The SBA and the Fed

Today, the Federal Open Market Committee said that it will continue to keep interest rates “exceptionally” low for an "extended period."

The key language about rates stayed the same: "The Committee ... continues to anticipate that economic conditions, including low rates of resource utilization, subdued inflation trends, and stable inflation expectations, are likely to warrant exceptionally low levels of the federal funds rate for an extended period."

EXCEPTIONALLY low interest rates for an EXTENDED period already exist with a 504 loan. Currently the effective yield on a 504 debenture is only 4.93% and this rate is fixed for twenty years.

On September 14th, the Small Business Lending Bill comes up for a vote in the Senate. Should the legislation pass, the exceptional benefits of 504 financing can be extended to refinance owner-user real estate debt.

For a copy of the Federal Reserve’s press release go here:
http://www.federalreserve.gov/newsevents/press/monetary/20100810a.htm

While the rate on a SBA 7(a) loan is typically variable and adjusts on a quarterly basis, it would appear that based upon the Fed statement today, rates are not going up any time soon.

The Fed has not raised the Fed Funds rate until unemployment drops significantly. Based on the the Fed's own forecasts of the unemployment rate and inflation, the Fed will probably not raise the Fed Funds rate until late 2011 at the earliest.

SBA 7(a) Weekly Lending Update

As of August 5, $11,289,219,000 in SBA 7(a) loans have funded. That is a $136,783,000 increase over the prior week.

SBA 7(a) Rate Update

Indices:
PRIME RATE= 3.25%
SBA LIBOR Base Rate August 2010 = 3.30%
SBA Fixed Base Rate August 2010 = 5.67%
A SBA 7(a) loan can go 2.75% above these indices.

The SBA and ending the recession one VOTE at a time

Still hope for the Small Business Jobs bill?

Just before adjourning late Thursday night, Senator Harry Reid filed a series of cloture motions to set up votes on the small business bill on Tuesday, Sept. 14. Reid withdrew all pending amendments, reoffered a substitute and moved to block any further amendments. More >

The SBA and ending the recession one employee at a time

Another 131,000 people lost their jobs in July according to the Department of Labor.

The Census Bureau said it let go about 144,000 of the people conducting the decennial population count from mid-June to mid-July. It still had about 200,000 temporary workers on staff as of July 17, indicating additional cuts to come that will keep distorting the payroll figures for months.

For that reason, economists say private payrolls will be a better gauge of the state of the labor market for much of 2010. Private payrolls that exclude government agencies rose by 71,000 last month, after a June gain of 31,000. Total employment fell a revised 221,000 in June.

According to Intuit, small businesses hired about 40,000 people last month. That means more jobs are being generating by small business than any other part of the economy.

That trend of small business hiring however has recently slowed. This slowdown coincides with the expiration of SBA loan Recovery ACT stimulus incentives such as an increased guarantee for lenders participating in the SBA 7(a) loan program. SBA 7(a) lending volume has also slowed since the expiration.

The SBA and ending the recession one VOTE at a time

The Senate heads toward its August recess without completing work on a small-business bill, despite ample floor time spent on the measure and wide bipartisan agreement on the details.

The bill (HR 5297), a priority of the White House, remains in limbo because of a continuing dispute over which amendments will be considered and partisan procedural wrangling over other issues.

The SBA and ending the recession one VOTE at a time

It does not look like the Senate will even get to the Small Business Jobs Creation bill today.

See here- http://www.congressmatters.com/story/2010/8/5/2423/-Today-in-Congress

Even if they do, it sounds like it would be filibustered to death.

See here- http://www.news-press.com/article/20100805/BUSINESS/8050354/1014/BUSINESS/Help-for-small-biz-on-hold

The SBA and ending the recession one VOTE at a time

It doesn't sound like anything is going to happen today with the Small Business Jobs bill. So no movement on SBA loans legislatively.

The Senate schedule will be consumed by the Supreme Court nomination of Kagen and legislation on funding for teachers. This legislation, known as HR 1585, make come up for a vote to invoke cloture.

Here is something interesting about cloture-

Senate rule XXII-
[I]f that question [cloture] shall be decided in the affirmative by three-fifths of the Senators duly chosen and sworn... then said measure, motion, or other matter pending before the Senate, or the unfinished business, shall be the unfinished business to the exclusion of all other business until disposed of.

That means that if they invoke cloture on the motion to to concur in the House amendment to the Senate amendment to H.R. 1586 (deep breath), then you can't start any other new business during any of the 30 post-cloture hours being used for debate. And that would include filing for cloture on the Kagan nomination or HR 5297, our Small Business Jobs Bill.

I got all this from here -

http://www.congressmatters.com/

SBA Loan Basics for Borrowers- What is the rate on a SBA loan?

So what is rate on a SBA 504 loan?

The 504 debenture effective yield is now down to only 4.93%. That is a rate fixed for 20 years.

What is a 504 debenture? It is a second trust deed through the SBA typically up to 40% of the purchase price of a building. A bank provides a first for 1/2 the purchase price and a borrower puts down only 10%

So what is effective yield? Is that the same as the interest rate? There are three different rates with a 504 loan-
•Debenture rate
•Note rate
•Effective yield

Debenture buyers are government and corporate bond investors who expect semi-annual payments (twice a year). Debenture rate is the yield to the buyer of that debenture. Borrowers however make monthly payments which is what the debenture note rate is to convert that monthly payment into a semi-annual payment. In addition to the interest that is paid there are on-going fees to keep the 504 program self funding. Those fees added to the note rate make up your effective yield.

This effective yield is now down to an all time low. Borrowers looking to acquire a building for their business (they must occupy at least 51% of it) should seriously consider the 504 program.

SBA Loan Basics for Borrowers- What is the rate on a SBA loan?

So what is rate on a SBA 7(a) loan?

The maximum rate a lender can charge on a SBA 7(a) loan is 2.75% over one of these three indices-
Prime
SBA LIBOR Base Rate
SBA Fixed Base Rate

The prime and LIBOR base rates are variable rates while the fixed base rate is fixed for the term of the loan.

Currently the indices are-

PRIME RATE= 3.25%
SBA LIBOR Base Rate July 2010 = 3.35%
SBA Fixed Base Rate July 2010 = 5.88%

If prime is the index, which is what most lender's use, your rate would be 6% (3.25% + 2.75%)

Here's the answer from the SBA: http://www.sba.gov/mostrequesteditems/CON_FAQ10.html

The SBA and ending the recession one VOTE at a time

The Senate still has not done anything about the Small Business Jobs Act. The Senate calender today will be filled with debate on Elena Kagen's nomination to the Supreme Court.

The Senate did however yesterday pass a resolution urging the Iranian government to release three young American hikers who have been detained in Iran for over a year. UC Berkeley graduates Sarah Shourd, Josh Fattal and Shane Bauer were taken into custody while hiking in in Iraq’s Kurdistan region. There was no mention of what will happen after Iran thumbs their nose at us.

SBA 7(a) Rate Update

Indices:
PRIME RATE= 3.25%
SBA LIBOR Base Rate July 2010 = 3.35%
SBA Fixed Base Rate July 2010 = 5.88%
A 7(a) loan can go 2.75% above these indices.
________________________________________________
504 Debenture Rate for JulyThe debenture rate is 3.80% but note rate is 3.86% and effective yield is only 5.213%.

SBA Loan Basics for Borrowers- What is the term of a SBA Loan?

The term of a SBA 7(a) loan is based upon the use of proceeds-

25 YEARS REAL ESTATE
25 YEARS REAL ESTATE DEBT REFINANCE
10 YEARS EQUIPMENT
10 YEARS WORKING CAPITAL
10 YEARS BUSINESS ACQUISITION
10 YEARS BUSINESS DEBT REFINANCE

The primary benefit of a SBA is that they are typically amortized over a longer period of time than a conventional SBA loan.

ALL SBA LOANS ARE FULLY AMORTIZED!

That means there is no balloon payment.

SBA 7(a) Weekly Lending Update

Through 7/31/2010, $11,152,436,000 in SBA 7(a) loans have been approved. This is only a $125,778,000 increase over the prior week. If annualized that works out to about a six and a half billion dollar annual pace. That well below the seven billion dollars lent out during the 2009 fiscal year.

What's going on? Lenders are waiting to see what happens with the extension of Recovery Act stimulus provisions such as the 90 percent guarantee and the guarantee fee waiver.

The SBA and ending the recession one employee at a time

This morning Intuit said small business employment grew slightly in July generating approximately 40,000 new jobs nationwide in July.

The Intuit Small Business Employment Index shows increasing employment since October 2009, reversing a downward trend that dates back to 2007.

For a complete copy of the report go here-

http://smallbusiness.intuit.com/blog/wp-content/uploads/intuitsmallbusinessemploymentindex_july2010.pdf

The SBA and fimicolous

fimicolous
(fy-MIK-uh-luhs, fuh-)
Living in or growing in animal excrement.
From Latin fimus (dung) + colere (to inhabit).
_____________________________________________________
TIP OF THE WEEK
The fimicolous propensity of Congress revealed itself as the Senate filibustered away HR 5297 the Small Business Lending Act. This bill would have extended the 90 percent guaranty on 7(a) loans as well as extended fee waivers along with an increased 7(a) and 504 program.


Using the filibuster to delay or block legislative action is a cherished tradition dating back to before the Civil War. The name for this tactic for pirating debate actually comes from a Dutch word meaning “pirate”.


In 1917, senators adopted a rule (Rule 22), at the urging of President Woodrow Wilson, that allowed the Senate to end a debate with a two-thirds majority vote, a device known as "cloture."


A successful cloture vote means the Senate would be limited to just 30 more hours of debate, which is a great topper to the 30 days they've already spent on it. It does not really matter since the House is already on summer vacation until after Labor Day.


What the politicians do agree on however is that Small Business will be the engine of job growth which is why this legislation is also referred to the Small Business Jobs Act.


Fimicolous is a wonderful adjective to describe what happens in Washington.
_________________________________________
Indices:
PRIME RATE= 3.25%
SBA LIBOR Base Rate July 2010 = 3.35%
SBA Fixed Base Rate July 2010 = 5.88%
________________________________________________
504 Debenture Rate for July
The debenture rate is 3.80% but note rate is 3.86% and effective yield is only 5.213%.
________________________________________________
AHEAD OF THE YIELD CURVE


It will be Small Business that will be the engine of job growth out of this recession.

This morning Intuit said small business employment grew slightly in July generating approximately 40,000 new jobs nationwide in July, a decrease from June’s revised estimate of 45,000 jobs. Since the growth trend began in October 2009, small business jobs have increased by 330,000. The Intuit Small Business Employment Index shows increasing employment since October 2009, reversing a downward trend that dates back to 2007.

The employment index reflects data from approximately 62,000 small business employers who use Intuit Online Payroll. These smallest employers are important to the economy as they comprise 87 percent of the total U.S. private employer base and employ nearly 20 million people.

Small Business accounted for almost all the jobs created in June. Payrolls had declined by 125,000 in June as the government cut 225,000 temporary workers conducting the 2010 census, Labor Department figures in Washington showed. Employment at all companies rose 83,000.

Keep your eye on Friday’s payroll report from the Department of Labor.
Here is a summary of payroll employment and this week’s interesting little table of data:

June (125,000)
May 431,000
April 218,000
March 230,000
February (36,000)
January (26,000)
2009
December (150,000)
November (11,000)
October (111,000)
September (215,000)
August (201,000)
July (304,000)
June (443,000)
May (322,000)
April (504,000)
March (699,000)
February (651,000)
January (655,000)
2008
December (681,000)
November (597,000)
October (423,000)
September (403,000)
August (127,000)
July (67,000)
June (100,000)
May (47,000)
April (67,000)
March (88,000)
February- (83,000)
January- (76,000)


What does all this mean?

The pace of hiring signals it will take years for the world’s largest economy to recover the more than 8 million jobs lost during the recession that began in December 2007.

Don’t be deceived by the jump in payrolls for May when they rose by 431,000 since it included a 411,000 jump in government hiring of temporary workers for the 2010 census.
All the new jobs are coming from small business. According to Intuit, 60,000 were added in February, when it seemed that an employment recovery was imminent. Additional hiring dropped steadily during the spring, to 40,000 in April and 32,000 in May. Another payroll company, Automatic Data Processing Inc., painted an even gloomier picture, saying that small businesses lost 1,000 jobs nationwide in June.

While correlation is not causation, the drop in small business hiring coincidences with the expiration of the SBA loan Recovery ACT stimulus measures.

Interest rates will stay low for, as the Federal Reserve likes to say, for an extended period.
_________________________________________________
OFF BASE

Which would you rather have -- a million dollars, or Joe Oliver's head full of nickels?

That was the question Brett Boone once asked while playing for the Cincinnati Reds with teammate Joe Oliver. At the time, Joe had what was believed the biggest head in all of baseball.

The distinction now goes to Giants manager Bruce Bochy.

His cap size is 8 ¾ which is half a dozen sizes bigger than the average 7 3/8.

When he was finally called up to the majors in 1982, his bigger-than-normal hat size caused him trouble. After arriving in New York, he could not find a helmet to fit him and had to wait until his was rushed up from Tidewater before he could play.

Throughout his 14 years as a catcher in organized ball, Bochy wore the same batting and catching helmets. Both helmets were specially made in 1975, his first year in A ball with the Covington Astros. The batting lid was so huge that when he made a game-winning hit late in the '86 season, his Padres teammates celebrated by filling it with ice and a six-pack.

That large head of Bochy’s seems to be filled with knowing the rules of the game.

Last week Dodgers hitting coach Don Mattingly, who had to take over after Joe Torre had been thrown out of the game, went to the mound for a chat with Dodger reliever Jonathon Broxton. Mattingly took a few steps back off the dirt toward the dugout before turning around to answer a question from the Dodger first baseman.

Bochy and his pumpkin head came out to protest that Mattingly's about-face constituted a second trip to the mound. The umpires huddled and agreed, and Broxton had to leave the game. Broxton who had 19 saves and the week before had finished off the National League’s win in the All-Star Game, by rule was forced from the game with one out, the bases loaded and the Dodgers holding a one-run lead. Without their All Star pitcher the Dodgers gave it up and the Giants rallied to win, 7-5.

Rule 8.06 of the Official Baseball Rules stipulates a trip to the mound begins when a manager or coach crosses the foul line and ends when he leaves the 18-foot dirt circle surrounding the pitcher’s rubber. Returning to the dirt constitutes a second trip, at which point the pitcher must be removed.

SBA Loan Basics for Borrowers- What is a SBA Loan?

WHAT IS A SBA LOAN?
A loan guaranteed by the Small Business Administration, an agency of the Federal Government

TWO TYPES OF SBA LOANS
7(a) Loan
504 Loan

SBA 504 Loan is for Real Estate Purchase and Construction
A 504 loan consists of a bank 1st deed of trust and a SBA 504 debenture in second trust deed position

A SBA 7(a) loan is one loan made by a bank and guaranteed by the SBA.

A SBA 7(a) loan can be used for:
Real estate purchase
Real estate debt refinance
Business debt refinance
Equipment purchase
Working capital and inventory
Business acquisition

Are we headed to a double dip recession?

Are we headed to a double dip recession?

It sounds like it according to the Economic Cycle Research Institute.

Check this out-

http://www.dailyfinance.com/story/investing/double-dip-recession-one-reliable-measure-says-its-inevitable/19568906/

The SBA and ending the recession one VOTE at a time

The Senate was unable to reach agreement on HR 5297 and the Majority Leader said there will be no more votes until next week. The House recesses tomorrow.

Check out these links-

http://voices.washingtonpost.com/plum-line/2010/07/dems_will_get_blamed_for_gop_o.html

http://www.nytimes.com/2010/07/30/us/politics/30cong.html?_r=1

The SBA and ending the recession one VOTE at a time

The Senate just ended debate for the night. A cloture vote is scheduled for 10:40 AM EST tomorrow.

Watching C-Span was not too encouraging because both parties were complaining about the other, and the bill was not brought to a vote tonight. The issue is that Republicans want to add their own amendments, and when they do, Democrats want to add more of their amendments. Republicans are objecting to the added Democratic amendments, and so on.

The two Senators that voted for cloture on the amendment(Lemieux and Voinovich) which added the $30B Small Business Lending Fund have threatened to withhold their votes for the overall bill unless Republicans were given the ability to offer amendments. It is unclear if this will be allowed. It is clear that these two Republicans were supporting their party, but you would have to guess that if they voted for the most controversial part of the small business bill, they would vote for the bill itself.

The SBA and ending the recession one VOTE at a time

Call your Senators' offices NOW and tell them to pass H.R. 5297!

Just dial 202/224-3121 and ask for your Senator's office.
This is the Small Business Lending Bill that provides for an increased SBA 7(a) and 504 loan program.

It will also by amendment provide for a 90% guaranty on 7(a) loans and continued fee waivers.

The vote is expected possibly today.

If you don’t make this call, you have no one to blame.

The SBA and ending the recession one VOTE at a time

This is the latest from NAGGL-
During this afternoon's Senate consideration of HR 5297, Senator Reid said on the floor that he hopes the Senate will complete work on this bill and all amendments by the end of tomorrow. He also indicated that there was now an agreement with Republican members to offer three amendments.

Tomorrow's Senate action on HR 5297 will require several procedural moves needed to adjust the amendment tree from last week, to allow Republicans to offer up to 3 amendments, and to allow for the introduction of a new substitute amendment that would add Sens. Landrieu/LeMieux small business lending fund amendment and Sen. Lincoln's $1.5 billion in agricultural disaster relief to the bill. [A substitute amendment is an amendment that would strike out the entire text of a bill or other measure and insert a different full text.]

After meeting with congressional leaders from both parties today, President Obama was quoted as saying, "I hope that in the coming days, we'll once again find common ground and get this legislation passed. We shouldn't let America's small businesses be held hostage to partisan politics -- and certainly not at this critical time."
If the Senate meets the Majority Leader's goal of completing work and voting on HR 5297 by the close of business tomorrow, the bill will then return to the House, where it would either:

Be voted on as amended by the Senate, or
Go to conference with House and Senate representatives working to iron-out their differing perspectives on the bill.
It remains too early to know how that scenario will play out. Should the path lead to a lengthy conference between the House and Senate, the legislation could languish. The House adjourns this Friday, July 30 until September 13.

The SBA and ending the recession one VOTE at a time

Still pending in the Senate is HR 5297. This is the bill that will increase SBA 7(a) and 504 loan sizes as well as once again increase the guarantee for a 7(a) loan to 90% and waive the SBA guarantee fee. A vote should hopefully occur soon. Right now the Senate is mulling over an unrelated bill S 3628.

If you want to watch the happenings you can if you go here-

http://www.c-span.org/Watch/C-SPAN2.aspx

The SBA and Best Local Banks

You might want to check this article on Best Local Banks and how more and more lenders are getting into SBA lending.

Go here- http://bestlocalbanks.com/

SBA 7(a) Weekly Lending Update

As of July 23rd, $11,026,658,000 in SBA 7(a) loans have been approved by SBA. While this is a significant increase over last year and is also above the levels of 2008, only $109,800,000 in new loans were approved last week. The current pace is well below historical levels as a result of the loss of recovery act provisions such as the increase guarantee of 90% and the SBA guarantee fee waiver.

SBA 7(a) Rate Update

Indices:
PRIME RATE= 3.25%
SBA LIBOR Base Rate July 2010 = 3.35%
SBA Fixed Base Rate July 2010 = 5.88%
A 7(a) loan can go 2.75% above these indices.
________________________________________________
504 Debenture Rate for July
The debenture rate is 3.80% but note rate is 3.86% and effective yield is only 5.213%.

The SBA and ending the recession one VOTE at a time

There are several more steps that must be completed before the full bill (including SBA Recovery Act extensions and program enhancements) is voted on in the Senate. From the Senate, HR 5297 will have to go back to the House. Once in the House, it remains unclear the path the bill would take: there could be a conference committee between the House and Senate to wrangle over provisions, or whether the House will accept the Senate version as is.

The SBA and ending the recession one VOTE at a time

The ball in now in the Senate's court to pass H.R. 5297 this week.

This is the Small Business Jobs Bill that provides for an increased SBA 7(a) and 504 loan program. It will also hopefully by amendment provide for a 90% guaranty on 7(a) loans and continued fee waivers.

The legislation is currently short of the 60 votes needed to end debate.

SBA 7(a) Weekly Lending Update

As of July 16th, $10,916,858,000 in SBA 7(a) loans have been approved. This is a significant increase of $194,501,000 over the prior week as borrowers and lenders continue to take advantage of the guaranty fee waiver. Funding for the fee waivers are still available through the SBA's Recovery queue.

The SBA and mortmain

mortmain

(MOHRT-mayn)
1. The perpetual ownership of property by institutions such as churches.
2. The often stifling influence of the past on the present and the living.

from Latin mortua manus (dead hand).

Imagine a B-movie scene of a dead hand stretching out of a grave and you have the picture of the word mortmain. The idea behind mortmain is of a dead hand reaching beyond to hold a property in perpetuity. By extension, the word describes the past dictating the present in an oppressive manner.

Unlike the passing of an asset to a child on the death of a parent, institutions such as churches hold property forever. Over time, through donations, etc., they can acquire a large amount of real estate which cannot be distributed or revert to the crown. Also, in such cases there is a loss of revenue from inheritance tax. The English King Edward I passed the Statutes of Mortmain in 1279 and again in 1290 to limit such holding of property in perpetuity without royal authorization.
_____________________________________________________
TIP OF THE WEEK

Congress wants the estate tax to pay the mortmain that memory levies on human beings.

In case you haven't heard, Senators Lincoln (D-AR) and Kyl (R-AZ) are at it again. Back in April 2009 they teamed up on Senate Amendment 873, which called for a $5 million federal estate tax exemption and 35% estate tax rate and passed in the Senate by a 51-48 vote. But nothing came of this or any of the other measures that were introduced in 2009 and so on January 1 the federal estate tax was officially repealed. There has been no federal estate tax since then.

Late on Tuesday Lincoln and Kyl teamed up once again to introduce a proposal that calls for an amendment to H.R. 5297, commonly referred to as the Small Business Lending Bill.

This is the bill that will increase the maximum size of SBA 7(a) and 504 loans from $2 million to $5 million. As amended by the Senate, this legislation would also provide a commensurate increase in the statutory maximum guaranteed portion of SBA 7(a) loans along with elimination of borrower fees on 7(a) and 504 loans through December 31, 2010.

Senators Lincoln and Kyl want to add their measure, phasing in a top rate of 35 percent, with a per-person exemption of $5 million, to the small business legislation. The House passed an estate tax bill that would set a top rate of 45 percent, with no tax being owed for an individual with an estate worth less than $3.5 million.

The issue could derail the Small Business Lending Bill because some Democrats say it would add substantially to the massive federal deficit, while benefiting a small number of multimillionaires. Congress goes on summer vacation on August 9 and won’t return until September 13.
_________________________________________
Indices:
PRIME RATE= 3.25%
SBA LIBOR Base Rate July 2010 = 3.35%
SBA Fixed Base Rate July 2010 = 5.88%
________________________________________________

504 Debenture Rate for July
The debenture rate is 3.80% but note rate is 3.86% and effective yield is only 5.213%.
________________________________________________
AHEAD OF THE YIELD CURVE

Global warming might actually be a good thing.

Last month was the eighth- warmest June in 116 years, according to the National Climatic Data Center. The corpulent masses needed their air conditioning and industrial production in the U.S. rose in June as higher temperatures across the nation led to increased utility use.

Utility output rose 2.7 percent, while production at manufacturers declined 0.4 percent. Overall output at factories, mines and utilities increased 0.1 percent last month after a 1.3 percent gain in May, figures from the Federal Reserve showed.

The Fed’s report showed U.S. capacity utilization, which measures the amount of a plant that is in use, held at 74.1 percent last month

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- 69.9

2010- 73.2

What does all this mean?

Talk of the Federal Reserve raising rates is premature.

One of the Federal Reserve’s favorite gauges of inflationary pressure is the capacity utilization rate. 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.

Without the boost from utilities, industrial production would have definitely slumped, the first time since August. The August capacity level of 69.9 was the lowest on records dating back to 1967.

While the capacity utilization rate is 5.9 percentage points above the rate from a year earlier it is still 6.5 percentage points below its average from 1972 to 2009.

We still have a long ways to go.

_________________________________________________
OFF BASE

The debate over an estate tax is doing more than killing legislation on SBA loans.

It made the Yankees kill George Steinbrenner.

Think about it.

When the Senate allowed the estate tax to lapse at the end of last year, it encouraged wealthy people near death's door to stay alive until January 1 so they could spare their heirs a 45% tax hit. Now the estate tax will come roaring back in 2011. Not only will the top rate jump to 55%, but the exemption will shrink from $3.5 million per individual in 2009 to just $1 million in 2011, potentially affecting eight times as many taxpayers.

The math is ugly: On a $5 million estate, the tax consequence of dying a minute after midnight on Jan. 1, 2011 rather than two minutes earlier could be more than $2 million; on a $15 million estate, the difference could be about $8 million.

By dying last week, the billionaire and long-time New York Yankees owner's wealth avoids the federal estate tax, likely saving his heirs enough money to field an entire team of Alex Rodriguez.

Forbes magazine has estimated Steinbrenner's estate at $1.1 billion. The federal estate tax in 2009 was 45 percent, with the $3.5 million per-person exemption. If he had died last year, his estate could thus have faced federal taxes of almost $500 million, depending on how the estate was structured.

The Steinbrenners therefore are expected to avoid what happened to the family of Chicago Cubs owner P.K. Wrigley after he died in 1977. The family was forced to sell the Cubs to the Tribune Co. four years later to pay the taxes on Wrigley's estate.

This is not crazy people talk but actually Nobel Prize winning thinking.

In 2001 two economists won the prize in economics for their conclusions that people find a way to postpone their deaths if that would qualify them for a lower rate on the inheritance tax. I actually have a copy of that work "Dying to Save Taxes: Evidence from Estate Tax Returns on the Death Elasticity," National Bureau of Economic Research Working Paper No. W8158, March 2001.
Death elasticity.

SBA 7(a) Rate Update

Indices:
PRIME RATE= 3.25%
SBA LIBOR Base Rate July 2010 = 3.35%
SBA Fixed Base Rate July 2010 = 5.88%________________________________________________
504 Debenture Rate for July
The debenture rate is 3.80% but note rate is 3.86% and effective yield is only 5.213%

SBA 7(a) Weekly Lending Update

As of July 9th, the SBA approved $10,722,357,000 in SBA 7(a) loans. That is an increase of only $87,619,000 over the prior week. While it was only a four day work week due to the Fourth of July holiday, approvals still only averaged $21,904,750 a day, the lowest since SBA started tracking this stuff.

The SBA and ending the recession one employee at a time

It will be small business that leads us out of the recession, but not anytime soon.

Intuit Inc., which provides payroll services for small employers, says the nation's tiniest companies had fewer new hires last month than any time since October.

To calculate its estimate of national hiring, Intuit uses payroll information from its 56,000 small-business customers. The company defines small businesses as those with fewer than 20 employees. Intuit's data show that small businesses hired just 18,000 additional workers last month. That's still positive territory, but it's less than a third of the 60,000 that were added in February, when it seemed that an employment recovery was imminent. Additional hiring dropped steadily during the spring, to 40,000 in April and 32,000 in May. Another payroll company, Automatic Data Processing Inc., painted an even gloomier picture, saying that small businesses lost 1,000 jobs nationwide in June.

While correlation is not causation, the drop in small business hiring coincidences with the expiration of the SBA loan Recovery ACT stimulus measures. SBA loan volume has declined to a snail's pace.

SBA 7(a) Weekly Lending Update

As of July 2nd, $10,634,738,000 in SBA 7(a) loans were approved. That's $132,849,000 for the week. If annualized, that works out to just under $7 billion, well below historical borrowing volume.

SBA 7(a) Rate Update

Indices:
PRIME RATE= 3.25%
SBA LIBOR Base Rate June 2010 = 3.35%
SBA Fixed Base Rate June 2010 = 6.24%________________________________________________
504 Debenture Rate for June
The debenture rate is 3.88% but note rate is 3.94% and effective yield is only 5.29%

The SBA and ending the recession ONE LOAN AT A TIME

We have closed another loan.

This time it was a $605,800 SBA 7(a) loan to an accountant that refinanced his real estate purchase money note and reimbursed him for tenant improvements and provided additional working capital.

In the last ten years we have closed $754,794,299 in SBA 7(a) and 504 1st trust deeds.

SBA 7(a) Weekly Lending Update- SBA loans fall off the cliff

As of June 25, 2010, the SBA has approved $10,501,889,000 in SBA 7(a) loans. This is only $182,711,000 in loans over the last two weeks. This is a pace slower than the dark days of 2009 when SBA 7(a) lending came almost to a standstill.

What has happened? Lenders are waiting for the 90% guaranty and guaranty fee waiver to come back.

The SBA and surcease

surcease
(suhr-SEES)
noun: Stoppage, especially a temporary one.
verb tr., intr.: To bring or come to an end.
From Middle English sursesen/surcesen, via French from Latin supersedere (to refrain from), from super- + sedere (to sit).
_____________________________________________________
TIP OF THE WEEK

Is it a surcease in falling commercial real estate values?


The Moody’s/REAL All Property Type Aggregate Index measured a 1.7% price increase in
April. Since the low in prices recorded in October of 2009, prices have rebounded 4.7%.
The peak of the index occurred in October 2007 and prices are currently
41.1% below the peak.

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

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SBA Loan Recovery ACT provisions have come to a surcease thanks to our politicians.

Legislation failed by a 57-41 vote. That means no increased guarantee or fee waiver.
Democrats needed 60 votes to overcome the GOP fillibuster of the bill.
The bill will now be pulled, according to Democratic leadership aides.
This leaves many groups in flux, including the jobless who have lost their safety net.

Despite the expiration of these Recovery ACT provisions SBA loans still provide an attractive financing option and are available.
_________________________________________
Indices:
PRIME RATE= 3.25%
SBA LIBOR Base Rate June 2010 = 3.35%
SBA Fixed Base Rate June 2010 = 6.24%
________________________________________________

504 Debenture Rate for June
The debenture rate is 3.88% but note rate is 3.94% and effective yield is only 5.29%.
________________________________________________
AHEAD OF THE YIELD CURVE
SBA Loan Recovery ACT provisions are not the only government stimuli with surcease.

Purchases of new homes in the U.S. fell in May to a record low as a tax credit expired, showing the market remains dependent on government support. Sales collapsed a record 33 percent to an annual pace of 300,000 last month from April, the fewest in data going back to 1963. New-home sales are considered a timelier barometer of the market than purchases of previously owned homes, which account for about 90 percent of the housing market. New home sales are counted when the contract is signed. A report last week showed sales of previously owned homes unexpectedly fell in May, adding to concern the retrenchment following the end of the tax incentive will be deeper than anticipated. Existing house purchases, calculated when a contract closes, dropped to a 5.66 million annual rate, the National Association of Realtors said.

Will this extend to the labor market? Payrolls rose by 431,000 in May, including a 411,000 jump in government hiring of temporary workers for the 2010 census. Those workers were temporary are now being let go.



Keep your eye on Friday’s payroll report from the Department of Labor.


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

June 431,000
April 218,000
March 230,000
February (36,000)
January (26,000)
2009
December (150,000)
November (11,000)
October (111,000)
September (215,000)
August (201,000)
July (304,000)
June (443,000)
May (322,000)
April (504,000)
March (699,000)
February (651,000)
January (655,000)
2008
December (681,000)
November (597,000)
October (423,000)
September (403,000)
August (127,000)
July (67,000)
June (100,000)
May (47,000)
April (67,000)
March (88,000)
February- (83,000)
January- (76,000)


What does all this mean?


The Federal Reserve met last week and as expected they said that they would keep interest rates low are for an “extended period”. What was new and significant in their statement was that they also said “financial conditions have become less supportive of economic growth”.

They had previously been saying “financial market conditions remain supportive of economic growth.”

SBA 7(a) Rate Update

PRIME RATE= 3.25%
SBA LIBOR Base Rate June 2010 = 3.35%
SBA Fixed Base Rate June 2010 = 6.24%
________________________________________________
504 Debenture Rate for June
The debenture rate is 3.88% but note rate is 3.94% and effective yield is only 5.29%.

The Federal Reserve Open Market Committee just indicated that they will continue to keep rates low for an "extended period."

The savings from a low, variable rate of interest should persist for some time.

Moody's: Commercial Real Estate Prices increase 1.7% in April

Moody's reported today that the Moody’s/REAL All Property Type Aggregate Index increased 1.7% in April, after declining for the previous two months. This is a repeat sales measure of commercial real estate prices.

From Calculated Risk: http://www.calculatedriskblog.com/

The SBA and ending the recession ONE LOAN AT A TIME

We have funded another loan.

This time it was a $1,100,000 SBA 7(a) loan to refinance equipment debt. As a result of the longer term amortization available from the SBA loan, the borrower- a video production company in Orange County, improved its cash flow by $10,936 per month.

In the last ten years we have closed $754,188,499 in SBA 7(a) and 504 1st trust deeds.

Senate rejects "Tax Extenders" bill, including SBA loan Recovery Act provisions

The Senate effectively rejected a slimmed-down package of jobless benefits and state aid late Thursday, rebuffing President Obama's call for urgent action to bolster the economic recovery. HR 4213 includes a $620 million appropriation that would extend the SBA loan Recovery Act provisions. There will be no votes today (Friday) in the Senate, and right now it is unclear what the next steps might be for HR 4213.

SBA 7(a) Rate Update

PRIME RATE= 3.25%
SBA LIBOR Base Rate June 2010 = 3.35%
SBA Fixed Base Rate June 2010 = 6.24%
________________________________________________
504 Debenture Rate for June
The debenture rate is 3.88% but note rate is 3.94% and effective yield is only 5.29%.

SBA 7(a) Weekly Lending Update

As of June 11, 2010, the SBA has approved $10,319,178,000 in SBA 7(a) loans. This is an increase of $101,319,000 over the previous week. Through the same period last year, $5,366,723,000 in SBA 7(a) loans had been approved. Volume has almost doubled with the increased guarantee and waiver of the guarantee fee.

When will the Fed raise rates?

Some think the Fed won't raise rates now until late 2011.

According to Calculated Risk, the Fed has not raised the Fed Funds rate until unemployment drops significantly. Based on the the Fed's own forecasts of the unemployment rate and inflation, the Fed will probably not raise the Fed Funds rate until late 2011 at the earliest.

Check it out at http://www.calculatedriskblog.com/2010/06/when-will-fed-raise-rates.html

The SBA and vellicate

vellicate
(VEL-i-kayt)
1. To twitch or to cause to twitch.
2. To pluck, nip, irritate, etc.
From Latin vellicare, frequentative of vellere (to pull, pluck, or twitch).
Our government continues to vellicate SBA lenders and borrowers with their abulia (extra word bonus- abulia- abnormal lack of ability to act or to make decisions).
_____________________________________________________
TIP OF THE WEEK
On June 8, the Senate began its consideration of its substitute amendment to H.R. 4213, the "American Jobs and Closing Tax Loopholes Act of 2010," which was passed by the House of Representatives of May 28. The Senate is expected to vote this week on its version of the extenders package (technically the Senate substitute amendment to the House amendment to the Senate amendment), and Senator. Charles Schumer (D-NY) has predicted that the measure will pass.


The bill before the Senate is very similar to the bill passed by the House. Both bills include many revenue raisers, such as a crackdown on carried interest (how those rich hedge fund guys make their money) making it all but certain that the bill will again be returned to the House.


The bill would extend the American Recovery and Reinvestment Act small business lending program that eliminates the fees normally charged for loans through the SBA 7(a) and 504 loan programs and increases the government guarantees on 7(a) loans from 75% to 90%.


If a lender needs the 90% guaranty, they need to wait for this new legislation. The loan queue is only for the guaranty fee waiver.


If you don’t think this makes a difference, note that only $59,936,000 in 7(a) loans were approved the other week. The week before that SBA 7(a) loan volume had soared to $732,010,000 for the week as stimulus provisions for the 7(a) program ran out of time and money.


Congress is off today however as it is FLAG DAY.
_________________________________________
Indices:


PRIME RATE= 3.25%
SBA LIBOR Base Rate June 2010 = 3.35%
SBA Fixed Base Rate June 2010 = 6.24%
________________________________________________

504 Debenture Rate for June


The debenture rate is 3.88% but note rate is 3.94% and effective yield is only 5.29%.
________________________________________________
AHEAD OF THE YIELD CURVE

Many people think there might be a double dip dragging the economy back down as federal stimulus spending expires. Almost all the new job growth last month was due to census hiring.
Payrolls rose by 431,000 last month, including a 411,000 jump in government hiring of temporary workers for the 2010 census.


May's unemployment report may have been disappointing, but the economy was picking up steam based on an increase in commercial truck traffic and diesel fuel sales, according to the latest Ceridian-UCLA Pulse of Commerce Index. Coming from UCLA, you know that it’s for real. The index rose 3.1% last month — the biggest one month increase since February 1999. In April it fell 0.3%. The West showed the second biggest jump — up 3.8% — after the East North Central, which saw traffic surge 6.2%. The Pulse of Commerce is based on real-time data of diesel purchases across the country. It has proven to be strongly correlated to the economy — when business is up, more trucks are transporting goods and vice versa.


Keep your eye on Wednesday’s release by the Federal Reserve on Industrial Production and Capacity Utilization.


Industrial production in the U.S. rose in April by the most in three months. The Fed’s report showed capacity utilization, which measures the amount of a plant that is in use, rose to 73.7 percent last month, the highest since November 2008, from 73.1 percent in March. Back in August it was 69.9. The August capacity level was the lowest on records dating back to 1967.


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- 69.9
2010- 73.2


What does all this mean?


Talk of the Federal Reserve raising rates is premature.


One of the Federal Reserve’s favorite gauges of inflationary pressure is the capacity utilization rate. 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.
Capacity utilization rates are 3.7 percentage points above the rate from a year earlier, but capacity utilization at 73.7% is still far below normal - and 9.1% below the the pre-recession levels of 80.5% in November 2007.


The economy is recovering but not fast enough to create the kind of hiring needed to reduce unemployment.


The Federal Reserve meets next week on interest rates and it looks like they will continue to keep rates low for as they put it “an extended period”.

_________________________________________________
OFF BASE

Today is Flag Day.

Flag Day commemorates the adoption of the flag of the United States, which happened that day by resolution of the Second Continental Congress in 1777.

Exactly 177 years later, on June 14, 1954 President Dwight D. Eisenhower signed a bill into law that places the words "under God" into the United States' Pledge of Allegiance.

For those that don’t buy into that, keep in mind that also on this day in 1648 Margaret Jones was hanged for witchcraft- the first such execution for the Massachusetts colony.

It all makes sense as today is also Bourbon Whiskey Day as on this day in 1789 the Reverend Elijah Craig, a Baptist preacher, distilled the very first bourbon whiskey ever.

SBA 7(a) Weekly Lending Update

As of June 4, 2010, the SBA has approved $10,217,859,000 in 7(a) loans. This is an increase of $59,936,000 over the last week. The week before that SBA 7(a) loan volume had soared to $732,010,000 for the week as stimulus provisions for the 7(a) program ran out of time and money.

With SBA 7(a) lending now at a virtual standstill, legislation is still pending to extend the stimulus provisions of an increased guarantee and waiver of the guaranty fee.

The SBA and ending the recession ONE LOAN AT A TIME

We have funded another loan.

This time it was a $1,697,200 SBA 7(a) loan for the ground up construction of a new Kentucky Fried Chicken in Wildomar. This will be the second location for the borrower.

In the last ten years, we have closed $753,088,499 in SBA 7(a) loans and 504 1st trust deeds. That is over ONE BILLION dollars in total project costs.

As Coach John Wooden once said, "Don't mistake activity for achievement."

SBA 7(a) Rate Update

Indices-
PRIME RATE= 3.25%
SBA LIBOR Base Rate June 2010 = 3.35%
SBA Fixed Base Rate June 2010 = 6.24%

SBA 7(a) Weekly Lending Update

As of May 31, 2010, the SBA has approved $10,157,923,000 in 7(a) loans compared to $4,998,225,000 through the same period last year.

Average loan size was just over $258,000.

Currently, the maximum SBA 7(a) loan is $2,000,0000.

The SBA definition of a small business is net profits after taxes less than $3,000,000 and the net worth of the company less than $8,500,000.

The SBA and pretermit

pretermit

pree-tuhr-MIT

1. To let pass without mention.
2. To suspend or to leave undone.

From Latin praetermittere (to let pass), from praeter (beyond, past) + mittere (to let go, send).
_____________________________________________________
TIP OF THE WEEK

Congress has pretermited the fate of SBA lending.

On Friday, the House of Representatives passed the American Jobs and Closing Tax Loopholes Act (HR 4213) by a vote of 215–204. The trouble lies in the fact that it was the last day of the week, with a very long holiday weekend stretching before Congress.

The bill now goes to the Senate, which will not take it up for consideration until after it returns from its Memorial Day recess on June 7.

The bill contains authorization extensions through the end of the year and an appropriation to extend fee reduction and higher guarantee.

Until then, the recovery loan queue is open.
_________________________________________
Indices:
PRIME RATE: 3.25%
SBA LIBOR Base Rate May 2010 = 3.28%
SBA Fixed Base Rate May 2010 = 6.48%
________________________________________________
504 Debenture Rate for May
The debenture rate is 4.11% but note rate is 4.17% and effective yield is only 5.52%.
________________________________________________
AHEAD OF THE YIELD CURVE
The Federal Reserve Open Market Committee does not meet for another three weeks.

They will continue to keep interest rates low, as they put it, for an “extended period” until the economy shows definite signs of recovery.

One of the most visible signs will be jobs.


Keep your eye on Friday’s payroll report from the Department of Labor.

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

April 290,000
March 230,000
February (36,000)
January (26,000)
2009
December (150,000)
November (11,000)
October (111,000)
September (215,000)
August (201,000)
July (304,000)
June (443,000)
May (322,000)
April (504,000)
March (699,000)
February (651,000)
January (655,000)
2008
December (681,000)
November (597,000)
October (423,000)
September (403,000)
August (127,000)
July (67,000)
June (100,000)
May (47,000)
April (67,000)
March (88,000)
February- (83,000)
January- (76,000)

What does all this mean?

The economy has lost 1.4 million jobs over the last year, and 7.8 million jobs since the recession started in December 2007. For the current recession, employment peaked in December 2007, and this recession is by far the worst recession since WWII in percentage terms, and 2nd worst in terms of the unemployment rate (only early '80s recession with a peak of 10.8 percent was worse).
When the numbers do come out on Friday, look at it closely.

A government boost to hiring is already under way at the Census Bureau. The agency said it will take on about 970,000 temporary workers from April through June to conduct the population count that occurs every 10 years. It will be important to remove the Census hiring to try to determine the underlying trend. The Census Bureau will release the actual number with the employment report.
_________________________________________________
OFF BASE

All those census workers hired are going door-to-door to roughly 48 million households that did not mail back their forms.

The word 'census' originates in ancient Rome from the Latin word 'censere' (meaning ‘estimate’). Perhaps the best known census was the one that forced Mary and Joseph to go to Bethlehem. The U.S. Census is mandated by the Constitution primarily to allocated congressional representation.

The last census in 2000 estimated that US population at 281,421,906, an increase of over 32,000,000 from 1990. With the population growing by almost three million people per month, it is estimated that at least 150,000 new jobs should be generated monthly just to keep up with a growing population.

Census data can also be used for all sorts of queries.

In two centuries, the country’s most common names have not changed all that much. Smith is still the best name for signing into a hotel anonymously. Johnson has moved up a notch to second. And the top five at the turn of the 18th century are still in the top six.

Over 147 people named Smith have played major league baseball. The one with the best nickname is Phenomenal Smith. Phenomenal Smith was born John Francis Gammon and got his nickname when he struck out 16 batters in a game in 1885 while pitching for the Newark Domestics, with no batter hitting the ball out of the infield.

Having been nicknamed "Phenomenal", he reportedly claimed that he was so good that he didn't need his teammates to win. While playing for the Brooklyn Grays, his team decided to punish him for his perceived brash and cocky demeanor by intentionally committing 14 "errors", losing the game 18-5. The intentional misplays of his teammates soon caused Smith to be released from the team.

SBA Reactivates Recovery Loan Queue as Funding Is Exhausted

SBA has reactivated its Recovery Loan Queue today. The queue will operate in the same manner as when originally implemented in November 2009.

Here is the notice from SBA-

http://www.sba.gov/idc/groups/public/documents/sba_homepage/news_release_10-32.pdf

SBA 7(a) Weekly Lending Update

As of May 22, 2010, the SBA has approved $9,425,913,000 in SBA 7(a) loans since October 1st, 2009. This compares to only $4,788,315,000 through the same period last year.

25% of the loans approved so far this year has been for start-up businesses. Two years ago almost 40% of SBA 7(a) loans were for start-ups.

SBA Rate Update

7(a) Indices
PRIME RATE: 3.25%
SBA LIBOR Base Rate May 2010 = 3.28%
SBA Fixed Base Rate May 2010 = 6.48%________________________________________________
504 Debenture Rate for May
The debenture rate is 4.11% but note rate is 4.17% and effective yield is only 5.52%.

FDIC Quarterly Banking Profile

The FDIC released the Q1 Quarterly Banking Profile today. The FDIC listed 775 banks with $431 billion in assets as “problem” banks in Q1, up from 702 banks with $403 billion in assets in Q4, and 305 banks and $220 billion in assets in Q1 of 2009.

Bump in the Road for Commercial Real Estate Values

The Moody’s/REAL All Property Type Aggregate Index measured a 2.6% price decline in commercial properties in February. This decrease comes on the heels of three consecutive months of rising prices, and brings the level of commercial property prices 41.8% below the peak measured in October 2007. Values are now down 25.8% from a year ago, and 41.6% from two years ago.

For a copy of the report, drop me an email.

The SBA and fugacious

fugacious
(fyoo-GAY-shuhs)
Lasting a very short time.
From Latin fugere (to flee) which also gave us other words such as fugitive
_____________________________________________________
TIP OF THE WEEK

On February 17th , 2009, SBA’s secondary market program for First Lien Position 504 Loans (“Program”) was established by statute in Section 503 of the American Recovery and Reinvestment Act of 2009 (the “Recovery Act” or the “Act”).

On November 5th , 2009 SBA published the guide for the Secondary Market First Lien Position 504 Loan Pool Guarantee Program.

On May 13th , 2010, the SBA announced the start of the Secondary Market First Lien Position 504 Loan Pool Guarantee Program.

On July 15th, 2010, the first loan pools are expected to be ready for sale.

On February 16th, 2011 the Secondary Market First Lien Position 504 Loan Pool Guarantee Program terminates.

If that sounds fugacious, keep in mind that there are only 10 working days left until Recovery Act SBA loan provisions providing an increased guarantee and fee reductions expire.
_________________________________________
Indices:

PRIME RATE: 3.25%

SBA LIBOR Base Rate May 2010 = 3.28%

SBA Fixed Base Rate May 2010 = 6.48%
________________________________________________
504 Debenture Rate for May

The debenture rate is 4.11% but note rate is 4.17% and effective yield is only 5.52%.
________________________________________________
AHEAD OF THE YIELD CURVE

Did you notice that the SBA LIBOR base rate jumped up this month?

Historically, LIBOR rates have consistently been about three percentage points less than the Prime Rate.

In November of 2008, the SBA LIBOR base rate was provided as the secondary market for 7(a) guaranteed portions died when LIBOR and PRIME rates actually converged.

Now LIBOR is once again acting up.

30 day LIBOR is at .34 percent while 90 day LIBOR is at .45 percent. This is at the highest level since last August. The rate was as high as 482 basis points in 2008 during the global credit crisis.

The fear and paranoia extend to the long end of the yield curve.

Last week a $16 billion sale of 30-year bonds drew a yield of 4.49 percent. The yield has dropped from 4.77 percent at the last sale of the securities on April 8.

The bond’s average yield was 4.49 percent from Dec. 31, 2007, through Sept. 12, 2008, just before the collapse of Lehman Brothers.

It is now at 4.32 percent.

Here is what the 30 year bond has been doing:
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

What a minute, why no numbers for 2003, 2004, and 2005?

One month after the 9/11 attacks, the Treasury 30 year bond is discontinued. When the Treasury mothballed the 30-year bond in 2001, experts speculated it was trying to drive down long-term interest rates, which had remained stubbornly high while the Federal Reserve was slashing short-term interest rates to revive the economy. When the Treasury discontinued the 30-year bond in 2001, its yield fell 35 basis points in one day. Why? A shrinking supply of the 30-year Treasury bond caused increased demand to drive rates down.

What does all this mean?

I don’t know. It would appear that the savings from low variable rates of interest should continue for an "extended" period.
_________________________________________________
OFF BASE

The fugacity of one’s life can be predicted based upon a smile.

When researchers Ernest Abel and Michael Kruger from Wayne State University examined the 1952 Baseball Register photos of 230 Major League Baseball players who started playing before 1950, they found the span of their smile accurately predicted their life span. The players were rated as to "no smile" if they stared blankly at the camera, "partial smile" if the muscles around their mouths were only slightly raised and "full smile" if they had a wide grin with both cheeks raised.

The researchers found that the wide-grinning players were half as likely to die in any year compared to non-smilers. As of June, 2009, the players who were deadpan for the cameras lived an average of 72.9 years, those with slight smiles died at age 75 and those with the most beaming smiles lived the longest — 79.9 years. Of the 230 players, 46 players were still alive. The scientists also did a follow-up study to see whether attractiveness correlated with longevity and found that good looks did not add significantly to life span. In any case, far fewer individuals had full smiles — 23 — than partial (64) or no smiles (63).

So smile, you'll live longer.

SBA Lending is the ONLY Government Program That Works

According to the Congressional Oversight Panel's recent report on the government's efforts to stimulate lending to small business, nothing is working with one notable exception- SBA lending.

For a copy of the Panel's recent report go here- http://cop.senate.gov/documents/cop-050709-report.pdf

According to the SBA, lending is up over 90%. Check out their report card- http://www.sba.gov/idc/groups/public/documents/sba_homepage/recov_perform_rptcard_04_2010.pdf

SBA Rate Update

504 Debenture Rate for May
The debenture rate is 4.11% but note rate is 4.17% and effective yield is only 5.52%.

SBA Rate Update

Indices:
PRIME RATE: 3.25%
SBA LIBOR Base Rate May 2010 = 3.28%
SBA Fixed Base Rate May 2010 = 6.48%

The maximum rate a lender can charge for a 7(a) loan is one of the above indices plus 2.75%

Why did the unemployment rate rise?

Why would the unemployment rate increase in April if payrolls increased so sharply? The short answer: more people are looking for jobs.

From the Wall Street Journal- http://blogs.wsj.com/economics/2010/05/07/why-did-the-unemployment-rate-rise/

How the SBA turned $730 million into $26 billion

The SBA received $730 million in the American Recovery and Reinvestment Act (ARRA) to help unlock the small business lending market and get capital flowing again to America’s small businesses.

With that money, SBA has supported more than $26 Billion in Recovery Loans to Small Businesses.

More detail can be found at http://www.sba.gov/idc/groups/public/documents/sba_homepage/sba_rcvry_aara_imp_factsheet.pdf

The SBA and wieldy

wieldy

(WEEL-dee)

Easily handled or managed.

From Old English wealdan (to rule).
_____________________________________________________
TIP OF THE WEEK
SBA loans are wieldy.

Recovery Act SBA loan provisions providing an increased guarantee and fee reductions expire on May 31st.

There is still time to take advantage.

Pending legislation providing an increased guarantee, continued fee reductions, and increased loan amounts still needs to pass.
_________________________________________
Indices:
PRIME RATE: 3.25
SBA LIBOR Base Rate April 2010 = 3.25%
SBA Fixed Base Rate April 2010= 6.57%
________________________________________________

504 Debenture Rate for April
The debenture rate is 4.36% but note rate is 4.42% and effective yield
is only 5.774%.
________________________________________________
AHEAD OF THE YIELD CURVE

Last week the Federal Open Market Committee said that they would continue to keep rates low for an “extended period.”

One of their reasons is because “employers remain reluctant to add to payrolls”.

That does not seem to be the case with small businesses.

Small businesses added approximately 66,000 new jobs in April and roughly 300,000 new jobs since June 2009, when the upward trend in employment began.

Intuit, the accounting software company, said that small businesses added about 66,000 new jobs in April. Intuit released the monthly report, based on figures from the country's smallest businesses that use Intuit Online Payroll. The Intuit Small Business Employment Index reflects data from approximately 55,000 small business employers who use Intuit Online Payroll.

Keep your eye on Friday’s payroll report from the Department of Labor.
Here is a summary of payroll employment and this week’s interesting little table of data:
March 162,000
February (36,000)
January (26,000)
2009
December (150,000)
November (11,000)
October (111,000)
September (215,000)
August (201,000)
July (304,000)
June (443,000)
May (322,000)
April (504,000)
March (699,000)
February (651,000)
January (655,000)
2008
December (681,000)
November (597,000)
October (423,000)
September (403,000)
August (127,000)
July (67,000)
June (100,000)
May (47,000)
April (67,000)
March (88,000)
February- (83,000)
January- (76,000)

What does all this mean?

The big increase in jobs last month likely reflected a rebound from the February blizzards that set seasonal snowfall records in cities including Washington and Philadelphia, shuttering some businesses during the week of the government survey. Any hiring that would have taken place that week is figured into the March job count instead. The March increase also included 48,000 temporary workers hired by the government to conduct the 2010 census. The economy has lost 2.3 million jobs over the last year and 8.2 million jobs since the beginning of the current employment recession. Employment peaked in December 2007, and this recession is by far the worst recession since WWII in percentage terms, and 2nd worst in terms of the unemployment rate (only early '80s recession with a peak of 10.8 percent was worse).

Futures on the CME Group Inc. exchange showed a 64 percent chance the Fed will raise its target rate for overnight bank lending by at least a quarter-percentage point by December, compared with 63 percent odds a week ago. The central bank has kept the rate between zero and 0.25 percent since December 2008.
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OFF BASE

Today, May 3rd, in 1899 Tom O'Brien of the New York Giants receives perhaps the first intentional walk in major league history. In the eighth inning, with runners on second and third bases with one out, Ed Delahanty of the Philadelphia Phillies tells teammate pitcher Jack Fifield to walk O'Brien, who has hit well all day. Then next batter, Fred Hartman, hits into a double play.

Intentional walks are normally issued for two reasons: to bypass a good hitter for a weaker one and/or to set up a double play. The usefulness of intentional walks for either reason is a matter of considerable argument, and different managers have taken very different attitudes toward the intentional walk. Walter Alston even changed his attitude in mid-career, moving from issuing 101 (the 8th most ever) in 1967 to just 9 (the fewest ever) in 1974. In 1974 the Dodgers did go on to the World Series.

A walk is only considered intentional if the catcher gives a clear sign that he is calling for an unhittable ball. Normally he does this by standing up instead of crouching and reaching one hand outside. The pitcher then throws the ball toward the catcher's hand, and the catcher steps over to catch the ball.

The single season record for intentional walks came in 2004 when Barry Bonds was intentionally walked 120 times. One of those passes came on April 17th against the Dodgers. In the bottom of the third inning with two outs and a runner on second, Jose Lima intentionally walked Bonds. The next batter popped out and Lima went on to win the game.

The intentional walk it is often referred to as a "four-finger salute". This reference stems from the manager's holding up four fingers to signal an intentional walk to his pitcher or catcher.

The SBA and the Fed- Part II

How long is an "extended period"?

From Calculated Risk http://www.calculatedriskblog.com/

Short answer: Longer than many analysts expect.

First we can compare to the "considerable period" language in 2003:

June 25, 2003: Lowered Rate to 1%, Unemployment Rate peaked at 6.3%

August 12, 2003: “the Committee believes that policy accommodation can be maintained for a considerable period.” Unemployment rate at 6.1%

December 9, 2003: Last statement using the phrase "considerable period". Unemployment rate at 5.7%

January 28, 2004: the Committee believes that it can be patient in removing its policy accommodation. Unemployment Rate 5.7%

May 4, 2004: “the Committee believes that policy accommodation can be removed at a pace that is likely to be measured.” Unemployment Rate 5.6%

June 30, 2004: FOMC raised the Fed Funds rate 25 bps. Unemployment Rate 5.6%

So "extended period" is probably 6+ months after the language changes - the next meeting is June 23rd and 24th, so the earliest rate hike would probably be in December (barring a significant pickup in inflation or rapid decline in unemployment).

The SBA and the Fed

Today, the Federal Open Market Committee said that it will continue to keep interest rates low for an "extended period."

The key language about rates stayed the same: "The Committee ... continues to anticipate that economic conditions, including low rates of resource utilization, subdued inflation trends, and stable inflation expectations, are likely to warrant exceptionally low levels of the federal funds rate for an extended period."

It would appear that the savings from the low interest rates available with the SBA 7(a) loan program should continue for an “extended period.”

So what is the current rate on a SBA 7(a) loan? Here's the answer from the SBA:

http://www.sba.gov/mostrequesteditems/CON_FAQ10.html

Currently, most lenders are offering a rate of Prime plus 2.75%.

For the complete release from the Federal Open Market Committee, go here:

http://www.federalreserve.gov/newsevents/press/monetary/20100428a.htm

The SBA and a gormandizer

gormandizer

(GOR-man-dyz-er)

A greedy person.

From French gourmandise (gluttony). Both a gourmand and a gourmet enjoy good food, but a gourmand is one who eats to excess while a gourmet is considered a connoisseur of good food.

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TIP OF THE WEEK

For SBA loans, the borrower’s ability to repay the loan from the cash flow of the business is the most important consideration in the loan making process.

SBA allows lenders to determine repayment ability through either an analysis of actual cash flow or by using the “rule of thumb” method. “Rule of thumb” cash flow is defined as earnings before interest and taxes, plus depreciation and amortization, less total debt service.

According to the SBA Office of the Inspector General, the “rule of thumb” method should not be used in determining repayment ability for businesses that are on an accrual accounting basis.

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Indices:

PRIME RATE: 3.25

SBA LIBOR Base Rate April 2010 = 3.25%

SBA Fixed Base Rate April 2010 = 6.57%

The maximum rate a lender can charge for a 7(a) loan is one of the above indices plus 2.75%
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504 Debenture Rate for April

The debenture rate is 4.36% but note rate is 4.42% and effective yield

is only 5.774%.

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AHEAD OF THE YIELD CURVE

The Federal Reserve Open Market Committee meets this week and the question is not what they will do but what they will say.


Will they continue to say that they will keep interest rates “exceptionally low” for an “extended period?”

The Fed has repeated the “extended period” language at each meeting since March 2009, over a year ago.

So how long is an extended period?



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:



DEC10- 0.82

DEC11- 2.23

DEC12- 3.35

DEC13- 4.15

DEC14- 4.73

DEC15- 5.11

DEC16- 5.33

DEC17- 5.47

DEC18- 5.60


What does all this mean?



It would appear that the savings from a low variable rate of interest should persist for an “extended period."

The SBA and defenestrate

defenestrate
(dee-FEN-uh-strayt)
To throw someone or something out of a window.
From Latin de- (out of) + fenestra (window).
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TIP OF THE WEEK

Don't defenestrate SBA loans just yet.

The Recovery Act SBA loan provisions have been extended through May 31. New legislation provided $80 million for 7(a) and 504 fee reductions/waivers and the 90% 7(a) guarantees. The $80 million is twice the amount provided for in the April extension.
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Indices:
30 DAY LIBOR: 0.26
90 DAY LIBOR: 0.31
PRIME RATE: 3.25
SBA Fixed Base Rate April 2010 = 6.57%
SBA LIBOR Base Rate April 2010 = 3.25%
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504 Debenture Rate for April
The debenture rate is 4.36% but note rate is 4.42% and effective yield is only 5.774%. ________________________________________________
AHEAD OF THE YIELD CURVE
I guess the recession is not yet over.

Last Monday, the National Bureau of Economic Research’s Business Cycle Dating Committee — the group that determines the start and end dates of recessions — said that it could not yet declare an end to the recession that began in December 2007.
How can that be?

The economy expanded at a 5.6 percent annual rate in the fourth quarter, the most in six years. But if you look closely, inventories provided the biggest boost by adding 3.8 percentage points to gross domestic product, based on data from the Commerce Department in Washington. The danger is that sales won’t rise as much as companies expect, leaving them with more inventory than they need and setting the stage for an economic slowdown later in the year.

Do we face a “significant risk” of a double-dip recession?

It depends on what the Federal Reserve does. The economy may slow as the Fed begins withdrawing a record $1 trillion in excess cash that propped up the banking system during the recession.

But the Fed won’t start doing that until inflation begins to stir.

One of the Federal Reserve’s favorite gauges of inflationary pressure is the capacity utilization rate. 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.

Last week the Federal Reserve reported capacity use advanced 0.2 percentage point to 73.2 percent for the month of March. Back in August it was 69.9. The August capacity level was the lowest on records dating back to 1967.

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- 69.9
2010- 73.2

What does all this mean?

Capacity utilization rates are 3.7 percentage points above the rate from a year earlier, but capacity utilization at 73.2% is still far below normal - and 9.1% below the the pre-recession levels of 80.5% in November 2007.

Talk of the Federal Reserve raising rates is premature.

The long end of the bond market seems to agree. Two weeks ago, the U.S. sold $13 billion of 30-year bonds, the last of four note and bond auctions that week totaling $82 billion. The so-called long bond gained the most in six weeks after a $21 billion sale of 10-year notes drew the strongest demand in at least 16 years. The 30-year bonds sold drew a yield of 4.77 percent. The 30 year bond is now down to 4.67 percent.

It appears that savings from a low, variable rate of interest should persist for an “extended period.”
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OFF BASE

Happy Patriots’ Day.

The perfect holiday to wedge between that long stretch between Washington’s Birthday and Memorial Day has been found.

Monday marked the anniversary of the Battles of Lexington and Concord, the first battles of the American Revolutionary War. It is observed in the Commonwealth of Massachusetts and state of Maine (once part of Massachusetts), and is a public school observance day in Wisconsin. Now it just needs to be a national holiday.

Ralph Waldo Emerson, in his "Concord Hymn", described the first shot fired by the Patriots at the North Bridge that day as the "shot heard 'round the world."

The other shot heard around the world was the game-ending home run hit by New York Giants outfielder Bobby Thomson off Brooklyn Dodgers pitcher Ralph Branca at the Polo Grounds to win the National League pennant in 1951. The Giants won the game 5–4, defeating the Dodgers in their pennant playoff series, two games to one. An article recapping the game in the New York Daily News on October 4 was accompanied by the headline, "The Shot Heard 'Round the Baseball World". The phrase quickly spread to other media, and soon became a widely-recognized slogan for Thomson's homer. It turns out that the Giants had cheated that day. Giants coach Herman Franks with a telescope had stolen the pitching signs of the Dodger catcher, Rube Walker, subbing for the injured Roy Campanella. Franks was positioned in the Polo Grounds center field with a line-of-sight view of the catcher. A buzzer system was installed so that Franks could signal a player in the Giants' bullpen, located on the field of play in deep left field. The player would then signal the batter as to what pitch was coming.