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Loans, even cheap ones, are a very shity way of "helping" small businesses and individuals. For example, a local restaurant where I live, will have to shut dow

Loans, even cheap ones, are a very shity way of "helping" small businesses and individuals. For example, a local restaurant where I live, will have to shut down for good in the next few days as they won't be able to afford their lease. If they get a loan for the lease, they'll be on the hook for that money with no guarantee of being able to pay it back and with way too much uncertainty in terms of when they'll be able to reopen the business. It would be really bad for them to shut down, but it could be even worse if they take out a loan and then are not able to pay it back. Very bad situation to be in. Same applies to individuals who will soon not be able to pay rent or other obligations. Loans are not a solution.

smallgovt 7y ago
What's a better alternative? Although loans are a bad solution for the type of restaurant you described, they are great solutions for small businesses that have predictable profits, of which there are many.
kortilla 7y ago
This is how all of the other “bailouts” work for industries that everyone gets outraged about. What would you rather see?
- rapind 7y ago
  The amount matters. I'll take a trillion dollar loan at %0 in a heartbeat and quickly become a millionaire via conservative investments. A 20k loan at %0 doesn't do much for me though.
  - andoriyu 7y ago
    With the way market is doing today, all you get with that 1t$ is suffer inflation.
  - conanbatt 7y ago
    What would you invest in right now to make money?
    - tryptophan 7y ago
      Bonds, perhaps corporate ones(yielding 3+% currently), are always a decent choice. Its trivial to make money with 0% loans.
      - conanbatt 7y ago
        If you got a 0% loan last month and bought an S&P bond index and sold now to pay back the loans, congratulations: you just lost 10%.
    - boomboomsubban 7y ago
      With that money, a bank checking account would make you a millionaire in months.
      - conanbatt 7y ago
        APY rates are 0.3% yearly. Not precisely raking it in..
        boomboomsubban 7y ago
        I consider making three billion dollars in a year raking it in.
        conanbatt 7y ago
        You need a trillion dollars to make 3 billion dollars a year with that strategy. Like you could buy Amazon, and have a 100 billion spare still.
        boomboomsubban 7y ago
tathougies 7y ago
They're not giving loans to individuals. Did you bother doing research?
ThisIsTheWay 7y ago
You should read the article. Here are the two paragraphs that explain what's happening. > Now, the Trump administration is asking Congress for roughly $1 trillion in new economic relief as lawmakers begin work on the next phase. And there's growing consensus among Republicans and Democrats that direct payments to Americans will be needed, but how much and when that could happen remains to be seen. > On Tuesday, Treasury Secretary Steven Mnuchin met with Republican senators and said he was working with Trump on the economic package. They are discussing payments to small businesses, loan guarantees for industries like airlines and hotels, and a stimulus package for workers.
- ta1234567890 7y ago
  And from a later New York Times article: > Lawmakers and the White House are already drafting another economic stabilization package that would send direct payments to taxpayers and provide loans to businesses. I hope they do something a lot better than loans for small businesses. Even direct payments won't be enough, unless they give small independent shops money to pay their leases every month until this is over, so they can keep their locations while there is no foot traffic.
i_am_proteus 7y ago
The loan gives them a longer window during which they don't have to shut down. If the business takes a loan and later can't repay it, they go bankrupt. If they can repay it, they stay open. Bankruptcy might result in the loan being discharged and the business remaining open. The alternative is to close immediately and stop paying their workers. If that were my business, I'd take the loan, especially since it's federally guaranteed.
- leetcrew 7y ago
  not every small business is set up as an LLC, although I'd imagine most restaurants are. sometimes you just can't get the loans you need as an LLC; the lenders want an actual person to go after if the business goes under. if I were running a business under a sole proprietorship, I would have to think pretty hard about whether to take the loan or just cut my losses and move on. I do feel it's generally inappropriate for the government to just give money to a privately owned business, but this is an extreme case where businesses are going under as a direct result of actions taken by the government (reasonable as they may be). not sure where I stand on this one.
- smallgovt 7y ago
  SBA disaster loans all require personal guarantees. So, you can't get run away from the debt by declaring business bankruptcy. You'd also have to declare personal bankruptcy.
dcolkitt 7y ago
> Loans, even cheap ones, are a very shity way of "helping" small businesses Really disagree on this point. The primary value of a business is their assets, brands and expertise. All of those things will be just as valuable after the pandemic as they were before. Assets don't just disappear because they're not used. This is just as true for small businesses as it is for big business. Any business that was profitable on Dec 31, 2019, will very likely be profitable on Jan 1, 2021. The biggest challenge for those businesses is surviving operating cash flow losses over the next three months. This is extra challenging in the current environment because financial markets are freezing up. Yes, business owners will eat some loss to their personal wealth. Regardless of what happens there's no way to make up for the fact that the economy is shrinking this quarter. At an aggregate level, we'll all be slightly poorer then we expected to be. The point of a well-structured bailout isn't to make sure that nobody anywhere ever loses money. It's to prevent otherwise healthy businesses from permanently failing due to a temporary disruption in credit markets. If a small business owner loses a year of income it sucks. If an entire small business capsizes, that has widespread economic impact because the economy incurs distress costs and loses its organizational and competitive expertise.
- ksdale 7y ago
  I think you may be underestimating the extent to which a “small business owner loses a year of income” and “entire small business capsizes” are the same thing.
  - chii 7y ago
    If the business gets a loan to last them through the crisis, they will pay it back when they earn money after the crisis. It means they are using future revenue to survive right now. The interest for this loan should be very low and if they default in the future, the govt takes the hit. The hope is that not all businesses will default at the same time, and just like the hospital, these loans flatten the default curve, and prevent the economy from spiralling into a deep depression from these defaults.
    - ksdale 7y ago
OzzyB 7y ago
It's not the loan that's the issue, it's the loan terms. If the terms are zero or near-zero interest for say 5 years then the effects to the business's bottom line would be mute. If the loan is like some loanshark credit card company charging 27% compound with a three month payback, then yeah, bankruptcy is your friend. Remember, countries take out huge loans to pay for wars that are paid back over generations, the UK just finished paying back it's loan for WW2 just recently. These are the kind of loans people/businesses need.
- jamie_ca 7y ago
  If a restaurant is making $2m/y gross, with a 5% profit margin, is $100k/yr profit. If they need to take a loan to cover 3mo of missing revenue, that's $500k. If that loan is an _amazing_ 0 interest over 5 years, the owner basically gets to keep his business name, for 0 profit over 5 years. How is this any better than letting the business go bankrupt, starting a new one next year when the dust settles, and working it back up to profitability in < 4 years?
deleted 7y ago
[deleted]
smallgovt 7y ago
To be clear, this bill doesn't set aside more money to loan to small businesses. It only did two things: - made the existing SBA Disaster Loan program available to businesses affected by CV19 - added $20M to help w/ administration of said loan program There were talks about actually increasing the budget of the SBA loan program by $xxB. This bill did not do that.
stubish 7y ago
It is also bad for their landlord, because the property will be idle until things improve. A landlord is better letting the business shutter for a year and have a paying tenant again when it reopens, than to kick out the tenant and pay the costs in a years time to entice a new tenant in an environment that would be best described as a renters market. If I was the renter, I certainly wouldn't be getting a loan. Renters have a good bargaining position right now.

smallgovt 7y ago

What's a better alternative? Although loans are a bad solution for the type of restaurant you described, they are great solutions for small businesses that have predictable profits, of which there are many.

kortilla 7y ago

This is how all of the other “bailouts” work for industries that everyone gets outraged about. What would you rather see?

rapind 7y ago
The amount matters. I'll take a trillion dollar loan at %0 in a heartbeat and quickly become a millionaire via conservative investments. A 20k loan at %0 doesn't do much for me though.
- andoriyu 7y ago
  With the way market is doing today, all you get with that 1t$ is suffer inflation.
- conanbatt 7y ago
  What would you invest in right now to make money?
  - tryptophan 7y ago
    Bonds, perhaps corporate ones(yielding 3+% currently), are always a decent choice. Its trivial to make money with 0% loans.
    - conanbatt 7y ago
      If you got a 0% loan last month and bought an S&P bond index and sold now to pay back the loans, congratulations: you just lost 10%.
  - boomboomsubban 7y ago
    With that money, a bank checking account would make you a millionaire in months.
    - conanbatt 7y ago
      APY rates are 0.3% yearly. Not precisely raking it in..
      - boomboomsubban 7y ago
        I consider making three billion dollars in a year raking it in.
        conanbatt 7y ago
        You need a trillion dollars to make 3 billion dollars a year with that strategy. Like you could buy Amazon, and have a 100 billion spare still.
        boomboomsubban 7y ago

tathougies 7y ago

They're not giving loans to individuals. Did you bother doing research?

ThisIsTheWay 7y ago

You should read the article. Here are the two paragraphs that explain what's happening. > Now, the Trump administration is asking Congress for roughly $1 trillion in new economic relief as lawmakers begin work on the next phase. And there's growing consensus among Republicans and Democrats that direct payments to Americans will be needed, but how much and when that could happen remains to be seen. > On Tuesday, Treasury Secretary Steven Mnuchin met with Republican senators and said he was working with Trump on the economic package. They are discussing payments to small businesses, loan guarantees for industries like airlines and hotels, and a stimulus package for workers.

ta1234567890 7y ago
And from a later New York Times article: > Lawmakers and the White House are already drafting another economic stabilization package that would send direct payments to taxpayers and provide loans to businesses. I hope they do something a lot better than loans for small businesses. Even direct payments won't be enough, unless they give small independent shops money to pay their leases every month until this is over, so they can keep their locations while there is no foot traffic.

i_am_proteus 7y ago

The loan gives them a longer window during which they don't have to shut down. If the business takes a loan and later can't repay it, they go bankrupt. If they can repay it, they stay open. Bankruptcy might result in the loan being discharged and the business remaining open. The alternative is to close immediately and stop paying their workers. If that were my business, I'd take the loan, especially since it's federally guaranteed.

leetcrew 7y ago
not every small business is set up as an LLC, although I'd imagine most restaurants are. sometimes you just can't get the loans you need as an LLC; the lenders want an actual person to go after if the business goes under. if I were running a business under a sole proprietorship, I would have to think pretty hard about whether to take the loan or just cut my losses and move on. I do feel it's generally inappropriate for the government to just give money to a privately owned business, but this is an extreme case where businesses are going under as a direct result of actions taken by the government (reasonable as they may be). not sure where I stand on this one.
smallgovt 7y ago
SBA disaster loans all require personal guarantees. So, you can't get run away from the debt by declaring business bankruptcy. You'd also have to declare personal bankruptcy.

dcolkitt 7y ago

> Loans, even cheap ones, are a very shity way of "helping" small businesses Really disagree on this point. The primary value of a business is their assets, brands and expertise. All of those things will be just as valuable after the pandemic as they were before. Assets don't just disappear because they're not used. This is just as true for small businesses as it is for big business. Any business that was profitable on Dec 31, 2019, will very likely be profitable on Jan 1, 2021. The biggest challenge for those businesses is surviving operating cash flow losses over the next three months. This is extra challenging in the current environment because financial markets are freezing up. Yes, business owners will eat some loss to their personal wealth. Regardless of what happens there's no way to make up for the fact that the economy is shrinking this quarter. At an aggregate level, we'll all be slightly poorer then we expected to be. The point of a well-structured bailout isn't to make sure that nobody anywhere ever loses money. It's to prevent otherwise healthy businesses from permanently failing due to a temporary disruption in credit markets. If a small business owner loses a year of income it sucks. If an entire small business capsizes, that has widespread economic impact because the economy incurs distress costs and loses its organizational and competitive expertise.

ksdale 7y ago
I think you may be underestimating the extent to which a “small business owner loses a year of income” and “entire small business capsizes” are the same thing.
- chii 7y ago
  If the business gets a loan to last them through the crisis, they will pay it back when they earn money after the crisis. It means they are using future revenue to survive right now. The interest for this loan should be very low and if they default in the future, the govt takes the hit. The hope is that not all businesses will default at the same time, and just like the hospital, these loans flatten the default curve, and prevent the economy from spiralling into a deep depression from these defaults.
  - ksdale 7y ago

OzzyB 7y ago

It's not the loan that's the issue, it's the loan terms. If the terms are zero or near-zero interest for say 5 years then the effects to the business's bottom line would be mute. If the loan is like some loanshark credit card company charging 27% compound with a three month payback, then yeah, bankruptcy is your friend. Remember, countries take out huge loans to pay for wars that are paid back over generations, the UK just finished paying back it's loan for WW2 just recently. These are the kind of loans people/businesses need.

jamie_ca 7y ago
If a restaurant is making $2m/y gross, with a 5% profit margin, is $100k/yr profit. If they need to take a loan to cover 3mo of missing revenue, that's $500k. If that loan is an _amazing_ 0 interest over 5 years, the owner basically gets to keep his business name, for 0 profit over 5 years. How is this any better than letting the business go bankrupt, starting a new one next year when the dust settles, and working it back up to profitability in < 4 years?

deleted 7y ago

[deleted]

smallgovt 7y ago

To be clear, this bill doesn't set aside more money to loan to small businesses. It only did two things: - made the existing SBA Disaster Loan program available to businesses affected by CV19 - added $20M to help w/ administration of said loan program There were talks about actually increasing the budget of the SBA loan program by $xxB. This bill did not do that.

stubish 7y ago

It is also bad for their landlord, because the property will be idle until things improve. A landlord is better letting the business shutter for a year and have a paying tenant again when it reopens, than to kick out the tenant and pay the costs in a years time to entice a new tenant in an environment that would be best described as a renters market. If I was the renter, I certainly wouldn't be getting a loan. Renters have a good bargaining position right now.