Friday, January 25, 2013

The SBA and retrodiction



Using present information to make an assertion about the past; an instance of such an assertion.

From Latin retro- (back) + dicere (to say).



Loan volume is way up compared to the prior quarter a year ago as more and more lenders and borrowers seek SBA guaranteed financing.

SBA 7(a) loans totaled $4,173,790,000 for the three month period ending December 31, 2012.  That a 21% increase compared to the last calendar quarter of 2011 ($3,443,723,000)!

The correlation of SBA 7(a) loan approvals with our nation's economic performance appears to be quite strong.

Just for fun I calculated the correlation coefficient between SBA 7(a) loan volume and GDP for over six years using the Microsoft CORREL function.  It came out to a statistically significant 0.86.

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



SBA LIBOR Base Rate January 2012 = 3.21%
SBA Fixed Base Rate January 2012 = 4.59%

Debenture Rate for January

The debenture rate is 2.13% but note rate is 2.168% and effective yield is only 4.212%.


Here is some retrodiction.

I guess the recession was my fault.  I got a little behind in my paperwork.

If you remember, the economy peaked in December of 2007 and then plunged like a rollercoaster.

SBA 7(a) loan volume foreshadowed this drop in gross domestic product. 

SBA 7(a) loan approvals peaked at $15,223,526,000 for the fiscal year ending September 30, 2005. 

They then dropped to $14,525,100,000 for the fiscal year ending September 30, 2006. 

Approvals continued to drop over the next twelve months to $14,292,141,000.  

SBA 7(a) loan approval volume continued to fall by more than 48 percent. 

The drop in economic activity soon followed.

Here is what GDP has been doing and this week’s interesting little table of data:

3rd quarter 2012:             3.1%
2nd quarter 2012:          1.3%
1st quarter 2012:            2.0%
4th quarter 2011:            4.1%
3rd quarter 2011:           1.30%
2nd quarter 2011:           1.30%
1st quarter 2011:             0.4%
4th quarter 2010:           3.1%
3rd quarter 2010:           2.6%
2nd quarter 2010:          1.7%
1st quarter 2010:            3.7%
4th quarter 2009:           5.6%
3rd quarter 2009:          2.2%
2nd quarter 2009:          (0.7)%
1st quarter 2009:            (6.4)%

What does this mean?

I don’t know.

Enhancements to the SBA 7(a) loan program in 2009 caused the volume of SBA 7(a) loans to increase significantly.

With increases in SBA 7(a) loan approvals, the economy soon recovered.

The prescience nature of SBA 7(a) loan volume with respect to the gross domestic product leads one to the inevitable conclusion that SBA 7(a) loans contribute positively to gross domestic product.

Keep in mind that the correlation coefficient between SBA 7(a) loan volume and GDP is a statistically significant 0.86.

Keep your eyes and ears open for Wednesday’s report from the Bureau of Economic Analysis on 4th quarter GDP.  It comes on the same day as the Federal Reserve’s meeting on monetary policy concludes.

Over the past month, the yield curve has gotten noticeably steeper, with long rates moving up and short rates barely budging.

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 yield curve indicates strong growth. 

According to the Federal Reserve Bank of Cleveland, projecting forward using past values of the slope of the yield curve and GDP growth suggests that real GDP will grow at about a 0.6 percent rate over the next year.


Our next holiday is Washington’s Birthday. 

By the way, officially it is Washington’s Birthday and NOT “President’s Day.” 

In 1968, Congress passed the Uniform Monday Holidays Act, which moved the official observance of Washington's Birthday from February 22nd to the third Monday in February.  An early draft of the Uniform Monday Holiday Act would have renamed the holiday to "Presidents' Day" to honor the birthdays of both Washington and Lincoln, since Lincoln’s is February 12th.  This proposal however failed in committee and the bill as voted on and signed into law on June 28th 1968, kept the name Washington's Birthday.

Not only is Lincoln not getting his due, but Ronald Reagan is also being shortchanged.  His birthday is February 6th. 

Obviously the only equitable way to remedy this grievous oversight is to give each of these great Presidents their own birthday holidays.   Keeping in the spirit of the Uniform Monday Holidays Act, we could celebrate Reagan’s on the first Monday in February, Lincoln’s on the second Monday in February, and George still gets the third Monday.

This trifecta of Presidential birthday holidays would be our last hurrah until the brink of summer. 

According to the Federal Reserve, the next federally recognized holiday is not until Memorial Day.  That’s not until the end of May. 

Three whole months away; one forth of the year. 

1 comment:

  1. The SBA 7a charges lenders a guaranty and a servicing fee for each loan approved and disbursed, based on the guaranty portion of the loans.