Key Drivers

• The prime rate is currently 6.75% and rising. The increase in the prime rate compresses the variable-rate loan floor, leading to higher monthly repayment costs on SBA 7(a) loans, which in turn reduces the creditworthiness of small business borrowers.
• The yield curve spread is 0.35% and has narrowed. The negative yield curve spread compresses bank net interest margins, leading to a decrease in bank risk appetite, which results in tighter underwriting standards on small business lines of credit.
• C&I standards for large firms are tightening at a rate of 8.1% per annum. The tightening of C&I standards for large firms leads to credit crowding out, causing banks to reallocate capital to lower-risk large borrowers, thereby reducing allocations to small firms.
• C&I standards for small firms are tightening at a rate of 6.6% per annum. The tightening of C&I standards for small firms reduces the creditworthiness of small business borrowers, leading to a decrease in lender cash-flow coverage ratios, which in turn reduces credit availability.
• Jobless claims are currently 215,000 and rising. The increase in jobless claims signals a decrease in consumer spending, which reduces retail/service small business revenue projections, leading to tighter lender cash-flow coverage ratios and reduced credit availability.
• Business applications are currently 112,090 and trending downward. The decline in business applications reduces the demand for credit, leading to a decrease in lender risk appetite, which results in tighter underwriting standards and reduced credit availability for small businesses.