The SBA and malingerer

malingerer

(muh-LING-gehr-uhr) 

One who feigns illness in order to avoid work.

From French malingre (sickly).

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TIP OF THE WEEK 

Malingerers thinking they can buy a business should note that the prices of businesses sold as a multiple of either EBITDA or SDE (seller’s discretionary earnings) continue to improve.

According to both the quarterly Pratt’s Stats Private Deal Update and the quarterly IBBA and M&A Source Pulse Survey deal multiples remained at or above 2015 and 2014 levels.

Multiples however do not come close to the 2006 peaks.

If you would like a copy of either the quarterly Pratt’s Stats Private Deal Update or the quarterly IBBA and M&A Source Pulse Survey please let me know.

SBA loans are well suited for business acquisition financing.

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Indices:

PRIME RATE= 4.00%

SBA LIBOR Base Rate April 2017 =3.98%

SBA Fixed Base Rate April 2017 = 6.13%

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SBA 504 Loan Debenture Rate for March

The debenture rate is only 3.04% but note rate is 3.09% and the effective yield is 4.827%.

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AHEAD OF THE YIELD CURVE 

Not a lot of malingerers in the economy as the employment rate continued to fall and the employment participation rate held steady for the month of March.

U.S. payroll gains appeared to slow in March according to the Labor Department on Friday.  Only 98,000 new jobs were created last month.  The change in total nonfarm payroll employment for January was revised down from +238,000 to +216,000, and the change for February was revised down from +235,000 to +219,000. With these revisions, employment gains in January and February combined were 38,000 less than previously reported.

The apparent drop in March was because it was too cold outside.  Hiring tends to show large swings around weather disturbances, and the March report has two such issues to contend with: a storm during the payrolls survey week that dumped 10 to 20 inches over a large swath of the Northeast, and more-seasonal temperatures after an unusually warm February.

Right after the jobs report came out, yields for the 30-year Treasury bond fell 3.2 basis points to 2.958%.

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

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

2014- 3.97

2015- 2.91

2016- 2.32

What does all this mean?

I don’t know.

Last month’s auction of the 30 year Treasury bond ended up with a 3.170 percent high yield that was the highest awarded at auction since September 2014 and 16.5 basis points above the previous month's 30-year bond auction rate.

Minutes from the Federal Reserve Open Market Committee indicated after their last meeting that most participants anticipated that gradual increases in the federal funds rate would continue.

The long end of the yield curve as reflected in the 30 year Treasury bond appear to be enervating such splenetic presentiment by being quiescent.

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OFF BASE

You don’t have to be a malingerer to take this Friday off.

It is Good Friday.  I don’t why the Federal Reserve does not recognize Good Friday as a bank holiday.

It should as its existence can be tied in some ways to Good Friday itself.  

While Good Friday isn't a federal holiday, it is a stock market and bond market holiday.  After being usually closed on Good Friday, 1907 was the final year in which the exchange was open on Good Friday.

That last one was the same year as the infamous Panic of 1907, when the total value of all Big Board stocks plunged by more than a third.   

Traders took it as a sign from God that he didn’t want the exchange open.

By November 1907, the aggregate value of all shares on the NYSE had plunged 37 percent, and at least 25 banks and 17 trust companies collapsed

The crisis ultimately prompted the creation of the Federal Reserve system.

So what is Good Friday?

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."

Goodbye.

The SBA and cerebrate

cerebrate

SER-uh-brayt

To use the mind: to think, reason.

Back-formation from cerebration (act of thinking), from cerebrum (brain).

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TIP OF THE WEEK 

Here is something to cerebrate over.  

The latest FDIC Quarterly Banking Profile indicates that total loans and leases are up 5.3%.

SBA 7(a) lending was up 13% for the quarter ending 12/31/2016.

That’s good news for the economy. 

Just for fun I calculated the correlation coefficient between SBA 7(a) loan volume and GDP for over six years using the Microsoft CORREL function.  It came out to a statistically significant 0.86.

Financial results for the fourth quarter of 2016 are included in the FDIC's latest Quarterly Banking Profile.  Let me know if you would like a copy of the latest FDIC Quarterly Banking Profile.

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SBA has changed SBA form 2462 the franchise addendum.  The SBA Addendum now includes a drop down box and the language regarding termination of the SBA Addendum has been clarified.  

Make sure you have the latest version of this addendum now required for ALL franchise loans unless the franchisor has an SBA Negotiated Addendum with a 2015 or 2016 date.  If you have a negotiated addendum you can then use SBA form 2463 the franchisor certification. 

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Indices:

PRIME RATE= 3.75%

SBA LIBOR Base Rate March 2017 =3.81%

SBA Fixed Base Rate March 2017 = 6.07%

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SBA 504 Loan Debenture Rate for February

The debenture rate is only 2.82% but note rate is 2.868% and the effective yield is 4.607%.

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AHEAD OF THE YIELD CURVE 

Some cerebration is necessary amongst the splentic presentiment on the economy and interest rates.

According to the University of Michigan its Consumer Sentiment Index has been higher during the past three months than anytime since March 2004.  The gain represents the result of an unprecedented partisan divergence, with Democrats expecting recession and Republicans expecting robust growth.  While the expectations of Democrats and Republicans largely offset each other, the overall gain in the Expectations Index was due to self-identified Independents, who were much closer to the optimism of the Republicans than the pessimism of the Democrats.

So Democrats are expecting recession and Republicans are expecting robust growth.

What does the Federal Reserve think?

Bond traders are now pricing in odds above 75 percent that Federal Reserve policy makers will raise interest rates when they meet in two weeks, but there is still plenty of data to chew on before then.

On Friday, the Labor Department will release its report on jobs for the month of February.  While the Fed does not respond to just one report, they would like to see something trend-like to support a hike.  The labor market began 2017 on a high note as U.S employers added 227,000 jobs in January.  This was the most in four months.

Keep your eyes and ears open for Thursday’s auction of 30 year Treasury bonds.  Results were quite solid for last month's 30-year bond auction with the yield at 3.005 percent, 9.1 basis points above the January auction yield and 83.3 basis points higher than the 2016 July auction low.  The 30-year yield has increased by about 15 basis points over the past week.

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:

DEC17- 1.62

DEC18- 2.13

DEC19- 2.44

DEC20-2.63

DEC22- 2.91

DEC23- 3.01

What does all this mean?

I don’t know.

Eurodollar futures imply a quiescent Federal Reserve will not estivate.

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OFF BASE

Next week begins with Daylight Saving Time.  It ends with Saint Patrick Day on Friday.  

The first day of Spring follows on Monday.

It sounds like there should be a holiday somewhere in there as our next holiday recognized by the Federal Reserve is not for another two and a half months!

This is longest break in bank holidays of the year.

According to the Federal Reserve, here are our remaining holidays for 2017:

Memorial Day May 29

Independence Day July 4

Labor Day September 4

Columbus Day October 9

Veterans Day November 11

Thanksgiving Day November 23

Christmas Day December 25

The SBA and repletion

repletion

ri-PLEE-shuhn

The condition of being completely filled or satisfied.

Via French, from Latin replere, from re- (back, again) + plere (to fill), from plenus (full).

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TIP OF THE WEEK 

SBA wants repletion with its Standard Operating Procedures, SOP 50-10-5(I) that became effective January 2, 2017.

Not included however in the new SOP just released is even newer guidance on processing affirmative responses for “an Associate of Poor Character”.  That guidance is reflected in a recent procedural notice that came out two weeks BEFORE tehe effective date of the new SOP.  Got that?

Guidance on SBA 504 debt refinance is also not found in the new SOP.  It is instead reflected in a policy notice from last November allowing for the Financing of “Business Operating Expenses” up to an 85% LTV.

Otherwise, SBA expects that the SOP should be arrant and not frustraneous. 

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Indices:

PRIME RATE= 3.75%

SBA LIBOR Base Rate December 2016 =3.63%

SBA Fixed Base Rate December 2016 = 5.71%

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SBA 504 Loan Debenture Rate for January

The debenture rate is only 2.80% but note rate is 2.847% and the effective yield is 4.585%.

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AHEAD OF THE YIELD CURVE 

The bond market felt no repletion to start the New Year.  A splentic presentiment over a recrudescence of interest rates created a little trichotilloania.

On Thursday, the yield for the 30-year Treasury bond dropped eight basis points down to 2.965%, its largest drop since July 5.  Data pointed to lackluster private-sector jobs growth a day ahead of the government’s official December employment report.

When the jobs report came out, Treasury yields rose, reversing the earlier drop, after official data showed average hourly earnings for American workers accelerated sharply last month.  Fixed-income investors focused on hourly earnings, which accelerated more swiftly than economists’ had anticipated. Wages increased by 0.4% last month, raising the yearly rate to 2.9%.

Rising wages are seen as a harbinger of inflation because companies typically raise the price of their goods to offset the increase.

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

December                                                                                          156,000

November                                                                                         204,000

October                                                         135,000

September                                                   208,000

August                                                          167,000

July                                      252,000

June                                     292,000

May                                       11,000

April                                     123,000

March                                   186,000

February                             244,000

January                               172,000

2015     2,740,000

2014     3,116,000

2013     2,074,000

2012     2,193,000

2011      2,103,000

2010     1,022,000

2009     -5,052,000

2008     -3,617,000

2007    1,115,000

2006     2,071,000

2005     2,484,000

2004     2,019,000

What does all this mean?

I don’t know.

The latest payrolls tally brought the advance for 2016 to 2.16 million, after a gain of about 2.7 million in 2015. The streak of gains above 2 million is the longest since 1999.

The 30-year T-bond yield rose 4.3 basis points to end the day at 3.01%.

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

The 30 year Treasury bond is very sensitive to inflationary expectations.  Last month’s auction had the highest awarded yield of the year and was 25 basis points above the November auction rate and nearly 1.00 percentage point above the July yearly auction low of 2.172 percent.

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OFF BASE

If time off for the holidays created a sense of repletion, you can look forward to a three day weekend.

According to the Federal Reserve, here are our holidays for 2017:

Birthday of Martin Luther King, Jr. January 16

Washington's Birthday February 20

Memorial Day May 29

Independence Day July 4

Labor Day September 4

Columbus Day October 9

Veterans Day November 11

Thanksgiving Day November 23

Christmas Day December 25

Happy New Year

The SBA and burke

burke

buhrk

1. To murder by suffocation.

2. To silence or suppress.

3. To avoid or bypass.

After William Burke (1792-1829), who killed people to sell their bodies for dissection. His preferred method was smothering so as to leave the body unmarked and suitable for dissection. He was captured, hanged, and on the judge's orders, his body was publicly dissected.

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TIP OF THE WEEK 

A burking  enervation of the guidance on affiliation and franchises is in the new Standard Operating Procedures, effective January 1^st, 2017.  The intractable trichotillomania over eligibility should grow quiescent.

SBA will no longer review franchise and license agreements to determine affiliation.  Instead SBA will require the SBA Addendum to the Franchise Agreement.  Every loan applicant who is subject to a franchise or license agreement will have to have this document executed.  No more franchise registry.  No more franchise findings list.

Additional guidance on credit elsewhere and fee relief for Veterans are in the SOP

SBA expects that the SOP should be arrant and not frustraneous.

In other words, there is no reason to be pervicacious and oppugned to SBA loans.

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Indices:

PRIME RATE= 3.50%

SBA LIBOR Base Rate December 2016 =3.63%

SBA Fixed Base Rate December 2016 = 5.71%

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SBA 504 Loan Debenture Rate for November  

The debenture rate is only 2.57% but note rate is 2.6147% and the effective yield is 4.357%.

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AHEAD OF THE YIELD CURVE 

The latest report on jobs burked any splentic presentiment over a bigly recrudescence of interest rates.

According to the Bureau of Labor Statistics, total nonfarm payroll increased by 178,000 in November.  This follows a 142,000 increase in October.  In November, the year-over-year change was 2.25 million jobs.  Keep in mind over 2.25 million  jobs were lost in just four months in early 2009.

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

October                               142,000

September                         208,000

August                                 167,000

July                                      252,000

June                                     292,000

May                                         11,000

April                                     123,000

March                                   186,000

February                             244,000

January                               172,000

2015     2,740,000

2014     3,116,000

2013     2,074,000

2012     2,193,000

2011      2,103,000

2010     1,022,000

2009     -5,052,000

2008     -3,617,000

2007    1,115,000

2006     2,071,000

2005     2,484,000

2004     2,019,000

What does all this mean?

I don’t know.

While jobs continue to grow, there is some weakness.

The change in jobs for October, the last report before the Presidential  election, was revised down from 161,000 to 142,000.

Despite the strong headline number, a lackluster reading on average hourly earnings, which slumped 0.1% in November, helped weigh on Treasury yields by dampening inflation expectations.  The 30 year Treasury bond, which is most sensitive to inflationary expectations, gained in price as its yield dropped 5.2 basis points to 3.057%.  The Federal Reserve meets next week.  Just before their meeting, there will be an auction of 30 year Treasury bonds.  At the last auction in November demand was weak and the yield of 2.902% was a hefty 43.2 basis points above the previous month’s auction rate.  Inflation has generally been moving up, and most of these measures are at or above the Fed's target.

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OFF BASE

Only 20 days until Christmas.  Since Christmas this year falls on a Sunday, the next day, the 26^th will be a bank holiday.

That means we are finally celebrating Boxing Day.  Boxing Day is a holiday celebrated throughout the United Kingdom and Commonwealth nations on the day following Christmas Day, when servants and tradesmen would traditionally receive gifts known as a "Christmas box" from their masters, employers or customers. 

It began as a way of showing others less fortunate that we cared for them.  Sounds like something we should all be doing.

SBA 7(a) Loan Rate Update

PRIME RATE= 3.50%
SBA LIBOR Base Rate November 2016 = 3.53%
SBA Fixed Base Rate November 2016 = 5.04%

Lenders can charge up to 2.75% over these indices.

The SBA and bigly

bigly

big´ly

In a tumid, swelling, blustering manner; haughtily; violently.

Of uncertain origin, possibly from a dialect of Old Norse, bugge meaning big man

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TIP OF THE WEEK 

A bigly enervation of the guidance on affiliation and franchises should be in the new Standard Operating Procedures.  The intractable trichotillomania over eligibility should grow quiescent.

SBA expects that the SOP should be arrant and not frustraneous.

In other words, there is no reason to be pervicacious and oppugned to SBA loans.

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Indices:

PRIME RATE= 3.50%

SBA LIBOR Base Rate October 2016 =3.53%

SBA Fixed Base Rate October 2016 = 4.86%

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SBA 504 Loan Debenture Rate for October

The debenture rate is only 2.21% but note rate is 2.249% and the effective yield is 4.261%.

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AHEAD OF THE YIELD CURVE 

There does not appear to be splentic presentiment over a bigly recrudescence of interest rates.

There was strong demand at the last auction of 30 year Treasury bonds.  The 2.470 percent high yield was just a half of a basis point below the yield awarded at the prior auction and 29.8 basis points higher than the record low set in the July auction.  Long term bond yields continued to climb after comments by Federal Reserve Chair Janet Yellen suggested there may be benefits in letting inflation run higher than the current target of 2% in order to stimulate the economy.

Inflation has for years been dormant in the U.S., which is a key reason the Fed has held off on raising interest rates in 2016. That’s led investors to seek longer-dated debt, which offers higher yields but is more sensitive to inflation expectations. In one sign of investor complacency, the real U.S. 30-year yield -- which subtracts the level of inflation based on the core Consumer Price Index -- is hovering near the lowest level since 1980.

One of the Fed’s leading indicators on inflation is capacity utilization which measures the amount of a plant that is in use at factories, mines and utilities .  The Federal Reserve recently reported that capacity utilization for September edged up 0.1 to 75.4 percent after having dropped in August.

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- 78.8

2015- 76.5

What does all this mean?

I don’t know.

Capacity utilization at 75.4% is 4.61% below the average from 1972 to 2015 and below the pre-recession level of 80.8% in December 2007.  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.

The BLS reported that the seasonally adjusted CPI for all urban consumers rose 0.3% (3.6% annualized rate) in September. The CPI less food and energy rose 0.1% (1.4% annualized rate) on a seasonally adjusted basis.  According to the Federal Reserve Bank of Cleveland, the median Consumer Price Index rose 0.2% (2.1% annualized rate) in September. The 16% trimmed-mean Consumer Price Index also rose 0.2% (2.1% annualized rate) during the month. The median CPI and 16% trimmed-mean CPI are measures of core inflation calculated by the Federal Reserve Bank of Cleveland based on data released in the Bureau of Labor Statistics' (BLS) monthly CPI report.

Inflation has generally been moving up, and most of these measures are at or above the Fed's target

Keep your eyes and ears open for Friday’s preliminary estimate of third quarter Gross Domestic Product.

Impecunious concerns will motivate the Federal Reserve but they might festinate.

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OFF BASE

Is bigly really a word? 

During the presidential debate, Donald Trump used the word “bigly” several times.  It seemed like he was trying to use it as an adverb of the word big to mean great sized, not huge, but definitely large.  Like his hands or so he claims.

But that’s not the correct usage of the word (unless the Donald meant violently and boastfully) if you look at a brief history of bigly.  This adverb came into use around 1400 and stuck around for roughly 500 years. It has been used two different ways over the centuries.

The first meaning was to mean “with great force or violently or strongly.” It appeared in such fashion in the classic King Arthur tale Le Morte d’Arthur, published way back in 1485: “So roughly and so bigly that none might withstand him,” wrote Sir Thomas Malory.

The second meaning, which has been more popular in recent centuries, means “boastfully, haughtily or proudly.” Thomas Hardy put it to use in his 1874 novel Far From the Madding Crowd: “I don’t see that I deserve to be put upon and stormed out for nothing, concluded the small woman bigly.”

Sorry about my bigly use of words.