Monday, June 11, 2018

The SBA and 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).

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.


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%.


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.


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.”