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Thursday, November 6, 2008

Daily observations - LIBOR, we Need you now

What am I talking about?

Well I just heard today that the SBA is seriously considering over the next couple of months to move from prime based pricing to LIBOR based pricing. Below you will find an explanation of what LIBOR is. (London Interchange Bank Offered Rate)

An interest rate at which banks can borrow funds, in marketable size, from other banks in the London interbank market. The LIBOR is fixed on a daily basis by the British Bankers' Association. The LIBOR is derived from a filtered average of the world's most creditworthy banks' interbank deposit rates for larger loans with maturities between overnight and one full year.

The LIBOR is the world's most widely used benchmark for short-term interest rates. It's important because it is the rate at which the world's most preferred borrowers are able to borrow money. It is also the rate upon which rates for less preferred borrowers are based.

So you must be asking why should I care if SBA is prime based or LIBOR based?

The answer in the nutshell is that if LIBOR is the pricing index, then there will be a secondary market for these loans. If we can bring back a secondary market we will once again be able to have aggressive lending in the 7A arena.

So tonight pray for LIBOR, well maybe don't pray but ask persuasively to your guardian angel.

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