BRD blog readers recently received a sneak preview of a report, IS! Phase I, Final Report, jointly released by our research team and Dr. Ron Rizzuto from the Reiman School of Finance. The plan would provide stimulus for successful companies that are having difficulty securing credit. The basic parameters of the concept is that the federal government would provide 80% loan guarantees to successful firms, with additional workforce training incentives to retrain workers and reduce unemployment rates. In a nutshell, the report indicated that over a five-year period, the process of providing assistance to firms with a proven track record would add about 1 million workers to the nation's payrolls.
This past week, the report was officially released to the media, which resulted in a variety of inquiries about the general concept. One of the most frequently queried topics was the risks associated with the potential adoption of this concept.
Overall, the plan has much more upside potential than associated downside risk. Risk could increase if the following four items are not properly addressed:
• The program should be simple to understand and easy to implement.
• The program should be attractive to successful companies that have been unable to acquire funding for new product development, capital investment, expansion into new markets, or other growth opportunities.
• The program is intended to increase the availability of funds, not the number of government workers, thus it becomes essential to select a government agency with a proven track record to administer the program. Most likely that agency would be SBA (Small Business Administration). If immediate stimulus is to be felt, the loan review process must be thorough and timely.
• The total loan portfolio of the program must remain balanced to manage the anticipated default rate. If a disproportionate number of companies from high-risk industries are accepted, then it is likely that the program default rate would increase.
In the weeks ahead additional research will be conducted to fine-tune the present analysis and evaluate various variations of the concept. At the same time, interested parties will further test the merits of the concept with members of Congress.
Leave a comment