The SBA and PRObative

probative
PRO-buh-tiv, PROB-uh
Serving to test something or providing a proof.
From Latin probare (to test or prove), from probus (upright, good).
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TIP OF THE WEEK

Some people think SBA loans go to borrowers that don’t need them, but we haven’t found anything probative yet.

The Government Accountability Office recently released a report entitled Additional Actions Needed to Improve Compliance with the Credit Elsewhere Requirement.

As reflected on page 97 of SOP 50-10-5(J), a lender must certify that a borrower does not have the ability to obtain a loan on reasonable terms without SBA assistance.  Acceptable factors that demonstrate an identifiable weakness in the credit can include needing a longer maturity or a lack of collateral.

The GAO report expressed concerned about SBA’s monitoring efforts of lender’s compliance with this credit elsewhere requirement.

If you would like a copy of this report, let me know.

If you need a loan with a longer maturity or don’t have enough collateral, let me know.
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Indices:
PRIME RATE= 4.75%

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SBA 504 Loan Debenture Rate for May
The debenture rate is only 3.50% but note rate is 3.557% and the effective yield is 5.222%.

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AHEAD OF THE YIELD CURVE

By any probative measure, the yield curve is not really inverting.

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. The rule of thumb is that an inverted yield curve (short rates above long rates) indicates a recession in about a year.  More generally, a flat curve indicates weak growth and conversely, a steep curve indicates strong growth.

Concerns that the yield curve could eventually invert, with short-dated yields moving above long-dated yields, is keeping many on edge. An inverted yield curve has often preceded a recession.

Here is how the yield curve has changed over the last year and this week’s interesting little table of data:

Treasury YTD Chg
3M         54.32
6M         57.96
1Y         55.37
2Y         61.08
5Y         56.56
10Y        52.42
30Y        33.81

What does all this mean?

I don’t know.

Short term rates have jumped just over a ½ percent along with the 10 year Treasury yield.  Over the last month, both short and long rates moved up, and in nearly parallel fashion. The 3-month Treasury bill rate rose to 1.92 percent, up from April’s 1.81 percent and well above March’s 1.76 percent.  The 10-year rate finally crossed a barrier by increasing to 3.01 percent, above April’s 2.88 percent and March’s 2.86 percent. These changes narrowly increased the slope to 109 basis points, up 2 basis points from April’s 107 basis points.

The Federal Reserve meets this week and the market is already pricing in a 92.5% probability of a 25 basis point increase, CME Group data shows.

Don’t get distracted by the Fed meeting.  At the same time there will be an auction of 30 year Treasury bonds.  Last month’s $17 billion auction of 30 year Treasury bonds was the largest sale on record.  Despite the size, investors eagerly sought the bond which drew a high yield of 3.130%   This week’s auction will be for $14 billion.

The frangible long end of the yield curve as reflected by probative measures of the 30 year Treasury bond appear to be enervating any splenetic presentiment of a bigly recrudescence in interest rates by being quiescent.

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OFF BASE

The word probative is thrown around all the time by lawyers.  Probative value is considered to be evidence which is sufficiently useful to prove something important in a trial.

A probative question is one which reveals the absolute answer.  Answers are only a meaningless laundry list of symbols unless they reveal the truth.

This principle is well illustrated by a Danish proverb:
“Better to ask twice than lose your way once.”