SBA Loans Are Good for the Economy

SBA lenders and borrowers must have taken off for Spring break as only $316,934,000 in SBA 7(a) loans were approved for the week ending April 18th.  


That's a drop from the prior week's SBA 7(a) loan approvals totaling $371,645,000.  
Month to date SBA 7(a) loan approvals are at $984,798,000.  

With a week and a half to go to end the month, it will be hard to beat March's SBA 7(a) approvals of $1,590,460,000.

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

The SBA and scrutate

scrutate

SKRU-tayt

To investigate.

From Latin scrutari (to examine).

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TIP OF THE WEEK 

Scrutation of the Code of Federal Regulations reveals that Section 120.102 was eliminated on April 21, 2014.  

That means the personal resources test is gone.  Owners are no longer required to inject personal liquid assets to reduce the amount of SBA guaranteed funds that would otherwise be needed.  

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Indices:

PRIME RATE= 3.25%

SBA LIBOR Base Rate April 2014 = 3.15%

SBA Fixed Base Rate April 2014 = 5.51%

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SBA 504 Loan Debenture Rate for April

The debenture rate is only 3.11% but note rate is 3.16% and the effective yield is 5.192%.

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AHEAD OF THE YIELD CURVE 

Is inflation beginning to rear its ugly head?

Not if you scrutate the data.

Last week the Bureau of Labor Statistics reported the Consumer Price Index rose 0.2% (2.4% annualized rate) in March.   Prices rose 1.5% for the 12 months ending in March. That is up from February’s year-over-year reading of 1.1%.  This jump from February to March is because a 0.2% drop in consumer prices in March 2012 dropped out of the calculation.

Really driving up the CPI was a 0.3% increase in shelter costs. On an annual basis, shelter costs were up 2.7%, the fastest pace in six years.

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- 79.2

What does all this mean?

I don’t know.

Last week the Fed reported that capacity utilization for total industry moved up 0.1 percentage point to 79.2 percent.  That’s up 12.3 percentage points from the record low set in June 2009 and 1.2 percentage points higher than a year prior.   Capacity utilization at 79.2% is still 0.9 percentage points below its average from 1972 to 2012 and below the pre-recession level of 80.8% in December 2007.

The 30-year Treasury bond yield serves as somewhat of a long-term outlook on economic growth and inflation expectations. But the security has at times been an early indicator for movements in other Treasury maturities.  

April’s $13 billion auction of 30 year Treasury bonds sold at a yield of 3.525%.  In March the auction drew a yield of 3.630% compared to February’s yield of 3.69%.  January’s auction sold at a yield of 3.899% compared to December’s 3.90%.  

The yield curve is starting to flatten out a bit.  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.  A flat curve indicates weak growth, and conversely, a steep curve indicates strong growth.

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

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OFF BASE

Scrutating the calendar meant yesterday was a holiday.

The third Monday in April is Patriot's Day commemorating the battles of Lexington and Concord, the first military engagements of the American Revolutionary War.

The day after the battle, John Adams left his home to ride along the battlefields. He declared that "the Die was cast, the Rubicon crossed."

“Crossing the Rubicon" is a metaphor for deliberately proceeding past a point of no return. The phrase originates with Julius Caesar's seizure of power in the Roman Republic in 49 BC. Roman generals were strictly forbidden from bringing their troops into the home territory of the Republic in Italy.  Caesar led his army across the Rubicon River, crossing from Gaul into Italy. After this, if he did not triumph, he would be executed. Therefore the term "the Rubicon" is used as a synonym to the "point of no return".

"Alea iacta est" ("The die is cast"), which is reportedly what Caesar said at the crossing of the Rubicon. This metaphor comes from gambling with dice: once the die or dice have been thrown, all bets are irrevocable, even before the dice have come to rest.

SBA 504 Loan Debenture Rate for April

SBA 504 Loan Debenture Rate for April       

The debenture rate is only 3.11% but note rate is 3.16% and the effective yield is 5.192%.

SBA Loans Are Good for the Economy

SBA 7(a) loan approvals totaled $371,645,000 for the week ending April 11th.  

The correlation coefficient between SBA 7(a) loan volume and the economy's gross domestic product is a statistically significant 0.86.

SBA Loans Are Good for the Economy

SBA 7(a) loan approvals totaled $383,299,000 for the week ending April 4th.

While slightly off from last week's pace, it is still robust compared to earlier in the year.

The correlation coefficient between SBA 7(a) loan volume and the economy's gross domestic product is a statistically significant 0.86.

The SBA and ineluctable

ineluctable

in-i-LUHK-tuh-buhl

Impossible to avoid: inescapable.

From Latin in- (not) + eluctari (to struggle out of), from ex- (out) + luctari (to struggle).

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TIP OF THE WEEK 

The ineluctable changes to SBA lending often require explanations or corrections.

The SBA recently released SBA Procedural Notice 5000-1310 which provides technical corrections to SOP 50-10-5(F).

For example, lenders no longer need a transcript of payment history on debt to be refinanced if it is not same institution debt.  

Real estate can also be valued at 85% of the market value for the calculation of “fully-secured” meaning no other collateral is required.

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Indices:

PRIME RATE= 3.25%

SBA LIBOR Base Rate April 2014 = 3.15%

SBA Fixed Base Rate March 2014 = 5.51%

________________________________________

SBA 504 Loan Debenture Rate for March  

The debenture rate is only 3.21% but note rate is 3.26% and the effective yield is 5.289%.

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AHEAD OF THE YIELD CURVE 

Are higher interest rates ineluctable?

The U.S. has recovered all but 437,000 of the 8.7 million jobs lost as a result of the last recession.

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

March        192,000

February 197,000

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.

The economy added 533 thousand jobs in the first quarter this year compared to 618 thousand in the first quarter of 2013

But the labor force has continued to increase over the last 6+ years, and there are still millions of workers unemployed.  The economy still has a long way to go as the number of people out of work for six months or longer is still at 3.739 million .

Friday’s employment report isn’t likely to shake the Federal Reserve from its strategy of slowly winding down its bond-buying program while keeping short-term interest rates pinned near zero well into 2015.

Treasury prices jumped Friday as the market grappled with easing expectations for Federal Reserve rate hikes.

Keep your eyes and ears open for Thursday’s auction of 30 year Treasury bonds.

Last month the Treasury Department sold $13 billion of 30-year bonds at a yield of 3.630% compared to February’s yield of 3.69%.  January’s auction sold at a yield of 3.899% compared to December’s 3.90%.  

On Friday, the 30-year Treasury bond yield fell 4 basis points to 3.585%.

The yield curve is starting to flatten out a bit.  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.  A flat curve indicates weak growth, and conversely, a steep curve indicates strong growth.

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

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OFF BASE

Does it seem like Easter comes really late this year?

That’s because Easter always falls on the first Sunday following the full Moon after the vernal equinox.  Got that?

The alignment of the moon and earth cruelly pushed Easter out to late April.  

With no federally recognized holiday until Memorial Day at the end of May, many people look forward to Good Friday.

It’s a holiday for the stock market.   So why not for everyone else?   The day marks the crucifixion and death of Jesus Christ.  How could that possibly be considered good?  

Many believe this name simply evolved—as language does. Originally it was called "God's Friday."   This seems a reasonable conjecture, given that "goodbye" evolved from "God be with you."

Death is ineluctable and sooner or later everyone will have to say goodbye.

SBA 7(a) Loan Rate Update

Indices:

PRIME RATE= 3.25%
SBA LIBOR Base Rate April 2014 = 3.15%
SBA Fixed Base Rate April 2014 = 5.51%

Lenders can charge up to 2.75% over these indices.

SBA Loans Are Good For the Economy

SBA 7(a) loan approvals totaled $1,590,460,000 for the month of March.  

That’s up from February’s approvals of $1,323,495,000 which was an improvement from January's $1,193,005. 

Overall, that’s a nice pick-up over the fourth quarter of 2013:

1^st quarter 2014                $4,106,960,000

4^th quarter 2013:             $3,989,696,000

3^rd quarter 2013:             $5,371,662,000

2^nd quarter 2013              $4,273,683,000

1^st quarter 2013               $4,049,146,000

4^TH quarter 2012             $4,173,790,000

3^rd quarter 2012              $4,359,166,000

2^nd quarter 2012              $4,039,042,000

1^st quarter 2012                 $3,443,723,000

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.

SBA Loans Are Good for the Economy

SBA 7(a) loan volume is dramatically improving.

SBA 7(a) loan approvals for the week ending March 28th totaled $459,475,000.

The correlation coefficient between SBA 7(a) loan volume and the economy's gross domestic product is a statistically significant 0.86.

SBA Loans Are Good for the Economy

SBA 7(a) loan volume continues to improve as $381,129,000 in SBA 7(a) loans were approved for the week ending March 21st.  

This is better than last week which so far had been the best week of the new year.

The positive impacts of these new loans will ripple through the economy as the correlation coefficient between SBA 7(a) loan volume and the economy's gross domestic product is a statistically significant 0.86.

SBA Loans Are Good For the Economy

SBA 7(a) loan volume picked up with loan approvals totaling $377,386,000 for the week ending March 14th.

So far this is the best week of the year!

Don't forget that the correlation coefficient between SBA 7(a) loan volume and the economy's gross domestic product is a statistically significant 0.86.

The SBA and nimiety

nimiety

ni-MY-i-tee

Excess or redundancy.

From Latin nimius (too much)

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TIP OF THE WEEK 

The perceived nimiety of SBA rules and regulations is improving.

 The elimination of the Personal Resource Test will be effective, April 21, 2014.  Business owners no longer need to pass a personal resource test that could restrict high-net worth owners from participating in SBA loan programs.

With the definition of a small business now at net profits less than $5,000,000 and a SBA loan size up to $5,000,000, more borrowers are eligible for more financing!

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Indices:

PRIME RATE= 3.25%

SBA LIBOR Base Rate March 2014 = 3.16%

SBA Fixed Base Rate March 2014 = 5.31%

________________________________________

SBA 504 Loan Debenture Rate for March  

The debenture rate is only 3.21% but note rate is 3.26% and the effective yield is 5.289%.

 ________________________________________________

AHEAD OF THE YIELD CURVE 

A nimiety of proclamations emanated from the Federal Reserve last week at their meeting on monetary policy.

The key sentence in the announcement was: "The Committee currently anticipates that, even after employment and inflation are near mandate-consistent levels, economic conditions may, for some time, warrant keeping the target federal funds rate below levels the Committee views as normal in the longer run."

Near mandate consistent levels?  What does that mean?  The Federal Reserve has a statutory mandate, which by law means it is supposed to foster maximum employment and price stability.  Starting in December 2012, the FOMC said the federal funds rate would stay low at least as long as unemployment was higher than 6.5 percent and the outlook for inflation didn’t exceed 2.5 percent.  With the jobless rate at 6.7 percent last month, that guidance was fast becoming obsolete and the Fed has now dropped any specific reference to the unemployment rate.

So how about inflation?  The central bank’s preferred gauge of consumer prices climbed 1.2 percent in the year through February and hasn’t exceeded its 2 percent goal since March 2012.

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- 0.35

DEC15- 1.16

DEC16- 2.29

DEC17- 3.12

DEC18- 3.70

DEC19- 4.12

DEC20- 4.42

What does all this mean?

I don’t know.

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

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OFF BASE

There is no nimiety of Federal holidays.

According to the Federal Reserve, here are our remaining holidays for 2014:

Memorial Day May 26
Independence Day July 4
Labor Day September 1
Columbus Day October 13
Veterans Day November 11
Thanksgiving Day November 27
Christmas Day December 25 

Obviously another holiday needs to be inserted somewhere.

One possible candidate could be Opening Day for Major League Baseball which is next week (the Dodgers in Australia don’t count).  Of course that would take all the fun out of playing hooky.  

By the way, playing hooky apparently developed from the colloquial phrase "hooky-crooky" common in the early 19th century, which meant "dishonest or underhanded." The connection between the two phrases becomes clearer when we recall that to "play hooky" properly, one had to pretend to go to school.  Hooky-crooky," came from "by hook or by crook," meaning "by any means or tactic, fair or foul." Although this phrase first occurs in print way back in 1380 and is still common today, no one is sure of what the hook and crook were. One theory is that while tenants on English manors were not allowed to cut trees for firewood, the lord of the manor permitted them to have all the branches they could pull down with a shepherd's crook or a curved knife on a pole called a "hook."

Enough of this nimiety.

SBA 504 Loan Debenture Rate for March

SBA 504 Loan Debenture Rate for March      

The debenture rate is only 3.21% but note rate is 3.26% and the effective yield is 5.289%.

SBA Loans Are Good For the Economy

The month of March began slowly for SBA lenders and borrowers as only $285,390,000 in SBA 7(a) loans were approved for the week ending March 7th.  

Total  SBA 7(a) loan approvals for the entire month of February were $1,323,495,000 compared to January's $1,193,005.   Forth quarter 2013 loan approvals totaled $3,989,696,000.

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.

The SBA and concinnity

concinnity

kuhn-SIN-i-tee

A harmonious arrangement of various parts.

From Latin concinnare (to put in order) and concinnus (skillfully put together)

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TIP OF THE WEEK 

The concinnity of SBA lending continues as the Personal Resources Test has been eliminated.  

SBA applicants with excess personal resources had been required to utilize those assets first prior to SBA financial assistance.

A formal announcement from SBA is on the way.

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Indices:

PRIME RATE= 3.25%
SBA LIBOR Base Rate March 2014 = 3.16%
SBA Fixed Base Rate March 2014 = 5.31%

________________________________________

SBA 504 Debenture Rate for February 

The debenture rate is only 3.23% but note rate is 3.28% and the effective yield is 5.309%.

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AHEAD OF THE YIELD CURVE 

Much like Goldilock’s porridge being neither too hot nor too cold, the Federal Reserve seeks a comforting concinnity between inflation and unemployment.

It has said that it will keep its short-term interest rate near zero "well past" when unemployment reaches 6.5 percent, especially with inflation well below the Fed's 2% target.

The unemployment rate has bumped back up to 6.7 percent.  

But the job market actually rebounded from a two-month slump in February as employers added 175,000 jobs.  Employment gains for December and January were revised up by a total 25,000. December's were revised to 84,000 from 75,000 and January's to 129,000 from 113,000.

Despite the solid payroll advances, the unemployment rate ticked up.  The main reason for the increase in the unemployment rate was a surge in the labor force — the number of people working or looking for work.  The labor force jumped by more than half a million people in February.  After seeing many months of people giving up looking for work, it could be an indication that more people are coming off the sidelines and back into the labor force.  Employment is now 0.5% below the pre-recession peak (666 thousand fewer total jobs). Private employment is now just 129 thousand below the previous peak in January of 2008.

The Federal Open Market Committee meets March 18-19.  Keep your eyes and ears open to the 6.5% unemployment rate threshold in its March statement as it is not a sufficient or particularly informative measure of labor market slack and therefore not the best guidepost for monetary policy.

Also keep your eyes and ears open for this week’s sale of 30 year Treasury bonds.

Last month the Treasury Department sold $16 billion of 30-year bonds at a high yield of 3.690%.  January’s auction of $13 billion of 30 year Treasury bonds sold at a yield of 3.899% compared to December’s 3.90%.   In November the 30 year Treasury bonds drew a yield of 3.81% while in October it was 3.758%.

Here is what the 30 year Treasury bond has been doing and this week’s interesting little table:

2001- 5.49

2002- 5.43

2003- ND

2004- ND

2005- ND

2006- 4.91

2007- 4.84

2008- 4.18

2009- 3.89

2010- 4.61

2011- 2.89

2012- 2.77

2013- 3.25

The 30 year Treasury bond is currently at 3.72 percent.

What does all this mean?

I don’t know.

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 while a flat curve indicates weak growth and a steep curve indicates strong growth.

According to the Federal Reserve Bank of Cleveland the steeper slope had a negligible impact on projected future growth. Projecting forward using past values of the treasury yield spread and GDP growth suggests that real GDP will grow at about a 1.3 percentage rate over the next year.   According to the Bureau of Economic Analysis, GDP for all of 2013 expanded at a 1.9 percentage rate.

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OFF BASE

Our seasonal concinnity is always disrupted by daylight saving time.   

This barbaric torture began with the Germans during World War I to alleviate hardships from wartime coal shortages and air raid blackouts.  The United States adopted it in 1918 as a result of our joining in on the war.  Daylight saving time was repealed in the United States after the war ended in 1919.  During World War II, Congress enacted the War Time Act with year round daylight saving time.  This remained in effect until after the end of the war when daylight saving time was once again repealed. 

With the escalation of the war in Vietnam, politicians naturally thought we needed to once again have daylight saving time.  The U.S. federal Uniform Time Act became law on April 13, 1966 and it mandated that daylight saving time begin nationwide on the last Sunday in April and end on the last Sunday in October, effective in 1967.

In 1987, the Federal Fire Prevention and Control Act of 1986 moved the beginning of daylight saving time to the first Sunday in April.  Its primary support came from both of the Senators from Idaho based on the premise that during daylight saving time fast-food restaurants sell more French fries, which are made from Idaho potatoes.  Not enough French fries were being eaten so in 2007, daylight saving time was extended another four to five weeks, from the second Sunday of March to the first Sunday of November.

Since daylight saving time moves sunrise one hour later by the clock, late sunrise times become a problem when daylight saving time is observed either too far before the vernal equinox or too far after the autumnal equinox.

The vernal equinox, the first day of Spring, is not until March 20^th.

SBA Loans Are Good For the Economy

February ended with SBA 7(a) loan approvals totaling $392,982,000 for the last week of the month.  This is nice bump up from the $280,012,000 in SBA 7(a) loans for the week ending February 21th and the $302,053,000 in SBA 7(a) loan approvals for the prior week.

Total SBA 7(a) loan approvals for the entire month were $1,323,495,000 in February compared to January's $1,193,005.  

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.

SBA 7(a) Loan Rate Update

Indices:

PRIME RATE= 3.25%
SBA LIBOR Base Rate March 2014 = 3.16%
SBA Fixed Base Rate March 2014 = 5.31%

Lenders can charge up to 2.75% over these indices.