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Comment by thedogeye | Hacker News Reader

SBA just announced a program for loans up to $2M at 3.75% to make payroll

Loans don't solve this. It isn't like once this is over restaurant patronage will jump up to 200% of normal. This is business these companies will never get back. Giving them a loan that they can't repay is just delaying the problem.

probably with compounding interest if they allow deferred payments lol

Spreading the problem out over a long period of time keeps the company in business. It's a no-brainer good idea for the SBA to do this. Not sure what you would prefer instead.

It is like CPR. It is better than doing absolutely nothing and gives extra time for more extreme measures, but on its own it is just delaying the inevitable.

It is not delaying the inevitable. There will be many profitable restaurant businesses who find their business lacking liquid cash over the next few months. Being thrown a credit lifeline means that they can make it through this period of time and come out on the other side as a profitable business again. Paying down the debt is a common business practice that people do all the time.

Throwing out a credit lifeline can be a practice that benefits everyone in times of crisis.

>There will be many profitable restaurant businesses who find their business lacking liquid cash over the next few months

Like I said in my earlier comment, the best hope for these businesses is to return to normal revenue numbers. They aren't going to make up for the business they are currently losing. They don't have a liquidity problem. They have a lost revenue problem. They are still accruing costs without accruing revenue. Delaying those costs doesn't fix that disconnect.

>Paying down the debt is a common business practice that people do all the time.

Taking on debt to allow you to make investments and improve future outlook is a smart business decision. Taking on debt in order to meet recurring operating costs rarely works out when there is no hope of future growth.

I think you're overestimating the magnitude of lost revenue. We're talking about 1 month of lost revenue.

A profitable restaurant's unit model might be: 10% net profit, 30% COGS, 30% fixed cost, 30% labor cost

During this one month shutdown, the restaurants won't incur labor cost or COGS. So, they're really only in the hole 30% of one month's revenue. With a little back of the envelope math, you'll see that the restaurant owner can pay back a loan for this amount by allocating 10% of their monthly profits (or 1% of monthly revenue) to loan payback.

Now, if the restaurant is NOT profitable, then we have a problem. But, they were probably going to go out of business soon anyways in that case.

You're forgetting that businesses can jack up prices after a crisis. Let's say there are 10 restaurants. One of them survives because it has taken a loan and others just crumble. Suddenly all the competition is gone and people are storming your place.

I'll take a crack at it. I would prefer commercial rent abatements combined with commercial property tax abatements. The same would make sense for residential as well. Unemployment payments should be increased and restaurants should temporarily lay off staff as needed.

You do know what they would prefer, you just can't accept that there are other ways of humans relating to each other than usury

Doesn't "delay" the problem -- it exacerbates the problem.

I'm assuming the loans are to make payroll for work already done. Many businesses don't have the cash on hand to pay for the work that was already done, they're relying on revenue from that work or past work that is now being paid to pay their employees.

Frankly, I think the restaurant industry is over built and many of them deserve to close. The margins are non existent, most of the food is terrible, it's the ultimate bubble economy business.

Actually, yes, once this is over it's reasonable to assume restaurant patronage will see a huge surge beyond prior levels, at least for a time.

Ok, shut that business down then. Layoff all workers. If all you can think about is profit at the expense of everyone else then this is the course of action. I personally am in favor of solving a liquidity crisis with liquidity but well if people want to throw a wrench in the gears that's fine with me.

For restaurant owner running on 3-5% margins, when salaries are a significant expense, it would be suicide to take a loan to make payroll; your business would probably never be profitable again. Better to let the business die and reinvent yourself in June/July.

Yes, better from a personal standpoint, but jeez, from a humanitarian perspective, can you really blame any restaurant owner from wanting to make payroll at any cost so that their employees can continue to feed themselves, pay rent, and take care of their loved ones?

The employees should be able to apply for unemployment payments from the state. Which can a problem on its own, to be sure, but an employer doesn't have to bear the weight of lives all by him or herself.

My point is why are we putting them in this position? How about a GRANT instead of a loan?

The restaurant is TOAST when the loan starts being due as they try to reopen in the middle of recession after a forced closing and they'll all be out of work trying to feed themselves, pay rent and take care of their loved ones.

>How about a GRANT instead of a loan?

You mean free money, just because? How could you even begin to figure out who deserves it? That'd be a lot of offices and bureaucracy to set up to solve the question. Unless you just want to give wads of cash to any restaurant claiming to need help, in which case I'm glad you're not leading the economy.

At that point, you might as well just give that money directly to the restaurant owner, and all the employees, for the duration of the crisis.

The problem with loans are you have to repay them. Giving out loans as a social safety net is a cruel joke. It just makes people worse off in the long run.

Zero percent interest loans over a long enough repayment period (eg. ten years) would work though. It allows spreading the immediate loss in sales over a much longer period.

Not that it would happen though.

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