Key Drivers

• The prime rate is currently 6.75% and rising. This increase in the prime rate will compress the variable-rate loan floor, thereby increasing the monthly repayment cost on SBA 7(a) loans for small businesses.
• The yield curve spread is 0.49% and negative. This negative yield curve spread will compress bank net interest margins, leading to a fall in risk appetite and tighter underwriting on small business lines of credit.
• C&I standards for large firms are tightening at a rate of 8.1% per annum. This tightening will lead to large-firm credit crowding out, causing banks to reallocate remaining capital to lower-risk large borrowers, squeezing small firm allocations.
• C&I standards for small firms are tightening at a rate of 6.6% per annum. This tightening will lead to a decrease in the cash-flow coverage ratios used by lenders to evaluate small business loan applications, making it more difficult for small businesses to secure funding.
• Jobless claims are currently 200,000 and rising. This increase in jobless claims will signal a decline in consumer spending, leading to a decrease in retail/service small business revenue projections and tighter lender cash-flow coverage ratios.
• Business applications are currently 130,790 and trending up. This increase in business applications will lead to an increase in competition for funding, causing lenders to tighten their underwriting standards and increase the costs of borrowing for small businesses.