SBA Loans Are Good for the Economy

SBA 7(a) lending has recovered from its summer doldrums.

$371,108,000 in SBA 7(a) loans were approved for the week ending July 26th.  This is a 23 percent increase over the prior week's approvals.  So far year to date, SBA 7(a) loan approvals are up just over 14 percent from the prior year period.

This bodes well for the economy as the correlation coefficient between SBA 7(a) loans and GDP is a statistically significant 0.86!

SBA Loans Are Good for the Economy

$302,740,000 in SBA 7(a) loans were approved for the week ending 7/19/2013.

This is an improvement over the last two weeks 

This up-tick in loan volume bodes well 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 GDP is a statistically significant 0.86.

The SBA and Mimpsimus

mumpsimus

MUMP-suh-muhs

1. A view stubbornly held in spite of clear evidence that it's wrong.

2. A person who holds such a view.

According to an old story, a priest used the nonsense word mumpsimus (instead of Latin sumpsimus) in the Mass. Even when told it was incorrect, he insisted that he had been saying it for 40 years and wouldn't change it.  The expression is "quod in ore sumpsimus" ('which we have taken into the mouth').

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TIP OF THE WEEK 

You can not be a mumpsimus about SBA loans.

Tax Code Section 179 allows small and medium sized business owners who acquire essential use equipment to deduct the entire equipment cost in a single tax year. Thanks to the Tax Relief Act of 2010 this accelerated method of depreciation far outweighs in benefits the traditional method of incremental tax deductions based on complicated depreciation schedules of the assets acquired.

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.

But those benefits won't be available for much longer; 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 acquire equipment and be amortized up to the estimated useful life of the asset being financed.

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Indices:

PRIME RATE= 3.25%
SBA LIBOR Base Rate July 2013 = 3.20%
SBA Fixed Base Rate July 2013 = 5.34%
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Debenture Rate for July     

The debenture rate is 3.15% but note rate is 3.20% and effective yield is a whopping  5.232%.

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AHEAD OF THE YIELD CURVE 

The mumpsimus is that interest rates are starting to go up.

The Federal Reserve meets again next week.

They should make it very clear that it plans to hold its target interest rate near zero for quite awhile.

A few days after the Federal Open Market Committee meets, the Labor Department will report on jobs for the month of July.

In June, it was reported that employment increased by 195,000.

According to the Federal Reserve Bank of Atlanta, if the participation rate stays steady, the unemployment rate will fall to 6.5% in December 2014 if the economy adds around 185,000 jobs per month.  

6.5 percent is the Fed's threshold, but not trigger, for raising the Fed's funds rate.   This is consistent with the Fed not raising rates until 2015 or later.

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- 0.33

DEC14- 0.61

DEC15- 1.32

DEC16- 2.32

DEC17- 3.20

DEC18- 3.83

DEC19- 4.23

DEC20- 4.48

What does all this mean?

I don’t know.

We can not be a mumpsimus about interest rates.

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OFF BASE

A mumpsimus should get off his rumpus.

Just as many people fear things they shouldn’t, like vaccines, there are plenty of everyday threats that deserve more of our attention. Take, for example, the humble desk chair. Sitting at work, and in leisure, for hours at a time shaves off more of your life than smoking cigarettes, according to a whole bunch of studies ignored by just about everyone.

The human body wasn’t built for the modern lifestyle of sitting all day, which leads to increased rates of heart attacks, diabetes and death all around. Even exercise and staying otherwise fit won’t protect against the dangers of the chair (though a standing desk will).

Instead of sitting, we should all lie down.

Studies by NASA and other sleep researchers show that a 10-minute power nap boosts memory, alertness, and mental and physical performance, and even reduces the chance of heart disease. So where are the nap rooms at our offices? No, seriously, where are they? 

SBA loans are good for the economy

Summer vacation is here.  SBA 7(a) loan approvals were only $265,871,000 for the week ending July 12th.  That's a slight improvement over the shortened Fourth of July work week.  This is the lowest weekly loan volume total since before Memorial Day.

SBA 504 Loan Debenture Rate for July

SBA 504 loan Debenture Rate for July 

The debenture rate is 3.15% but note rate is 3.20% and effective yield is a whopping  5.232%.

SBA loans are good for the economy

SBA lenders and borrowers took a break over the Fourth of July as only $208,042,000 in SBA 7(a) loans were approved for the week ending July 5^th.

Despite this respite, SBA 7(a) loan volume is up over 16% from the same period last year.

This up-tick in loan volume bodes well 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 GDP is a statistically significant 0.86.

The SBA and chameleonic

chameleonic

kuh-mee-lee-ON-ik 

Given to quick or frequent change.

From Latin chamaeleon, from Greek khamaileon, from khamai (on the ground) + leon (lion).

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TIP OF THE WEEK 

SBA lending is chameleonic.

On July 1, 2013, SBA released a revision to SOP 50 10 5(E) that revised and clarified SBA's requirements for financing change of ownership transactions with SBA guaranteed loans.

 The new guidelines allow for a change of ownership to be achieved through an asset purchase, a stock purchase or a stock redemption.

If the purchaser of the stock is an individual, then the individual and the target must be co-borrowers on the loan.

If the purchaser of the stock is an entity or if the transaction is structured as an asset purchase, then the business being acquired MAY be a co-borrower on the loan.

Generally, lenders should consider making the target business a co-borrower when the transaction is structured as a stock purchase

Lenders must also ensure that the business will not attempt to deny liability for lack of consideration on debts where it is a co-borrower with the purchasers of the stock.  If the borrower denies liability on these grounds, the SBA may not honor the guaranty.

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Indices:

PRIME RATE= 3.25%
SBA LIBOR Base Rate July 2013 = 3.20%
SBA Fixed Base Rate July 2013 = 5.34%
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Debenture Rate for June    

The debenture rate is 2.45% but note rate is 2.49% and effective yield is only 4.529%.

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AHEAD OF THE YIELD CURVE 

A chameleonic Fed?

The Federal Reserve made it very clear that it plans to hold its target interest rate near zero as long as unemployment remains above 6.5 percent.

So when will the unemployment rate fall to 6.5 percent?

That’s the Fed's threshold, but not trigger, for raising the Fed's funds rate.   According to the Federal Reserve Bank of Atlanta, if the participation rate stays steady, the unemployment rate will fall to 6.5% in December 2014 if the economy adds around 185,000 jobs per month.   This is consistent with the Fed not raising rates until 2015 or later.

The Federal Reserve also made it very clear that it plans to hold its target interest rate near zero as long as the outlook for inflation doesn’t exceed 2.5 percent.

One of the Fed’s favorite gauges of inflationary pressure 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.

Keep your eyes and ears open for next week’s report of capacity utilization.

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- 79.0

What does all this mean?

I don't know.

Last month the Fed reported that capacity utilization for total industry edged down 0.1 percentage point to 77.6 percent.  That was the second consecutive monthly decline. 

This week’s Treasury auction of 30 years bonds may provide some insight.

30-year bonds are among the securities most sensitive to consumer prices because of their long maturity, as inflation would erode the return on the bonds’ fixed payments for their duration.

June’s Treasury auction of $13 billion in 30 year bonds went off at a yield of 3.355 percent, the highest since March 2012.    At May’s sale of 30 year bonds, the yield was only 2.98%, the lowest yield since December.

It would appear that interest rates are going to remain the same, go up, or go down.

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OFF BASE

Ramadan begins. 

Ramadan is the ninth month of the Islamic calendar and is based upon on the visual sightings of the first crescent moon after the solstice.   This sighting of the crescent moon is done shortly after sunset.

Such a sighting has to be made by one or more trustworthy men testifying before a committee of Muslim leaders.  Determining the most likely day that the crescent moon could be observed was a motivation for Muslim interest in astronomy, which put Islam in the forefront of that science for many centuries.

Muslims worldwide observe this as a month of fasting.  The fast begins at dawn and ends at sunset.  In addition to abstaining from eating and drinking, Muslims are also called to abstain from all bad deeds. 

They are called to abstain from all bad deeds.  Aren’t we all?

SBA 7(a) Loan Rate Update

Indices:

PRIME RATE= 3.25%
SBA LIBOR Base Rate July 2013 = 3.20%
SBA Fixed Base Rate June 2013 = 5.34%

Lenders can charge up to 2.75% over these indices.

SBA Loans Are Good for the Economy

Wow!

SBA 7(a) loan approvals totaled a whopping $411,606,000 for the week ending 6/28/2013.

2^nd quarter SBA loan volume is now up from the prior quarter, reversing an almost year long decline.

Here is a breakdown of SBA 7(a) quarterly loan volume for the last year:

2^nd quarter 2013              $4,273,683,000

1^st quarter 2013               $4,049,146,000

4^TH quarter 2012             $4,173,790,000

3^rd quarter 2012              $4,359,166,000

2^nd quarter 2012              $4,039,042,000

1^st quarter 2012                 $3,443,723,000

Notice how loan volume surged about 17% in the second quarter of 2012?  The third quarter also grew but only at about an 8% pace.  Since then loan volume had been slowly eroding until now.

This up-tick in loan volume bodes well 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 GDP is a statistically significant 0.86.