Monday, April 27, 2015

The SBA and prebuttal



An argument in anticipation of a criticism; a preemptive rebuttal.

A blend of pre- + rebuttal, from rebut (to refute), from Old French rebouter (to push back), from boute (to push).


Standard & Poor’s expects RevPAR to post strong growth this year and next.   RevPAR, or revenue per available room, is a performance metric in the hotel industry that is calculated by dividing a hotel's total guestroom revenue by the room count and the number of days in the period being measured

This strong growth in demand and occupancy levels coincided with a period of extremely low lodging supply growth. Inventory grew by 0.6% in 2011, 0.5% in 2012 and 0.7% in 2013, compared to a 17-year average of approximately 1.8%.  Last year, however, supply growth accelerated by 0.9%, and given the favorable demand and RevPAR levels in the near term, new construction is likely to follow.  That could mean supply growth of about 1.5% this year, and possibly approaching 2.05 in ’16.

A prebuttal to anyone that thinks SBA loans don’t matter should note that hotels and motels have accounted for more SBA 7(a) and 504 loans than any other business since 2001.  Almost six percent of all SBA loans are to hotels and motels.  Hospitality also has one of the lowest failure and charge off rates.  SBA loans can finance hotel and motel purchases, debt refinancing or construction.

In the last four years, loans to new businesses, such as hotels under construction, have grown from about one-quarter of all SBA loans to almost one third.

SBA LIBOR Base Rate April 2015 = 3.18%
SBA Fixed Base Rate April 2015 = 4.91%
SBA 504 Loan Debenture Rate for April

The debenture rate is only 2.51% but note rate is 2.55% and the effective yield is 4.591%.   


The Federal Reserve Open Market Committee meets this week and many people wonder if interest rates will soon start going up.

A prebuttal to a variable rate loan and the frightened premise of rising interest rates can be found in the futures market.

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:

DEC15- 0.59
DEC16- 1.30
DEC17- 1.71
DEC18- 2.18
DEC19- 2.43
DEC20- 2.63

What does all this mean?

I don’t know.

Eurodollar futures currently imply a federal funds rate that really is not going to be moving up much if at all.

Just last week, the Federal Reserve reported that capacity utilization decreased 0.6 percentage point in March to 78.4 percent.  For the first quarter of 2015 as a whole, industrial production declined at an annual rate of 1.0 percent, the first quarterly decrease since the second quarter of 2009.  Weaker capacity utilization might be interpreted as a sign that the Federal Reserve’s 2% inflation target is still out of reach.

Another prebuttal to rising interest rates is how well the New York Mets are doing.
Remember, every time the Mets do really well a recession soon follows.  
In October of 1969 the Mets went to the World Series.  A recession soon followed.   In October of 1973 the Mets went to the World Series.  A recession soon followed.  In October of 1986 the Mets once again went to the World Series.   The economy held its breath for as long as it could but when it finally had to gasp for air the stock market crashed. The stock market crash of 1987 was the largest one day stock market crash in history, larger than that of 1929.  The economy would soon slump into recession.  The economy recovered and the nation enjoyed the 1990 boom years.  The party ended when the Mets went to the World Series in 2000.  Soon after the 2000 World Series ended, the economy slid into recession.  In 2006 the Mets dominated the National League winning more games than any other team.  The next year they assembled an even stronger team and appeared a certainty to be in the World Series.  They then suffered the greatest collapse in baseball history.  The economy also soon collapsed.
Since back-to-back late-season collapses in 2007 and 2008, the Mets have gone six straight seasons without a winning record.  Now they have the best record in baseball.

By Baseball Prospectus‘ playoff odds, the Mets now have a 59.7% chance of securing at least a Wild Card berth. They became the 27th team since the year 2000 to win at least 11 straight games. The prior 26 averaged over 92 wins per season.

Friday, April 17, 2015

SBA 504 Loan Debenture Rate

SBA 504 Loan Debenture Rate for April        

The debenture rate is only 2.51% but note rate is 2.55% and the effective yield is 4.591%.

Monday, April 13, 2015

The SBA and hortatory



Strongly urging.

From Latin hortari (to urge).


Hortatory, pronounced hawr-tuh-tawr-ee, is probably not a word you hear a lot, but what it describes is common. When you're lying in bed in the morning, look for that little hortatory voice in your head, encouraging you to get up.

The hortatory activities of SBA 7(a) lenders have caused SBA loan volume to increase 25% over last year’s volume.  Six months through the fiscal year, SBA 7(a) loan approvals are now at $9,941,695,000.  This is the most since 2011.

SBA LIBOR Base Rate April 2015 = 3.18%
SBA Fixed Base Rate April 2015 = 4.91%
SBA 504 Loan Debenture Rate for March

The debenture rate is only 2.72% but note rate is 2.76% and the effective yield is 4.799%.       


The hortatory signals of rising interest rates from the Federal Reserve might soon be muted.

According to minutes of the Fed's March 17-18 meeting, several Federal Reserve policymakers said last month the central bank is likely to raise its benchmark interest rate in June but "others" said the move will probably occur "later in the year".  This debate occurred before the recent disappointing payroll figures for the month of March.  The minutes are consistent with Fed policymakers' forecasts, released after the mid-March meeting, that indicate the first bump in rates since 2006 is unlikely before September as the Fed awaits signs of a pickup in anemic inflation.

Keep your eyes and ears open for this week’s report on Industrial Production and Capacity Utilization.

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.

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
2014- 78.8

Last month the Federal Reserve reported that capacity utilization decreased to 78.9 percent in February.

What does this mean?

I don’t know.

Capacity utilization may continue to slump as sales of durable goods at U.S. distributors in January and February suffered the biggest two-month drop since the recession's last gasp in early 2009, figures from the Commerce Department showed last Thursday.  As demand weakened, stockpiles built up, sending the inventory-to-sales ratio for those long-lasting goods up to an almost six-year high.  More order books at factories may be a bit leaner, which could leave manufacturing in a funk.

Weaker capacity utilization might be interpreted as a sign that the Federal Reserve’s 2% inflation target is still out of reach.

The softening in the Fed’s two main policy targets, namely inflation and employment, as reflected in March’s weak jobs report released on Good Friday, suggest that the Fed may delay an interest rate hike.

There should be more of a hortatory clamor for another holiday right about now.
According to the Federal Reserve, here is our remaining holidays for 2015:
Memorial Day May 25
*Independence Day July 4
Labor Day September 7
Columbus Day October 12
Veterans Day November 11
Thanksgiving Day November 26
Christmas Day December 25 
*Independence Day this year falls on a Saturday – so the Board of Governors is closed on July 3, 2015 and bankers get a three day weekend!

Our last holiday was Washington ’s Birthday on February 16th.  Memorial Day is a long way’s off.
Good Friday merits consideration but now another opportunity presents itself.
April 15th, 1947 was Opening Day for Major League Baseball and was the day Jackie Robinson made his major league debut.

April 15th is now celebrated, not as tax day, but as Jackie Robinson Day by Major League Baseball.  On that one day, all players, coaches, and managers on both teams, and the umpires, wear #42 on their jerseys, which makes scoring games virtually impossible.