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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& #39;s talk about how it compares to rent forgiveness....
Imagine a restaurant with $10,000 a month in rent that they can& #39;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& #39;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& #39;s a hell of a cash flow boost and a big help in getting past the crisis. The math works, people!
