Monday, April 6, 2020

The SBA and PROcrastinate


to put off intentionally and habitually
to put off intentionally the doing of something that should be done 

from Latin procrastinat- ‘deferred till the morning’, from the verb procrastinare, from pro- ‘forward’ + crastinus ‘belonging to tomorrow’ (from cras ‘tomorrow’).

Procrastination is not simply the act of deferral or postponement. It implies an intentional avoidance of important tasks, putting off unpleasant responsibilities that one knows should be taken care of right away and setting them on the back burner for another day.


Borrowers and lenders may want to procrastinate with the Promethean Paycheck Protection Program (PPP).

Borrower profligacy prompts lender probity.  Prospicient prodnosing proliferates after a not so prodigious promulgating prolegomenon.

The loan, based upon 2.5 times average monthly payroll prior to February 15, 2020, requires that the loan proceeds be used to support at least eight weeks of that payroll (75% of the loan amount).  If not the loan will NOT be forgiven.

If the loan is not forgiven, the borrower has a 1% interest rate for two years.  The loan accrues interest during an initial six month deferral period.  Payments can be deferred for one year.

Most small businesses will probably not seek or qualify for the loan forgiveness.  If they eventually default on the loan, even with no collateral or personal guarantee, they will be ineligible for future SBA financial assistance.

Lenders should be concerned about how they can participate in this critically important program when their cost of funds is higher than the proposed maximum interest rate.

The SBA Economic Disaster Injury Loan (EIDL) provides the opportunity for a $10,000 advance.  This is a direct loan from the SBA.

To apply for the Advance, you must submit a new application even if you previously submitted an EIDL application. Applying for the Advance will not impact the status or slow your existing application.
New Economic Injury Disaster Loan Applicants using the new streamlined online application may request the $10,000 Loan Advance in the application.


SBA 504 Loan Debenture Rate for March
For 20 year debentures, the debenture rate is only 1.49% but note rate is 1.518% and the effective yield is 2.808%.
For 25 year debentures, the debenture rate is only 1.62% but note rate is 1.643% and the effective yield is 2.881%.

The Federal Reserve did not procrastinate on monetary policy.

In an extraordinary move, the Federal Reserve dropped its benchmark interest rate to zero in response to the growing threat from the coronavirus outbreak.

That was on a Sunday March 15th just two weeks after having previously reduced rates by ½ percent after another unscheduled emergency meeting.

The last time the Fed cut interest rates on an emergency basis between its regular policy meetings was on October 8, 2008.

Keep your eyes and ears open for Wednesday’s release of the minutes from that Federal Reserve meeting.  It should make for some very interesting reading.

Employers also did not procrastinate.

The economy lost 710,000 jobs in March according to Friday’s report from the Department of Labor.  This however was based upon information completed in the second week of March, just before the COVID-19 pandemic began to devastate the economy.

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

March     -710,000
February  275,000
January   214,000
2019     2,108,000
2018      2,679,000
2017      2,110,000
2016      2,160,000
2015     2,740,000
2014     3,116,000
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 all this mean?

I don’t know.

Why did Italy procrastinate?

A couple of weeks ago, Italy was much like us, with 107 deaths on March 4. But things were already rapidly getting worse and now Italy is currently the epicenter of coronavirus fatalities in the world.

Italy has been devastated by the virus because it procrastinated.

Procrastination is the Italian way.

Another word for procrastination is cunctation from the Latin cunctari (to hesitate, delay).

Drawing on an intimate knowledge of their own history, they see an upside to letting problems sort themselves out, piano piano—slowly. It’s even part of the national curriculum. By age 11, almost all Italian schoolchildren learn the story of Quintus Fabius Maximus Verrucosus, the Roman general who 2,200 years ago slowly ground down Hannibal by avoiding direct battle. He was nicknamed the Cunctator—“the delayer.”

That’s their excuse.

Behavioral economist George Akerlof wrote a paper “Procrastination and Obedience” lamenting his own procrastination arguing that procrastination might be more than just a bad habit. It revealed something important about the limits of rational thinking.