My whole family are mixed martial arts fans.  My son competes in Brazilian Jiu Jitsu and Muay Thai and my daughter practiced Brazilian Jiu Jitsu and Freestyle Striking until an injury forced her to choose between martial arts and soccer.  I dabbled a little in wrestling and boxing.  Even my wife, who has no background in combat sports at all, will watch matches through her fingers (she is of the “can’t we all get along and share our feelings” style of combat.  The rest of the family knows there is no defense for her style and would all rather get punched in the face).   

Our love of martial arts and fighting sports is second only to our frugality (and soccer, but soccer is not a sport, it is as essential as oxygen and food).  We compromised our frugality on December 30, 2016 to watch UFC 207.  The family is fans of Ronda Rousey.  I know some people find her arrogant and cocky. We love her winning attitude and her willingness to promote that attitude to women everywhere.  She has truly been a pioneer for all women’s sports, not just mixed martial arts.  Women sports are finally being recognized, and Ms. Rousey is one of the pioneers.  Thank you Ronda for being an inspiration to my daughter.  Despite my gratitude, $59.99 still seemed like a lot of money to watch people fight, especially when you can watch fights free on Friday nights when the campus bars close.

Wow…the election is over and we have a new President.  Thank heavens!  I am not necessarily thankful that we have a new Commander in Chief and I am not necessarily thankful about the winner.  This blog will probably be one the most apolitical writings you will see during this post-election season.  What I am truly thankful for is that the election nonsense that has been going on seemingly since President Obama was elected in 2012 is finally over.  I am thankful that all of the polling phone calls and TV coverage is kaput.  Hopefully all of the clever bumper stickers will be removed and burned for fuel and hanging out around the office water cooler arguing about changes in the electoral map is over!  Whew!  Now we can get back to business.
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So from a lending perspective, what is the immediate fallout from the election?  Well…nothing really.  Treasury bills bumped up slightly, raising SBA 504 loan 20 year fixed rate to 4.357%.  Why did T-bills go up?  Markets hate the unknown.  Simple as that… I am quite sure rates will “normalize” in the coming months (not that they are abnormal now) and the 504 will become an even better deal.  Business people will continue buying land and buildings.  Lenders will continue hitting the pavement trying to make the loans that allow those business people to buy that land and build those buildings.    It really does not matter if the D’s or the R’s won the election.  As long as there is opportunity, commerce will continue.  And Enterprise Development will be there to support it. 

My office has a great view of Broadway in downtown Columbia, MO.  Being a lender and a business coach, it is neat to watch the hustling commerce of the downtown district with shopkeepers sweeping sidewalks, entrepreneurs heading to coffee shops and roving gangs of dark suited bankers (this is the financial district, after all) scurrying about making deals. 

However, the make-up of downtown has seriously changed over the past few years.  The unofficial city monument is the enormous construction crane, majestically dotting the skyline.  Since downtown is located so close the University of Missouri campus, intrepid developers have built a number of multi-story apartment complexes to serve the needs of the “affluent” student population.  I say affluent, in all honesty, out of a wee bit of jealousy.  During my college years, I lived in a 200 square foot cinder block apartment with three other smelly guys, minimal heat, and no air conditioning.  Obviously, we didn’t have many guest.  .    
     
So, with the injection of students now living in the downtown area, I watch them migrating to campus every morning and the returning home every afternoon.  Those roving gangs of bankers are now competing with bands of millennials, marching together while tethered to their phones, for cross walk space.  Seeing this shift, made me wonder, who are these “millennials” and what do we know about them?
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Generally, millennials are considered to be the generation born between the early 1980’s (Flock of Seagulls, I am a Gen X’er) to the early 2000’s (I lost track after grunge).  The millennial generation is now one of the largest demographic groups in the US, having recently surpassed the Baby Boomers by one million people (77 million to 76 million, respectively).  

?o what are some of the “traits” that separate the millennials from other generations?  According to Inc. Magazine, there are five unique traits that identify the group.  I have added some of my own comments as well, based on my personal experiences.  These traits are:

1. Passionate: Millennials have been told to chase their passion, no matter what it is.  For better or worse, this group is dedicated to search for meaning, no matter where that might lead them or how difficult it might be to find. 
2. Risk-taking: Though millennials seem to be risk takers, statistics do not necessarily bear this perception out.  According to a recent Small Business Administration study (https://www.sba.gov/sites/default/files/advocacy/Millenial_IB.pdf), millennials are the least entrepreneurial generation in history.  They just do not, on average, start as many businesses, a very risky endeavor under any circumstance, as previous generations at their same age. 
   • I do think, however, that millennials are much more willing to risk switching jobs and careers.  Millennials believe that since corporations have no loyalty to them, they should not place any unearned loyalty in their organization.  This also manifests in their lack of brand loyalty.  Studies show that this group will search for the best deals and latest technology, rather than staying with aging brands and outdated tech.  This is certainly a form of risk taking that is unique to their generation (I am loyal to Coca Cola, and I think Pepsi drinkers are just plain odd…  Switching to Pepsi would just be too…risky). 
3. Work-life alignment:  For many millennials, the concept of work-life balance is a lie. They feel that corporate America does not care if they are happy or fulfilled during the week.  This disillusionment with corporate life, despite any compensation they might receive from the job, is not made up for by being fulfilled on the weekend.  Instead, they believe in work-life alignment, or aligning their life passion with their career interests.  They do not wants to spend 50-70 hours a week, which many millennials do, working for something they don't believe in.
4. Spontaneity: Millennials remember the old saying: "no risk no reward." Many are aware of the fear of missing out, and seek rewarding experience over potential consequences. 
5. Travel:  Millennials will sacrifice material things for experiences.  This is clearly illustrated in the “Tiny House” movement.  Many of this generation do not want to burdened with a mortgage and long-term debt.  Rather, they would prefer to live simply, without roots, and be able to move from place to place (and nation to nation) collecting experiences like my mom used to collect spoons with the state’s names on them (I think we had maybe five state spoons…we didn’t travel much).  These experiences can be captured and remembered on their phones, which are used as photo albums, jukeboxes, communication devices, travel planners, and on and on…. 

I wonder what the next generation will bring?  They have already been named Generation Z.  I am sure it will involve teleportation and mutant powers.  I am also sure it will confound the Millennial generation as much as many of the millennials confound me.

​It’s another election year, and I am still not sure my stomach has settle down from the last time we went through this. More months of uncertainty.  More months of waiting 

​Uncertainty and risk are different.  Heck, I can handle risk.  Risk, when properly analyzed, can be mitigated.  Insurance is risk mitigation.  Every business operates with a sense of risk management in their day-to-day operations.  Much of the risk that business owners routinely face has historical data that allows them to manage risk in a cool, calculated, steal-eyed manner.  Just like the gunfighters from the old west.  They sized up the situation, recognized the risk and….BANG! Situation managed, risk mitigated….(which usually meant taking down 15 bad guys with a six-shooter, without reloading…. AAARGH!) (Also, how cool of an action movie tagline would that be?  BAM, RISK MITIGATED).  Ummmm, digressing again I suppose.  Sorry.

​Uncertainty deals with possible outcomes that are unknown and nearly impossible to quantify.  There is an old saying; “You don’t know what you don’t know.”  This old adage fits so perfectly into the current political climate.

Well said, Mr. President, well said.

Roughly one-third of 715 small-business owners surveyed in June 2016 by The Wall Street Journal and Vistage Worldwide Inc. said that uncertainty related to the November presidential election is having a negative impact on their business. Firms have reported delaying hiring, putting off investments or reducing new equipment orders.
The article also quotes Brandon Julio, an assistant professor of finance at the University of Oregon Lundquist College of Business. He states, “Small businesses are more likely to be skittish because they face a higher cost of capital than larger firms and often have more trouble recovering from mistakes.”  Prof. Julio also said that this election “will have a higher degree of uncertainty than those we have seen in the past” because of the sharp differences between Hillary Clinton and Donald Trump, and ongoing questions about what their economic platforms will look like.

We have certainly noticed this at Enterprise Development.  Our loan volume is down and it appears that businesses are a little nervous about the outcome of the election.  I am nervous as well, but I still believe that whatever the result, the next day the economy will continue on the same path it has been.  I cannot imagine a massive collapse if either candidate is elected and, if you ever read any of my other blogs, you know that I love crazy conspiracy theories as much as the next guy (for example, please read my blog “The 504 and the Tin Foil Hat Postulate.”).  

I seems to me, from a commercial lender’s perspective, this is a great time to buy a building.  Think about it, interest rates are crazy low, the economy, though sluggish, is no different than it has been for the past number of years.  Finally, principle and interest payments are usually cheaper than renting, and the owner has a tangible asset rather than just flushing rent money month after month.  If a business’ competitors are holding back, this might be the perfect time to double down, get a 504 loan and expand.  

​The title of the blog comes from an old U2 song and was inspired by Donna Hamilton, the Director of Enterprise Development Corporation.  She was running a 5k race two weekends ago when something extraordinary happened…Relatively early in the race, when the course turned left, much of the pack kept running straight ahead.  The lead group missed the turn sign and everyone just kept going.  Donna alertly noticed the discrepancy and made the proper turn.  Her unwillingness to simply accept whatever the “pack” was doing allowed her to be one of the race’s top finishers.   It was a non-competitive, 1980’s versus 1990’s themed run that featured an overdose of day glow colors, flannel shirts and leg warmers.  The race was sponsored by a local, awesome brewery (Logboat Brewery) so plenty of great beer was flowing.  It maybe wasn’t the Boston Marathon, but as I always say,  a win is a win, so hey…, it was a great finish.  Donna used her legs and more importantly, her head, to pull off the finish.

This story reminded me of our friend the lemming, a small rodent known for following pack leaders straight off a cliff to their doom.  Experts believe that this behavior may be caused by cycles of massive over population followed by a very strong, to put it mildly, urge to reproduce.  They are all thinking the same thing and are following a leader who does not care where they go as long as they get their fast (to be honest, this sounds much like my teenage years). 
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I think the cartoons below are hilarious, but I would not call the lemming in front a leader.  A true leader would never blindly follow a path following some instinct, urging his charges on without contemplating the end game.

​Why then do so many organizational heads, business owners and government officials tend to blindly charge forward and follow trends without contemplating the consequences?    The answer is that many people are wired to follow.  According to a study published in the Telegraph, biologists studying the herding instinct of humans analyzed the road crossing behavior of pedestrians at a crossing in a busy city center. They found that pedestrians were up to 2.5 times more likely cross a busy road if someone else stepped out in front of the traffic first.  In some cases, individuals started to cross before scuttling back to the curb after realizing the danger they were in.  

 
So, how do we avoid running off the business “cliff” when making big decisions, since research indicates we are programmed to follow?  Here are some ideas:

1. Listen to dissenting opinions.  People with dissenting opinions can help clarify an issue.  Rather than simply dismissing an opinion as being negative, probe deeper to determine what that person is seeing that you are not.
2. Talk to your banker, accountant or consultant.  They often have vast experiences that spread across varying industries.  It is quite possible that these professionals have insights based on experiences that might prove invaluable when contemplating a big decision.
3. Sleep on it.  Very few big decisions and directional changes have to be made in haste.  Hasty decisions usually lead to giving “a prince from Nigeria” your bank account number so he can deposit his fortune there.  Please never confuse haste with agility.
4. Listen to your gut.  If you are having doubts, listen to your intuition.  Those doubts manifest for a reason.  Listen to yourself intently to determine what is the cause of the misgivings.
5. Use data.  Sometimes it can seem counterintuitive when someone says “Listen to your gut AND be data driven.” Your instincts usually start kicking in when something might be going wrong.  You can usually make an informed decision by listening to your instincts and then using data to prove or disprove the concern.

Follow some of the above tips to avoid that long run off a short cliff. 

It is 1984. I am driving around in my 1974 Mustang (the year they took all of the cool out of the Mustangs and replaced it with shag carpeting, a weak 4 cylinder motor and hollow carburetors that caused the cars to die when you turned right). I am also quite sure I had an awesome mullet and was listening to Billy Idol and the Go-Go’s on my cassette player.

1984 was also the year that Enterprise Development made a 504 loan to build the Mark Twain Retirement Center in Moberly, MO. Are you ready for a small world, weird coincidence? The owners of the retirement center bought the property from my Maw Maw (country talk for grandma). I grew up on the acreage, sledding down the pasture hills in winter (fun) and processing chickens for Sunday dinners (absolutely no fun at all… Cannot stress this enough, NO FUN AT ALL). We used to hunt squirrels on the property, though not as readily after an angry, bullet riddled squirrel chased me, my dad and my uncle into the house while waving its fists and chattering death threats in squirrelese.

It was weird discovering that Enterprise made this loan. Maw Maw (and the rest of the family) was trying to work the farm after Paw Paw died and it was becoming a giant burden for everyone. When the offer came to buy the property, Maw Maw sold and moved in right next door to my family. It was great having her live next door near me, Mom and Dad.
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We always discuss how much the 504 helps the borrower, which it undoubtedly does, but in this case, it truly helped the seller… my family. Pretty cool.

​We just recently bought a Dyson V6 Animal cordless stick vacuum cleaner, which matches very nicely with our Dyson DC07, which is around 9 years old.  I can remember how old it is because I lost my 4-year-old son Liam, temporarily thank heavens, at a Best Buy while trying to make up my mind if I should shell out the fairly hefty amount to buy the vacuum.  By the way, we found him in about 5 minutes climbing up and jumping off a beautiful new stove in the appliance section.  I was scared to death; he however, was perfectly content on his own playing “Super Mario,” jumping from appliance to appliance using his agility to avoid Gumbas and Dry Bones.”  Here is Liam in the middle of his Super Mario phase, which, sadly, he outgrew.  

​Wistful look, memories and…I’m back.  Sorry.  The point of this blog is the vacuum cleaner.  I am kind of a hard sell.  I am skeptical and curmudgeoney and certainly not an early adopter.  We did, however, buy the Dyson early, before they became massively popular, especially here in the heartland of the United States.  I have no regrets buying either vacuum.  The old DC07 will still suck the chrome off a bumper and the new stick vacuum makes quick work of the kitchen, dining area and the stairs (and wherever Moby the dog decides to sprawl out).  Here are photos of our beloved vacuums. Beloved is probably too strong of a word.  Bruce Williams, a pioneer of talk radio once said, “Never love something that cannot love you back.”  I really try to live by that credo, but these are REALLY good vacuum cleaners. 

I swore this was going to be a mostly Moby the dog free blog, but while attempting to take a photo of the V6 Animal, this occurred:

BOOM!  The photo bomb.  Good boy…That’ll do dog, that’ll do…

The product was great, but why did I choose to adopt it early, rather than wait?  I look back and I remember the catch phrase that James Dyson, the inventor and founder of the company was using in his commercials.  The commercial itself was very informative, but at the end, Mr. Dyson looks at the camera, and in a very proper British accent said “I just think things should work properly.”  Holy cow!  What a unique idea, stuff that actually works the way it is supposed to while making your life easier.  All of the other facts about the product did not inspire me; the cyclonic, bagless system, the built in attachments, the cool futuristic design.  None of those stuck with me, but what got me was Sir James Dyson looking at me and telling me not to settle for something that kind of works.  Things should not only work, but they should work correctly and make lives easier.  Brilliant! 

​Sir James also looked at the commercial hand dryers that you find at nearly every restaurant and convenience store in the country.  Talk about a product that is kind of a piece of junk (if this wasn’t a family friendly blog, I would probably use a different four letter word that better describes the uselessness of this device).  We all know what happens; you dry your hands under the dryer for a moment, while it blows a weak stream of tepid air.  If you are like me, you normally put your hands in the air stream for a few seconds, get frustrated, and wipe your wet hands on your trousers.  You have to be especially careful if you are wearing khaki pants…

My buddy, Tony:  ”Uhm… did you ??? “…(looking down, grinning)

Me:  Slightly red-faced… “What, oh, no way, crappy hand dryer in the bathroom.  Had to wipe my hands on my pants”…

Tony:  ”Yeah, sure you did.”   Then Tony just laughs and laughs.

No matter what angle you view that from, the stupid hand-dryer could never be described as working properly.   
Maybe Mr. Dyson had to wipe his wet hands on his pants one too many times or maybe he had a buddy like Tony, but he puzzled out how to make the hand dryer better.  He developed a device called the AirBlade that works like a squeegee on your hands.  Put your hands in the device and a thin but powerful layer of air (over 400 mph’s of bad#$% power) rushes over the front and back of your hands.  As you pull your hands out of the AirBlade, the air “wipes” the water off your hands.  Once again, bloody brilliant!  Here is a cool picture of the AirBlade.​

​Sorry, feeling a little British today.  “More bangers and mash and a little black pudding today, please.” 

By the way, the thing on the right is not a chocolate dessert, it is literally a “pudding” sausage made from pig’s blood.   The plucky Brits always make do…Yikes….

Sir James has invented a number of other products that work the way they are intended.  Shocking.

So, why all the talk about James Dyson and his cool inventions?  Because they do work properly and it made me think, “everything we do should work properly and if it doesn’t, we should fix it.” 
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I spent part of February redoing the Enterprise Development website.  It was pretty good before, but the navigation was a little wonky and there were some other issues that spoiled the customer experience.  I was part of building the other website, and when these issues were first identified, I became a little defensive.  Once I checked my ego, however, I realized that it was not working properly.  It needed to be “Dysonized.”  We have also worked at “Dysonizing” a number of our other processes as well to make them more efficient and easier for the customer.  We have worked so hard to make the application and approval process for the 504 loan easier and more client friendly.  We have upgraded software to help us better manage our loan portfolio.  Executive Director Donna Hamilton even went to the SBA Loan Processing Center in Sacramento, CA to get a better understanding of how they work and what they are looking for in a loan application.  When she returned, we updated our processes to improve our product.  We are not there yet, but we are diligently moving toward “working properly.” 

I wonder how many of our customers, clients and stakeholders are doing everything they can to ensure they are “working properly?”  Try “Dysonizing”  your business to continue growing and improving over the coming year.  

I have been writing this blog for a few years now and have developed a reasonable following, especially considering it often discusses a very arcane lending program (the SBA 504 Loan Program) or economic factors that influence commercial real estate lending.  One thing that I have noticed is that when I write a blog that includes my dog Moby, I tend to get more readers.  With this in mind, I am going to treat this “wonkie” blog like one of those low budget 80’s movies.  I am going to discuss interest rates for last 13 years and occasionally throw in scenes of gratuitous S&V (slobbering and vigor….. Did you think I meant sex and violence?..... Please, this is a family blog).    The actual title of this blog is “Comparative 504 versus Conventional Commercial Lending Rates.”  Certainly not quite as enticing as “My Dog Ate My Underwear,” but hopefully still informative and enjoyable.
Before I start discussing the data, let me quickly explain the methodology. Boring alarms are going off….Here is a picture of Moby.

Since bond sales determine the 504 loan’s interest rate, historical rates are consistent across the country and very easy to find. The National Association of Development Companies (NADCO), the group that represents companies like Enterprise Development, makes the 504 historical rates readily available.
Finding average commercial interest rates offered by banks required more research and assumptions.  Bank commercial rates vary from market to market and are based on a number of factors, including the prime interest rate, the risk premium required and the competitive market.  I used historical data from the Wall Street Journal to determine the prime interest rate from 2002 to 2015 and then reviewed risk premium data provided by the World Bank.  I then used local knowledge to estimate how the competitive environment affects local interest rates.   
I reviewed January and December 504 rates over the period and then took an average of each to create a composite rate.

The commercial rate was determined by creating a composite rate by adding prime, plus the World Bank’s risk premium estimate and then adjusting the risk premium based on my knowledge of the local competitive environment.  The 2014 and 2015 commercial risk premium is an assumption I made with the knowledge that a number of banks have dropped rates to historically low levels as a response to extreme competition.

I did some ciphering and voila, I could make a reasonable comparison to determine if, historically, the 504 is actually a good deal. 

Sorry about the blah, blah, blahing…. Here is a close up if Moby.

Thankfully, the methodology discussion is over.  By the way, I used to work in academia.  The methodology in this blog compared to academic research methodologies is like comparing “Die Hard” to “Moby Dick.”  Trust me, this methodology is way snappier, which is less a compliment of my writing than an accusation and indictment of the unmitigated dullness of an academic methodology composition.

So, here we go.  The following graph shows January and February 504 rates since 2002.

The graph illuminates that 504 interest rates were higher in the early 2000’s.  This can be explained when considering the events of September 11th, 2001 and the collapse of the real estate market in the late 00’s.  Once the “Great Recession” grabbed the country, rates dropped in an attempt to stimulate economic growth.

And now to keep you reading, here is a provocative picture of Moby.

Alrighty then...  Let's look at a graph that shows average commercial rates and its corresponding parts. 

It is important to remember that conventional commercial rates and 504 rates are tied to different indexes and risk premiums.  Commercial rates are linked to a number of different indexes, but for this example, I used the prime interest rate and an average national risk premium while the 504 loan is tied to Treasury Bills and bond market risk premiums.  Even considering the different make-up between the two, the commercial rates graph shows a similar curve as the 504 graph and it is reasonable to assume the same factors that affected the 504 market affected the commercial market. 

And now, Moby and his stogie…

The following graph directly compares the 504 interest rates to commercial rates.

This data points on this graph are a compendium of national rates and local rates and may not completely represent the rates of any specific bank.  These are national average estimates with a little local flavor thrown in for good measure.  Inarguably, 504 rates have, on average, been lower than conventional rates and really are a good deal for the borrower.  Even when you consider 504 fees, the difference between the two rates is great enough that the 504 makes sense to use in conjunction with a traditional commercial loan.

Finally, here is another compendium of two more things that work in harmony for the betterment of a business owner (me)…

As discussed in an earlier blog, Moby has a compulsion to steal things.  Those things are usually underwear and shoes, but he found my coat irresistible.  And following the gratuitous 80’s movie strategy I have been utilizing throughout this blog, this is our guinea pig Nona (her sister Holly the guinea pig refused to take part in such a dodgy deal).  DON’T FORGET, THE 504 IS GOOD DEAL.  Cut to images of Holly and Moby running along the beach with the surf splashing around them and… Cut…Close scene and…Good job people, that’s a wrap!

I have been either consulting with or lending to small business owners since 1997.  This career has provided an opportunity to work with some very successful people operating very successful companies.  On the surface, many of these businesses do not appear to have much in common.  They are often in different industries, serve different markets and are different sizes.  When looking back at the successful people with very diverse backgrounds, I began thinking about the traits they have in common.  My list is not complete and is certainly not backed by any academic research or rigor.  It is just one guys’ observations over 18 years.  I broke these common traits into the following categories; attitude, communication, customer driven, financial knowledge, leadership and organization.   After I identified these traits, I included some quotes that I like that capture their meaning.