New England Consulting Partners (NECP) Warns Any Restart of the Economy Without Precision Could Lead to Disaster for Small and Middle-Market Businesses
Unless the cash infusion by the Federal Reserve to restart the economy is plentiful and carefully placed, its maximum intended benefit may not be realized. The good news is that the channels and information systems that could still make it work for small and middle-market companies are available.
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Successfully restarting the economy relies on timing and access to consistent, uninterrupted cash. The Federal Reserve should back all lines of credit, as lending institutions cannot assume the risk, which can be done through the banking system. Banks typically provide two different types of business loans: asset-based and commercial. Most small and middle-market businesses have one of these types of loans.
Next, make sure funds are available to middle-market businesses within industries that support several supplier tiers. For example, the auto industry has first-, second- and third-tier suppliers. Due to their interdependence, there is a multipler effect. If you lend $1,000 to Company A, and Company A uses it to buy product from Company B, then Company B receives the benefit of the loan as well. Funding middle-market companies also ensures wider distribution of liquidity since they are often a common thread across multiple industries.
Speed is of the essence, and access to liquidity would be easier and faster if applications were made one, simple page. Cash infusions must be put to work immediately and used for direct labor, direct material and essential overhead (e.g., workers' compensation etc.). Any antecedent debt can stand still while companies kick-start. There will be plenty of time to recover sunk costs.
All of the above can be easily monitored. Banks and the IRS maintain a wealth of information on the financial condition of companies and industries. And with today's technology, it can be accessed instantly to make informed lending decisions.
Also, the IRS has an EIN for every business that does not maintain a line of credit (e.g., a restaurant). By looking up the company's financial history in the federal database and checking to see if they have made money, over say the past three years, lenders can work with the owners to figure out how much they will need to open. The systems. The information. The money. It's all in place. And can be easily accessed. By doing it this way, the trillions of dollars that will likely be necessary to restart and maintain the necessary growth can be more efficiently monitored.
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