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Quick tweetstorm on the economic case for Recovery Loans for the most affected small businesses. People really struggle to get why this can be more valuable than cash, so let's talk about how it compares to rent forgiveness....
Imagine a restaurant with $10,000 a month in rent that they can't afford to cover for the next six months. To pay for this, they take out a recovery loan for $60,000 and use that to pay rent through January. Will they be seriously debt burdened going forward to pay this back?
If the debt is a 20 year 1% loan, like @marcorubio's plan calls for, then the monthly cost of paying for this is $275.94. Free rent for six months, in exchange for $275.94 until that is paid back. On a cash flow basis, this is very very useful for helping a business get through!
Not only that, but imagine that same business has $100,000 in debt on a five year 7.5% loan. They currently pay about $2,000 a month on that debt. If they refinance using a Recovery Loan, monthly payments fall to $460.
So think about February, 2021. If things are back to normal, is this company debt burdened? Yes they will be paying an extra $276 a month for debt from the six months of rent. But their other debt payments will be reduced by $1,540.
So they will have avoided six months of rent payments, and their ongoing debt payments fall from $2,000 to $736. If this is an "excessive debt burden", it's a hell of a cash flow boost and a big help in getting past the crisis. The math works, people!
