In the Virginia District, which excludes the Virginia counties around Washington, SBA approved 749 loans for a total of $363,332,500 in fiscal year 2018.  How many small businesses might not have been able to expand their businesses, pay off debt, buy new real estate for their businesses etc. if the SBA guarantee did not exist?  Nobody knows, but I can guarantee you that it is a big number.  A bank might receive a request for a loan that they would be inclined to turn down, but if it can get a 75% guarantee from the SBA it might make the loan.  That is the SBA’s mission – to give lenders the incentive to make more small business loans.

SBA loans can be used for any normal day-to-day operating expense such as what you would expect to find on a balance sheet or P&L.  They cannot be used to buy investment properties.  A business must be a for-profit business.  Under the SBA 7(a) program – the major loan guarantee program, there are also special programs for certain industries.  For example for contractors there is the CapLines program which can be used for things like short-term working capital loans and to finance construction costs.  There are several different programs to help finance international trade and exports.  There is another program called the 504 program which is used for fixed asset purchases such as real estate and machinery purchases.  It is a two-part program with the opportunity for a business owner to finance up to 90% of a project.

SBA also provides Resource Partners – SCORE, Small Business Development Centers and Women’s Business Centers that provide free mentoring and low-cost education services to small business owners.  For the near-term foreseeable future we are going to be operating in a very low interest rate environment.  On all SBA loans longer than seven years and over $50,000, the maximum interest rate that can be charged is 2 ¾% over prime.  Opportunities abound.

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Insert or Swipe Card
September 10th, 2019

It’s so easy.  See what you want, pick it up and head for the checkout counter, insert or swipe your credit card in the little reader then out the door.  Slam bam thank you ma’am.  Quick, easy, and adding to the already approximately $1.057 trillion dollars in consumer credit card debt outstanding according to the latest figures available.  During the 2008 recession credit card debt peaked out at about $870 billion.  That very large number did not generate as significantly higher default rates than might have been expected although there were more defaults.  But for those who had high credit card balances during the recession many started paying those balances down.  You pay more on your card to lower the balance, you don’t spend that somewhere else.

So here we are in September of 2019 at the tail end of one of the longest economic expansions in history.  The expansion is slowing, but until December 24th those card readers are going to be humming.  But after Christmas and at the beginning of 2020 people may start looking at those balances and start paying them down again as they did after the 2008 recession.  But this time they are going to be paying them down into an economy that is already showing signs of weakness.

Whose business is going to start to see some of that lower spending?  It’s worth taking a look at.

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The yield curve has inverted before every recession since 1955.  So what is it?  It is simply when interest rates on short-term U.S. Government bonds are higher than the interest rates paid on long-term bonds.  When this happens it’s called an inverted yield curve.  Sometimes it has happened months before, sometimes two years or more.  But it has now happened again.

Think about deposits in a bank account, which are essentially loans to the bank.  You are “loaning” your money to the bank in return for interest on that money.  If you can withdraw the money at any time the bank pays you a lower rate because they may not have the opportunity to use it for very long.  But if you lock up your money for a longer period – for example a 12-month CD, the bank pays you a higher interest rate because they have longer to use that money to make loans.

So when interest rates are higher on short-term bonds than long-term bonds it indicates that investors are looking at the safety of long-term bonds because they are worried about the near-term economic prospects, and because of this the government is having to pay more to short-term investors in order to sell bonds and less to long-term investors.  Recession still seems to me to be too strong a word for what is coming.  The labor market is strong, wages are still rising, plenty of jobs are still available for people who want them and consumers are spending like they don’t have a care in the world.  So a slowdown seems much more likely than any serious recession, and more and more signs are pointing toward a slowdown.  It is on the way.  When, nobody knows.

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