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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.

by ksdale 7y ago

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
  I understand that’s how it is meant to work, but I think small businesses are, on average, a lot closer to insolvency than people think. This is like offering low interest loans to... anyone to get through the crisis. It’s definitely better than nothing, but it doesn’t replace income, it just shifts it around (as you mentioned), which doesn’t help very much when you’re so close to insolvency. They’ll come out the other side with debt service payments that make business “survival” kind of pointless, unless there’s a ton of pent up demand and their revenue is much higher.
  - chii 7y ago
    > make business “survival” kind of pointless they continue to survive and make the payments. Yes, profits will tank, but eventually they will pick back up. It's not like there's a better alternative. It's better than shutting doors - you may not be able to pick back up when this all blows over.
    - ksdale 7y ago
      Just as a hypothetical to illustrate my point, it's really common for small business owners in low margin businesses (like retail and restaurants) to have take-home pay of about $50,000 on $1,000,000 of revenue, which means they have $950,000 of expenses in a year. Even if they don't have to pay for certain parts of their business when they're shut down, how many hundreds of thousands of dollars of debt would they need to take on to keep the business in existence for the next few months? How many hundreds of thousands of dollars of debt can $50,000 of net income service, even at .5% interest? Those dollars for debt service come straight out of the dollars for living expenses. It may be better than nothing, but it may also not be. Trying to start over from scratch may be better than trying to start back up with basically any kind of additional debt.

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.

by 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
I understand that’s how it is meant to work, but I think small businesses are, on average, a lot closer to insolvency than people think. This is like offering low interest loans to... anyone to get through the crisis. It’s definitely better than nothing, but it doesn’t replace income, it just shifts it around (as you mentioned), which doesn’t help very much when you’re so close to insolvency. They’ll come out the other side with debt service payments that make business “survival” kind of pointless, unless there’s a ton of pent up demand and their revenue is much higher.
- chii 7y ago
  > make business “survival” kind of pointless they continue to survive and make the payments. Yes, profits will tank, but eventually they will pick back up. It's not like there's a better alternative. It's better than shutting doors - you may not be able to pick back up when this all blows over.
  - ksdale 7y ago
    Just as a hypothetical to illustrate my point, it's really common for small business owners in low margin businesses (like retail and restaurants) to have take-home pay of about $50,000 on $1,000,000 of revenue, which means they have $950,000 of expenses in a year. Even if they don't have to pay for certain parts of their business when they're shut down, how many hundreds of thousands of dollars of debt would they need to take on to keep the business in existence for the next few months? How many hundreds of thousands of dollars of debt can $50,000 of net income service, even at .5% interest? Those dollars for debt service come straight out of the dollars for living expenses. It may be better than nothing, but it may also not be. Trying to start over from scratch may be better than trying to start back up with basically any kind of additional debt.