Too Smart for Their Own Good...

It's really Economics 101. When interest rates rise, the value of fixed-rate bonds fall. The financial wizards running the show at the Silicon Valley Bank knew this fact, assuming they passed Econ 101, unless they attended some woke university that did not actually teach economics to Econ majors... even our friends working for the US government understood this foundational fact and published an Investor Bulletin - Interest rate risk — When Interest rates Go up, Prices of Fixed-rate Bonds Fall which you can still download as a PDF: www.investor.gov/sites/default/files/ib_interestraterisk.pdf

Until last year, the long-term trajectory of interest rates has been trending downwards since I graduated from college in 1983, even since I graduated from high school in 1979. I had the good fortune of putting my government-back student loan proceeds into a Money Market Fund at Dean Witter (see, I really was there circa 1980). It was great earning 18% on the funds until my monthly tuition payments were due!

The point is that the wizards at SVB bought long-term bonds with the bank's reserves and when interest rates rose, they literally broke the bank as the value of their portfolio plummeted.

The bad news for we entrepreneurs is that the banking crisis of 2023 will probably result in increasingly tight credit. The domino effect could take out a significant number of our neighboring small business owners.

My concern for leveraged commercial real estate owners is growing as the year unfolds. It will be increasingly difficult for CRE owners to refinance their balloon payments as the Debt Service Coverage Ratios become a greater barrier to loan approvals.

Here are two ideas to give your business an edge in this environment:

1. Many business owners are not even aware that the US Treasury may have a "grant" reserved for them if they had W-2 employees during the COVID crisis. The deadline for applying for a direct deposit directly from the US Treasury into your business bank account from the government is fast approaching. Send me a direct message TODAY if you would like to learn more about this particular life preserver. One of my clients owns a restaurant in Reno with 11 (mostly part time) employees. His deposit for $69k is being processed now!
2. We have funding sources available for financing commercial real estate property purchases and refinancing CRE balloon payments. In addition to our network of banking relationships, we now have access to an Artificial Intelligence powered platform to match borrowers and lenders. Earlier this month, we were shopping for a CRE land buyer and found a lender quoting a construction bridge loan at Prime plus Zero percent (subject to financial underwriting, off course). As noted above, if you want funding, send me a direct message so we can explore what options our network might have available to meet your particular needs.

BONUS Edge: We also have a concierge residential lender in our network who works exclusively for luxury home buyers, not lenders. Our concierge only arranges loans on homes selling for at least a Million dollars. Some of the results we have seen are simply astounding. Let me know if you would like to be connected.

About the Author:

Christopher E. Vogt?is a Commercial Real Estate Advisor and Business Broker, CalDRE # 02041739. Chris is a retired Silicon Valley executive and a Certified Financial Planner. He also hosted a radio talk show on computers and technology for over six years. He authored three books published by an imprint acquired by Random House and wrote numerous magazine articles.

The information in this article and bio is believed to be correct as of March 13, 2023.

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