Monday, February 24, 2014

The SBA and Jeremiah



A person who complains continually, has a gloomy attitude, or one who warns about a disastrous future.

After Jeremiah, a Hebrew prophet during the seventh and sixth centuries before Christ who prophesied the fall of the kingdom of Judah and whose writings are collected in the Book of Jeremiah and the Book of Lamentations.


Any negativity about SBA loans is the worthless banter of a jeremiah.

In addition to updating form 1919 for borrowers, the SBA has also just updated form 1920 for lenders.  This results in the elimination of at least five application forms for SBA loan submissions.

SBA loans also have a definite, quantifiable positive impact on the economy.

SBA LIBOR Base Rate February 2014 = 3.16%
SBA Fixed Base Rate February 2014 = 5.31%

SBA 504 Loan Debenture Rate for February   

The debenture rate is only 3.23% but note rate is 3.28% and the effective yield is 5.309%.

Only a jeremiah would be worried about interest rates going up any time soon.

Minutes from the Federal Reserve’s last meeting on interest rates made it clear that it will keep its short-term interest rate near zero "well past" when unemployment reaches 6.5 percent.  Others said the Fed should simply clarify the factors that would cause it to maintain the near-zero rate, such as inflation persistently below the Fed's 2% target.

Inflation is well below the Fed’s target.  U.S. consumer prices barely rose last month.  The Labor Department says the consumer price index rose just 0.1% in January, down from 0.2% in December. Prices have risen 1.6% in the past 12 months. Excluding the volatile food and energy categories, core prices also rose 0.1% last month and 1.6% in the past year.

SBA 7(a) loan volume slowed in the fourth quarter of 2013.  As if on cue, the economy also slowed.

According to the Department of Commerce, the U.S. economy grew at a 3.2% annual clip in the fourth quarter.   That represents a slowdown from the third quarter's growth rate of 4.1%.

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

4th quarter 2013              3.2%
3rd quarter 2013              4.1%
2nd quarter 2013             1.7%
1st quarter 2013              1.1
4th quarter 2012:             0.1%
3rd quarter 2012:             2.8%
2nd quarter 2012:          1.2%
1st quarter 2012:            3.7%

Contrast that with quarterly SBA 7(a) loan volume:

4th quarter 2013:             $3,989,696,000
3rd quarter 2013:             $5,371,662,000
2nd quarter 2013              $4,273,683,000
1st quarter 2013               $4,049,146,000
4TH quarter 2012             $4,173,790,000
3rd quarter 2012              $4,359,166,000
2nd quarter 2012              $4,039,042,000
1st quarter 2012                 $3,443,723,000

Notice how third quarter growth in GDP had jumped over the prior period?  Same thing happened with SBA 7(a) loan volume.

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.

The Commerce Department’s estimate of fourth quarter growth was its “advance” estimate.  Its “preliminary” estimate of fourth quarter growth will be out later this week.


I always thought Jeremiah was a bullfrog.

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