Did Covid Loans Save or Destroy Businesses?
Today, small businesses that took Economic Injury Disaster Loans are less profitable than those that didn’t—and a deluge of failures is looming.
Good morning!
Here are today’s highlights:
The vertical farms that decided to go big or go home are mostly going home.
Instead of hiring a real estate agent, a CEO used ChatGPT to sell his home—and it worked.
Facebook Marketplace has become a launchpad for side hustles.
The air-travel mess is making a winner of Clear, although it too has had problems.
FINANCE
Covid relief loans continue to haunt small businesses: “The Economic Injury Disaster Loan program expanded a longstanding offering from the Small Business Administration meant for more localized catastrophes, quietly dispensing about four million low-interest, 30-year loans for up to $2 million each with little documentation. At first, it lifted borrowers. Recipients had about 5.2 percent more employees on their payrolls a year later than otherwise similar businesses, according to an analysis by Gusto, a bookkeeping platform. But the advantage faded within a year, to 2 percent. By 2023, small businesses with outstanding loans from the program were less likely to be profitable than those without them, a Federal Reserve survey found.”
“Now, the iceberg of loans is growing more delinquent. As of June, the latest data available, the S.B.A. had referred more than $75 billion to the Treasury Department for collection. The portfolio had an unpaid principal balance of $279 billion.”
“Ruby Brister took out a $318,000 loan when she had one elder care home in Honolulu. She had leased space for another in the fall of 2020, but the pandemic led to a long delay getting it licensed, leaving her paying rent for three years before it opened.”
“When two of her clients died, Ms. Brister faced a cash crunch, and missed payments on her loan. She got a notice that her loan had been referred to the Treasury, and when she called the number provided, a debt collector, HS Financial, answered. The collector said her new balance was $448,000 with new fees and interest applied, and imposed a three-year payment plan.”
“At the same time, pursuing small-business owners to recover the money is expensive, time consuming, and politically risky. ‘From just the amount of defaults that I’m seeing, the deluge of these cases now, I can’t imagine that the Treasury or Congress is not going to have to act to do something,’ said Benjamin Goldburd, a tax and corporate lawyer with the firm Goldburd McCone. ‘The government doesn’t want to start having to make hundreds of thousands of lawsuits against small businesses.’” READ MORE
