federal Reserve meeting on monetary policy.  

Last time the Fed met they anticipated that an “exceptionally low range for the federal funds rate will be appropriate at least as long as the unemployment rate remains above 6-1/2 percent, inflation between one and two years ahead is projected to be no more than a half percentage point above the Committee's 2 percent longer-run goal, and longer-term inflation expectations continue to be well anchored.”

An EXCEPTIONALLY low range for the federal funds rate will be appropriate.

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OFF BASE

The tintinnabulation of Salvation Army bell ringers with their red kettles is one of the sounds of Christmas just like Jingle Bells.

The Salvation Army has been in the United States since 1879, and in 1891, Captain Joseph McFee (yes, Captain, this is an army after all) of San Francisco came up with the Christmas kettle concept.  The bell ringing season starts in November and runs through Christmas Eve. 

After five grueling days of non-stop bell ringing, the three contenders for the Salvation Army World Bell Ringing record agreed to jointly lay their bells down after 105 hours on December 7th.   Five days of non-stop bell ringing!  It only takes one shift to raise enough money to provide two nights of shelter and four warm meals for the men, women and children who enter their doors every day. 

That’s something to keep in mind when you hear a bell ringing by a Salvation Army red kettle.

I know this is corny but like Zuzu in It’s A Wonderful Life said: “Every time a bell rings an angel gets his wings.”

Merry Christmas!

No Fees For SBA 7(a) Loans!

As set forth in SBA Information Notice 5000-1288, all 7(a) loans approved for $150,000 or less in FY2014 will have a zero fee for both the yearly fee (also known as the ongoing servicing fee) and the upfront guaranty fee.

SBA just released 5000-1294 clarifying SBA 7(a) loan fees.

SBA Loans Are Good For the Economy

Merry Christmas!

SBA 7(a) loan approvals totaled $394,464,000 for the week ending December 6th.

The week prior to the Thanksgiving break had $410,795,000 in SBA 7(a) loan approvals.

This is a very strong, robust pace and bodes well for the economy.

Don't forget that the correlation coefficient between SBA 7(a) loan approvals and our Gross Domestic Product is a statistically significant 0.86!

SBA 504 Loan Debenture Rate for December

SBA 504 Loan Debenture Rate for December   

The debenture rate is only 3.36% but note rate is 3.44% and the effective yield is 5.458%

SBA 7(a) Loan Rate Update

Indices:

PRIME RATE= 3.25%
SBA LIBOR Base Rate December 2013 = 3.17%
SBA Fixed Base Rate December 2013 = 5.39%

Lenders can charge up to 2.75% over these indices.

SBA Loans Are Good For the Economy

Thankful SBA 7(a) lenders and borrowers took a break for Thanksgiving as $285,510,000 in SBA 7(a) loans were approved for the week ending November 29th.

While down from the prior week, the month of November had $1,303,555,000 in SBA 7(a) loan approvals.

SBA 7(a) loans contribute positively to the economy as the correlation coefficient between SBA 7(a) loan approvals and the gross domestic product is a statistically significant 0.86.

The SBA and wassail

wassail

(WOS-uhl, wo-SAYL) 

To toast.

To go from house to house singing carols at Christmas.

noun:

  1. A toast to someone's health.

  2. A festivity with much drinking.

  3. A drink for toasting, especially spiced ale.

  4. The singing of Christmas carols going from house to house.

From Old Norse ves heill (be well).

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TIP OF THE WEEK 

The time to wassail is upon us.  

The 328 revisions to SBA’s Standard Operating Procedures will be in effect in just a few hebdomads (Bonus word!  A hebdomad (HEB-duh-mad) is a group of seven, or a period of seven days; a week.   It’s from the Latin hebdomas, from Greek hepta (seven)).   If you are too busy wassailing and don’t have a handle on all these pending changes to SBA lending, we’ve got it covered: www.sbapro.com

The FDIC just released its Quarterly Banking Profile for the third quarter.

For the first time in 17 quarters — since the second quarter of 2009 — earnings registered a year-over-year decline.

Lenders however doing SBA loans are enjoying substantial premiums from the sale of guaranteed portions that can be recognized as immediate fee income.

Let me know if you would like a copy of the latest FDIC Quarterly Banking Profile.

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Indices:

PRIME RATE= 3.25%
SBA LIBOR Base Rate November 2013 = 3.17%
SBA Fixed Base Rate November 2013 = 5.31%

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SBA 504 Loan Debenture Rate for November 

The debenture rate is only 3.38% but note rate is 3.44% and the effective yield is 5.459%

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AHEAD OF THE YIELD CURVE 

The Federal Reserve keeps telling us that the economy “has been expanding at a MODERATE pace.” 

That’s an improvement from the MODEST pace they mentioned last July.  I’m still not sure what the difference is between moderate and modest.  Minutes however from their last meeting on monetary policy gave us a hint on what modest is.    They said that “Consumer price inflation continued to be MODEST.”  So what is MODEST consumer price inflation?

Last month, the BLS reported that the seasonally adjusted CPI for all urban consumers fell 0.1% (-0.7% annualized rate) in October. The CPI less food and energy increased 0.1% (1.5% annualized rate) on a seasonally adjusted basis.   These measures indicate inflation remains well below the Fed's target (2%).

That means the focus of the Federal Reserve will continue to be jobs.

Keep your eyes and ears open on this week’s jobs report.  

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

October 204,000

September 163,000

August 238,000

July 104,000

June 172,000

May 176,000

April 165,000

March 88,000

February 332,000

January 148,000

2012

December 155,000

November 161,000

October 137,000

September 114,000

August 142,000

July 181,000

June 45,000

May 77,000

April 68,000

March 143,000

February 240,000

January 243,000

2011

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

2010

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)

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?

I don’t know.

At the current pace of job growth, it would take more than six years to get back to pre-recession employment levels.  The Federal Reserve’s Federal Open Market Committee meets in two weeks on monetary policy and they have made it clear that they won’t even consider raising interest rates until unemployment improves.   The monthly job gains reported by the Labor Department have steadily slowed this year, averaging 207,000 in the first quarter, 182,000 in the second quarter and 168,000 in the third quarter.  

It would appear that interest rates won’t be going up anytime soon.  Now that’s something to wassail about.

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OFF BASE

The drink of wassail, a hot mulled cider, was traditionally drunk as an integral part of wassailing; an ancient southern English drinking ritual intended to ensure a good cider apple harvest the following year.  The tradition of wassailing now falls into two distinct categories: The House-Visiting wassail and the Orchard-Visiting wassail.   The Orchard-Visiting wassail refers to the ancient custom of visiting orchards in cider-producing regions of England and singing to the trees to promote a good harvest for the coming year.  The House-Visiting wassail is the practice of people going door-to-door singing Christmas carols.

Wassailing even shows up in Hamlet Act 1, Scene 4:

"The king doth wake to-night, and takes his rouse,  

Keeps wassel."  

Hamlet is observing that his uncle is giving himself up to jollity.   We should all give ourselves up to jollity this time of year.  

Keep on wassailing.   

SBA Loans Are Good For the Economy

SBA approved $410,795,000 in SBA 7(a) loans for the week ending November 22.  

The month to date loan approvals total $1,018,045,000.   Year to date loan approvals are at $1,897,258,000 which is slightly higher than the similar period in FY 2012 ($1,843,286,000).  

SBA 7(a) loan volume is a leading economic indicator as the correlation coefficient between SBA 7(a) loan volume and GDP is a statistically significant 0.86.

SBA Loans Are Good For the Economy

SBA 7(a) loan approvals for the one week period ending November 15th totaled $281,755,000.   

This is a slight drop from the prior week hopefully attributable to the Veterans' Day Holiday.

Remember, SBA 7(a) loan volume is a leading economic indicator as the correlation coefficient between SBA 7(a) loan volume and GDP is a statistically significant 0.86.

The SBA and sclertotic

sclerotic

skluh-ROT-ik

1. Hard, rigid, slow to adapt or respond.

2. Relating to or affected with sclerosis, an abnormal hardening of a tissue or part.

3. Of or relating to the sclera, the white fibrous outer layer of the eyeball.

From Greek skleros (hard).

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TIP OF THE WEEK 

The Small Business Administration is shedding its sclerotic ways with sweeping changes for its guaranteed loan programs reflected  its new Standard Operating Procedures SOP 50-10-5(F).

The cure for SBA sclerosis can be found here: www.sbapro.com

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Indices:

PRIME RATE= 3.25%
SBA LIBOR Base Rate November 2013 = 3.17%
SBA Fixed Base Rate November 2013 = 5.31%

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SBA 504 Loan Debenture Rate for November 

The debenture rate is only 3.38% but note rate is 3.44% and the effective yield is 5.459%

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AHEAD OF THE YIELD CURVE 

Is the bond market being sclerotic?

Last week’s auction of 30 year Treasury bonds drew a yield of 3.81 percent.  The yield at the last offering of long bonds, on October 10, was 3.758 percent.  The $16 billion sale of the debt drew lower-than-average demand. The bid-to-cover ratio, which gauges demand by comparing the amount bid with the amount offered, was 2.16, versus an average of 2.48 at the past 10 auctions. 

One of the Fed’s favorite gauges of the economy is the capacity utilization rate which measures how much plants and factories are being used.  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 Federal Reserve typically won’t initiate increases in interest rates until then.

Last week the Fed reported that capacity utilization for total industry declined 0.2 percentage point in October to 78.1 percent.

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- 66.9

2010- 74.8

2011- 76.7

2012- 79.0

2013- 77.8

What does all this mean?

I don’t know.

While capacity utilization up 11.1 percentage points from the record low set in June 2009 and 1.1 percentage points above its level of a year earlier, it is still 2.1 percentage points below its long-run (1972-2012) average.  There is no inflationary pressure whatsoever in the economy.

Don’t be sclerotic in your thinking about where interest rates are going.

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OFF BASE

To the dismay of sclerotic traditionalists, the holiday season seems to shift earlier every year, with retailers selling Christmas decorations well before Halloween.  But this year, the season will get a legitimate jump-start of sorts.

In a rare convergence of the calendar, Thanksgiving and the first day of Hanukkah, which typically commences close to Christmas, fall on the same date in 2013: November 28.  This is only the second time since Thanksgiving was declared a national holiday by President Abraham Lincoln. The last time was 1888, and the next time will be in the year 79,811.

Hanukkah however is not a Jewish Christmas.   Hanukkah actually commemorates a Jewish military victory over Greek forces in the second century B.C. and the miracle of a day's worth of lamp oil lasting for eight.

Don’t however get too excited about having a kosher Turkey.  Kosher is about killing quickly and humanely as possible but also as cleanly as possible which means eradicating the blood.  To achieve that, before the turkey is plucked it is dipped in cold water but this doesn’t make de-feathering as easy as the scalding dip commercial processors use today.  The cold water closes up the follicles in the skin and makes feather removal very difficult.  You might need a pair of needle-nose pliers at the table.

On the extreme opposite end of the Thanksgiving spectrum is the bacon wrapped Turkey.  Yes, there is such a thing:  

http://therunawayspoon.com/blog/2011/10/bacon-blanketed-herb-roasted-turkey/

It really doesn't matter what you eat, just be Thankful.

SBA 504 Loan Debenture Rate for November

SBA 504 Loan Debenture Rate for November  

The debenture rate is only 3.38% but note rate is 3.44% and the effective yield is 5.459%

SBA 7(a) Loan Rate Update

Indices:

PRIME RATE= 3.25%
SBA LIBOR Base Rate November 2013 = 3.17%
SBA Fixed Base Rate November 2013 = 5.31%

Lenders can charge up to 2.75% over these indices.

The SBA and nyctophobia

nyctophobia

nik-tuh-FOH-bee-uh

An abnormal fear of night or darkness.

From Latin nycto (night) + -phobia (fear).

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TIP OF THE WEEK 

Don’t be in the dark over how much time you have before the year ends.

The way Thanksgiving, Christmas and New Year’s holidays fall this year, we are likely to lose an entire week and a half.

That gives everyone just over a month to close a loan prior to year end.  

That also means the benefits from section 179 won't be available for much longer. 

Under Section 179 of the Internal Revenue Code, taxpayers that purchase new or used qualifying business property and place it in service in 2013 can immediately deduct up to $500,000 of its cost.  Additionally, taxpayers can take advantage of the temporary additional "50% bonus depreciation" deduction on qualified capital expenditures (new equipment only). 50% bonus depreciation applies in addition to the Section 179 deduction.  The bonus depreciation is currently scheduled to sunset in 2014 and the annual Section 179 deduction amount is scheduled to drop to $25,000.

SBA loans can be used to purchase equipment.  They can also be used to purchase businesses, refinance debt, buy real estate or for general working capital purposes.  

Check out our website: www.sbapro.com

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Indices:

PRIME RATE= 3.25%
SBA LIBOR Base Rate October 2013 = 3.18%
SBA Fixed Base Rate October 2013 = 5.37%
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SBA 504 Loan Debenture Rate for October 

The debenture rate is only 3.37% but note rate is 3.425% and the effective yield is 5.451%.

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AHEAD OF THE YIELD CURVE 

The Federal Reserve’s FOMC met last week and they made it real clear that interest rates won’t be going up anytime soon.

The financial markets seem to agree.

Just look at the Dow Jones utility average.

What does the utility average tell us? Mainly, it represents Wall Street's view on interest rates.

Utilities typically pay higher dividends than the industrials or the transports, and they're popular with income investors. As interest rates on longer term Treasury notes fall investors look to utilities for higher yields.  Conversely, when Wall Street expects rates to rise, the utility average falls, because Treasuries and other bonds become tougher competition for utility stocks.

Conventional wisdom has held that interest rates would rise — but that's not what the utilities index has been telling us.   Year to date the Dow Jones Utilities Average is up 13.93%.  Over the last month it is up just over 4%.  If you're looking for a quick read on what Wall Street thinks about interest rates, the Dow Jones utility average is a pretty good indicator.

So where then are interest rates going?

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:

DEC13- 0.25

DEC14- 0.44

DEC15- 1.01

DEC16- 2.02

DEC17- 2.96

DEC18- 3.66

DEC19- 4.13

DEC20- 4.43

What does all this mean?

I don’t know.

Traders are betting the Federal Reserve will wait well into 2015 to raise interest rates after the jobs report for September showed the labor market lost steam even before the government shutdown.

Keep your eyes and ears open for Friday’s jobs report for the month of October.  The monthly job gains reported by the Labor Department have steadily slowed this year, averaging 207,000 in the first quarter, 182,000 in the second quarter and 143,000 in the third quarter.   The advance estimate of third quarter Gross Domestic Product from the Department of Commerce’s Bureau of Economic Analysis will be released on Thursday.

All that might be something to be scared about.

But don’t be afraid of interest rates going up anytime soon.

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OFF BASE

The sun will be going down earlier than usual now that daylight savings time has ended.   On the plus side, it will seem to be coming up earlier than usual.

Nyctophobes will have an extra day to hide as we head into a three day weekend.

According to the Federal Reserve, here are the remaining holidays for 2013:

Veterans Day November 11

Thanksgiving Day November 28

Christmas Day December 25

SBA Loans Are Good For the Economy

The SBA is working through the backlog created by the government shutdown.

For the one week period ending October 25th, $308,113,000 in SBA 7(a) loans were approved.

The average SBA 7(a) loan amount appears to be declining.  The average SBA loan amount approved last week was $308,730.

There are no longer any guaranty fees on SBA 7(a) loans of $150,000 or less.

SBA Loans Are Good For the Economy

The SBA is doing a good job of playing catch-up.

Small Business Administration officials returned to work on Thursday October 17^th to find a backlog of several hundred loan-guarantee applications that were filed during the 16-day government shutdown.

In just two days, 929 SBA 7(a) loans were approved totaling $294,770,000.  

This just might be an example of Parkinson’s Law in reverse.

Parkinson's law is the adage first articulated by Cyril Northcote Parkinson as part of the first sentence of a humorous essay published in The Economist in 1955:

Work expands so as to fill the time available for its completion.

The SBA and petard

petard

(pe-TAHRD)

1. A small bomb used to blast down a gate or wall.

2. A loud firecracker.

From French péter (to break wind), from Latin peditum (a breaking wind), from pedere (to break wind). Ultimately from the Indo-European root pezd- (to break wind) which also gave us feisty, fart, and French pet (fart).

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TIP OF THE WEEK 

Ignore some of the petards about wasteful government spending.

The continuing resolution that will fund the federal government for another 86 days should include broad based support for the Small Business Administration.

 For the SBA 7(a) program, the return to a zero subsidy rate removes the need to seek appropriations.  It also reduces lender fees.  For its 7(a) guaranty loan program, the SBA budget authority will support a program level of $17.5 billion!

SBA loans are good for the economy.    Remember, SBA 7(a) loan volume is a leading economic indicator as the correlation coefficient between SBA 7(a) loan volume and the economy’s Gross Domestic Product is a statistically significant 0.86.

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Indices:

PRIME RATE= 3.25%
SBA LIBOR Base Rate October 2013 = 3.18%
SBA Fixed Base Rate October 2013 = 5.37%
________________________________________

SBA 504 Loan Debenture Rate for October 

The debenture rate is only 3.37% but note rate is 3.425% and the effective yield is 5.451%.

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AHEAD OF THE YIELD CURVE 

Lost amongst the petards in Washington was the fact that employment growth is languishing.

The government shutdown has severely affected employment, or at least the reporting of it.

The jobs report from the Bureau of Labor Statistics for the month of September will finally be released tomorrow.  It would have normally come out three weeks ago. 

Only 169,000 jobs were added in August.   The government had also revised down its estimated job growth for June and July by a combined 74,000 jobs, meaning the net gain from the job’s report is under 100,000 jobs.  That does not even keep up with population growth.

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

August 169,000

July 104,000

June 172,000

May 176,000

April 165,000

March 88,000

February 332,000

January 148,000

2012

December 155,000

November 161,000

October 137,000

September 114,000

August 142,000

July 181,000

June 45,000

May 77,000

April 68,000

March 143,000

February 240,000

January 243,000

2011

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

2010

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)

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?

I don’t know.

At the current pace of job growth, it would take more than six years to get back to pre-recession employment levels.  The Federal Reserve’s Federal Open Market Committee meets next week on monetary policy and they have made it clear that they won’t even consider raising interest rate until unemployment improves.

It would appear that interest rates won’t be going up anytime soon.

Our politicians might be hoisted by their own petards yet.

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OFF BASE

Hoisted by one’s own petard?

Believe it or not, Vin Scully once used that phrase in a baseball game.

On Cinco de Mayo back in 2008, Dodger pitcher Chad Billingsley struck out ineffectually, prompting Vinny to state that "he was hoisted on his own petard"...  The Dodgers would go on to win that game 5-1. 

So what does it mean to be hoisted by one’s own petard?

A petard was a bell-shaped bomb used to breach a door or a wall.  Now that we have advanced to nuclear missiles, this low-tech word survives in the phrase "to hoist by one's own petard" meaning "to have one's scheme backfire".

The idiom was popularized by Shakespeare in his play Hamlet.  Hamlet, having turned the tables on those tasked with killing him, says:

    For 'tis the sport to have the engineer

    Hoist with his own petard