Agreed on this. But the rent paid out during the period of reduced revenue coming in creates a delta that this loan is filling in. The loan still needs to be paid back (even assuming 0% interest). That extra money needs to come from somewhere: increased prices, increased traffic, or decreased expenditures.
Throw in food stamps for the unemployed and you're most of the way to keeping a nation going.
I know this would help for people I personally know in this industry.
Dine in has been reduced almost entirely but takeaway orders hasn't deviated too much from the standard.
The reality here is that a lot of small hospitality businesses don't actually make much profit at all so it's unlikely that they'd survive too long with this forced reduced business. And it's always unhelpful to hear (in general not from you) comments like "maybe they should have saved up more earlier" or "they shouldn't be opening up a restaurant then" because a lot of times they can't work in any other industry - this is all they know.
Imagine having reduced business through no fault of your own yet you're still liable for paying the commercial rent of $1.2k per week. You can't sell the business because no one is buying. You can't sell it because you lose all the goodwill which is bad especially if you've spent any money renovating the place up to standard.
If you force rental payments to stop, then who gets hit? The landlord is going to default on their obligations. So do you then bail them out? If the landlord defaults, the banks (presumably) will repossess the property. So it's just somebody else suffering, rather than the tenant.
The loans work, because the obligation to pay back this loan will come from a future where you have the capability. The govt is the eventual guarentor of this loan, and hence, they take the hit if the eventual future does not come to pass (e.g., the restaurant never regain their full business). The gov't can't take the full hit of all these defaults all at once, but they can if it is spread out. So a loan will spread them out into the future (even perhaps, far future), and the economy survives, even if a lot of the business that took the loan didn't.
Read my post again. The rent holiday goes hand in hand with a debt holiday. That's the only way this works. Tenants don't have to pay rent, and landowners don't have to pay a mortgage.
Sure some businesses will fail as a result of this, but far more (on a massive scale) will fail if you don't do this.
They'll be bailed out by the govt as usual. Which is the point.. the govt has to keep humans fed and housed through this. This is the best way to achieve that end. Kicking the can down the road is exactly what needs to be done. The economic problems and readjustments can happen later. The immediate problem is people fucking dying.
As others have pointed out, this is not what any of us are saying. Those debts are paused too.
The loans DO NOT work, because most of these businesses are barely profitable at all. Now they have to recover to their previous levels of income AND pay back a loan? They can't. It's a ridiculous expectation.
Some landlords were letting people stay rent free out of compassion because no one had money and it was tough all over and no one else was going to rent it. Then the government decided to bleed the landlords and insist it get paid if the unit was occupied, even if no rent was being paid.
Landlords had no choice but to begin evicting people. Things got ugly fast.
It's an indication of how things can go wrong with the government working against you, but I don't know that it maps well to the current pandemic.
I wasn't ascribing good intentions to Westminster. I was saying that their intentions, good or bad, and the intentions of the current American government are irrelevant. What's relevant here is they did a thing and it got x result. So we should use that example to wonder what will really happen should we do a similar thing now.
Except nobody is suggesting a similar thing. I started this thread by suggesting that the government do x, and you replied with the assumption that the government would do x+y.
But if it’s just a pause in collection, and you still owe that money, then it’s the same old margin problem: very few restaurants make enough money to repay that loan no matter who it comes from.
It has to be a pause in collection (and interest), but at the end of the day the lender also has to get their money back.
Six months from now, when the quarantine ends, you aren't going to go to your local Teriyaki and Wok, and order six months wroth of Chinese food.
The restaurant will never recoup those six lost months of rent. The employees will never recoup those six lost months of wages. These loans will never be repaid.
Low margins are the result of heavy competition. If there is less competition margins will be high again.
2. The problem is that after the pandemic ends, the margins will remain low. Because new entrants, with no outstanding debts or obligation will eat the lunch of any of the restaurants that remained 'open' during the pandemic.
I have thought quite a bit about whether this situation will cause long-term behavioral changes.
Do you expect the restaurant business to bounce back to where it was after the crisis ends? I would expect that to happen for a short-duration event. But what if this persists for months, or into next year?
I have searched for papers that explore this idea (say after the 1918 Spanish Flu), but haven't found anything relevant.