Monday, June 16, 2014

The SBA and brouhaha

BROO-ha-ha, broo-ha-HA, broo-HA-ha
Noise, confusion, and excitement, especially over something insignificant.
An alteration of the Hebrew term barukh habba (welcome, literally, "blessed be the one who comes").



A brouhaha erupted recently as the Small Business Administration becomes un-pervicacious with the lender explicitly calculating a borrower’s ability to repay proposed loans of $350,000 and less.  Effective July 1st, SBA Information Notice 5000-1314 declares that the Small 7(a) loan credit scoring model satisfies the requirement that the lender demonstrate the applicant’s ability to repay the loan with earnings from the business.   The credit score alone is enough.  Verifications of IRS income tax returns are still required however and if anything in the lender’s financial analysis demonstrates that the Small Business Applicant lacks reasonable assurance of repayment in a timely manner from the cash flow of the business, the loan request must still be declined, regardless of the collateral available or outside sources of cash.

Another brouhaha is also coming on franchise eligibility determinations!


SBA LIBOR Base Rate June 2014 = 3.15%
SBA Fixed Base Rate June 2014 = 5.31%

SBA 504 Loan Debenture Rate for June
The debenture rate is only 2.99% but note rate is 3.04% and the effective yield is 5.069%.

No brouhaha is expected once the Federal Reserve meets this week on interest rates.

The last time the Federal Open Market Committee met on monetary policy they said that they might have to keep “the target federal funds rate below levels the Committee views as normal in the longer run.”

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:

DEC14- 0.29
DEC15- 1.01
DEC16- 2.10
DEC17- 2.90
DEC18- 3.41
DEC19- 3.78
DEC20- 4.04

What does all this mean?

I don’t know.

Traders are betting the Federal Reserve won’t raise interest rates any time soon.

Where’s the brouhaha over hurricane season?
The eastern Pacific has never witnessed storms so strong so early.  First, hurricane Amanda became the strongest May hurricane in the eastern Pacific on record, when its peak winds soared to 155 mph (high-end category 4 level) on May 25. Now, just over two weeks later, the eastern Pacific has given birth to the powerhouse hurricane Cristina whose maximum sustained winds also reached 155 mph!
Forecasters have called for an active eastern Pacific hurricane season due to the expectation of El NiƱo conditions which elevate ocean temperatures (in the tropical Pacific).
The lack of a brouhaha might all be in their names.  People don’t take hurricanes as seriously if they have a feminine name and the consequences are deadly, finds a new groundbreaking study.

Female-named storms have historically killed more because people neither consider them as risky nor take the same precautions, the study published in the Proceedings of the National Academy of Sciences concludes.  Researchers at the University of Illinois and Arizona State University examined six decades of hurricane death rates according to gender, spanning  1950 and 2012.  Of the 47 most damaging hurricanes, the female-named hurricanes produced an average of 45 deaths compared to 23 deaths in male-named storms, or almost double the number of fatalities.  The difference in death rates between genders was even more pronounced when comparing strongly masculine names versus strongly feminine ones.

Thursday, June 12, 2014

SBA 7(a) Loan Rate Update


SBA LIBOR Base Rate June 2014 = 3.15%
SBA Fixed Base Rate June 2014 = 5.31%
Lenders can charge up to 2.75% over these indices.

Tuesday, June 3, 2014

SBA Loans Are Good for the Economy

SBA 7(a) loan approvals totaled $1,782,874,000 for the month of May.  This is a 12% increase over April's 7(a) loan approvals and a 49% increase over approvals for the month of January.

This makes it the fifth straight month of improving SBA 7(a) loan volume:

May                       $1,782,874,000
April                     $1,591,774,000
March                   $1,590,460,000
February             $1,323,495,000
January               $1,193,005,000

Keep in mind that the correlation coefficient between SBA 7(a) loan approvals and our economy's Gross Domestic Product is a statistically significant 0.86. 

Monday, June 2, 2014

The SBA and pervicacious

Very stubborn.
From Latin pervicax (stubborn).


The Small Business Administration is avulsing itself of its pervicacious propensities with its latest improvements to the SOP (Standard Operating Procedures).

The pervicaciousness continues somewhat as there are just over 100 days until the next SOP comes out.

Borrowers however should not be pervicacious about SBA loans with more money available at better terms than conventional financing.


SBA LIBOR Base Rate May 2014 = 3.15%
SBA Fixed Base Rate May 2014 = 5.39%

SBA 504 Loan Debenture Rate for May
The debenture rate is only 3.00% but note rate is 3.05% and the effective yield is 5.08%.

Is the economy being pervicacious?

The U.S. economy suffered its first contraction since 2011 in the first quarter of 2013. 

Gross domestic product fell at a 1 percent annualized rate according to revised Commerce Department figures.  

The advance estimate originally had the economy crawling along at only a 0.1 percent rate.  This revised decline was due to a drop in inventory.  Stockpiles grew at less than half the pace than in the final three months of 2013, lopping 1.6 percentage points off GDP.  Change in private inventories tends to bounce around quarter-to-quarter so this is more of a statistically aberration than anything else.

You can not be pervivacious about any of the numbers on the economy.

For example, the Bureau of Labor Statistics last month revised up the change in jobs for March from 192,000 to 203,000 while February was bumped up to 222,000 from 197,000.  With these revisions, employment gains in February and March were 36,000 higher than previously reported.

The U.S. also added 288,000 nonfarm jobs in April.  This was the most in more than two years.

Keep your eyes and ears open for Friday’s report on jobs for May.

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

April          288,000
March        203,000
February      222,000
January     144,000
2013     2,074,000
2012     2,193,000
2011      2,103,000
2010     1,022,000
2009     -5,052,000
2008     -3,617,000
2007    1,115,000
2006     2,071,000
2005     2,484,000
2004     2,019,000

What does this mean?

I don’t know.

Through the first four months of 2014, the economy has added 857,000 payroll jobs - slightly better than during the same period in 2013 (there were 821,000 payroll jobs added during the first four months of 2013).  Total nonfarm U.S. employment is currently 113 thousand below the pre-recession peak.  With the release of the May employment report next Friday, total employment will probably be at an all time high.

Despite this, the labor force shrank by more than 800,000 in April. The so-called participation rate, which indicates the share of working-age people in the labor force, decreased to 62.8 percent, matching the lowest level since 1978, from 63.2 percent a month earlier.  Even the strongest job growth in more than two years isn’t enough to entice more people into the labor force, one of the biggest conundrums of the U.S. economic expansion.

As a result, the Federal Reserve will remain pervicacious about keeping interest rates low.

June 6th marks the 70th anniversary of the D Day invasion.
June 6, 1944, 160,000 Allied troops landed along a 50-mile stretch of heavily-fortified French coastline to fight Nazi Germany on the beaches of Normandy, France.
More than 9,000 Allied Soldiers were killed or wounded in the first few hours but they were pervicacious with the assault and more than 150,000 soldiers began the march across Europe to defeat Hitler.
Have you ever wondered what the D in D Day meant?

The most ordinary and likely of explanations is the one offered by the U.S. Army in their published manuals. The Army began using the codes "H-hour" and "D-day" during World War I to indicate the time or date of an operation's start. Military planners would write of events planned to occur on "H-hour" or "D-day" -- long before the actual dates and times of the operations would be known, or in order to keep plans secret. And so the "D" may simply refer to the "day" of invasion.