The core ideas were reported upon, the real purpose is to bail out the banks (once again) and the fortune 500 companies. Very little is going to the people hardest hit.
Banks really aren’t the focus this time around: the changes since 2008 were quite effective in bringing down risks. The bank-specific measures now aren’t aimed at stabilizing them, but at using them to, for example, use their existing personal knowledge of smaller businesses to direct funding.
Nor would I worry too much about Fortune 500 companies. Their scale makes any graft less meaningful, in relative terms. And since most support seems to be in the form of loans, it’s likely that most of it will be recovered. Boeing just isn’t going to go bankrupt.
The current administration seems to be filled with a specific sort of serial fraudopreneur. Like Saul Goodman, gut without the humor and remnants of decency. With oversight already gutted, I’d expect recently-founded LLCs with beneficiaries that just happen to be endangered-wildlife-shooting-buddies of anyone with a secret service pin the main artery of funneling money. I other as loans quickly spent before the company folds. Or, more directly, by being middlemen suddenly required to do business with the government, earning a 400% markup.
Remember that 3-person electrician outfit from the Interior Secretary’s home town in Montana that somehow got a no-bid contract to rebuild Puerto Rico’s entire grid after the hurricane? That’s this admin’s world.
The plan is a death spiral financing which puts a small business into a worse position after taking it than before. They have no revenue due to a government action, loan is based on the value of their payroll with the revenue and the the small business is required to spend 75% of the loan for payroll while being closed.
The fact that banks claimed that 0.5% interest is not enough for them to make it worth it so the Treasury bumped the number and cut repayment schedule is the clearest demonstration yet that it is another hand out to banks.
Because while payroll is a cost it is not the only cost that a business that no longer has any revenue needs to cover. The maximum amount of a loan is 2.5 times the verified payroll. That's 2.5 months of pay. The rest of costs still need to be paid, except there's zero guarantees that the revenue of a business is going to recover immediately after the stay at home is lifted [it won't immediately recover] and it is unknown when the stay at home would be lifted. Lets presume that all other costs of running a business are added to some other loan. That loan is not 0% and it is personally guaranteed.
This means that by taking this loan and spending it on a payroll for next 2.5 months, the owner of the business in a month number 3 is in a worse position than the owner of the business would have been today if the owner were to simply lay off everyone.
The only winners in this are banks making a percentage of a zero risk loan that can be serviced at an incremental cost of a couple of dollars (electronic payments). It is, frankly, disgusting that the congress yet another time took small business loans as a base and made it a money stream for banks.
> This means that by taking this loan and spending it on a payroll for next 2.5 months, the owner of the business in a month number 3 is in a worse position than the owner of the business would have been today if the owner were to simply lay off everyone.
How is that true? The loan is forgiven if it is used to pay employees. Yes there are other costs, but assuming a business doesn't want to just close up shop entirely, keeping their employees would be preferable to losing all employees and their entire business.
The revenue for these businesses cratered. It cratered due to government actions. For service businesses or businesses that sell to service businesses the revenue is zero or nearly zero. The reason why the businesses needed X employees before is because to support Y revenue pre-closure X-1 employees were not enough. In order for the the payroll portion of a loan to become a grant a business cannot decrease the number of workers even though it has no revenue to support them. Reductions in payroll costs reduce the forgiven part of the loan. Reduction in a headcount reduces the forgiven part of the loan.
Essentially, in order for a loan to be treated as a business makes the following bet:
"In no more than 2.5 months from the moment the loan is funded the revenue will return to pre-closure levels"
The non-grant part of the loan (or entire loan if it no longer qualifies) must be repaid in 2 years at 1% APR.[0]
The only real play for a small business that is planning on being around for a long time is to get the loan based on the top payroll number, immediately lay everyone off taking 1% APR hit and repay outstanding loans with higher APR. This is only applicable to businesses that have a lot of cash in a bank.
[0] Before Wells Frago/BOA/Chase etc complained to Treasury that they were not going to make enough money to "make it worth for them to do these loans" the repayment terms were 0.5% APR for 10 years.
