Key Drivers

• The prime rate is 6.75% and rising. This increase in the prime rate compresses the variable-rate loan floor, making monthly repayment costs on SBA 7(a) loans more expensive for small businesses.
• The yield curve spread is 0.41% and negative. A negative yield curve spread compresses bank net interest margins, leading to a decrease 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 of large-firm credit standards leads to credit crowding out, causing banks to reallocate 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 of small-firm credit standards reduces lender confidence in small business revenue projections, tightening cash-flow coverage ratios and making it harder for small businesses to access credit.
• Jobless claims are 208,000 and rising. An increase in jobless claims signals 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 121,000 and trending up. An increase in business applications indicates an increase in entrepreneurial activity, but also signals a potential increase in credit demand, leading to a decrease in credit availability for small businesses as lenders become more cautious.