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Except that the loans they are making are not $2 below prevailing rates. Many of these businesses are near insolvency and are unable to get loans in the open ma
by clarkevans 6y ago
Except that the loans they are making are not $2 below prevailing rates. Many of these businesses are near insolvency and are unable to get loans in the open market. These loans are huge gifts; if they were given by private equity, they would additionally come with a large equity position. When they don't, they are gifts, equivalent to the equity position that isn't taken and the high interest rate avoided.
- cperciva 6y agoRight, I suspect that the interest rate differential is higher than 2%. In some cases the businesses receiving loans are insolvent and the loans are effectively non-repayable, i.e. gifts -- but not all. The true cost is almost certainly somewhere between 2% and 100%.