In early April, Congress approved a small business relief fund of $376 billion.  When that amount proved inadequate, they offered an additional $310 billion.  While this was a powerful gesture on the part of Congress to support the many small businesses across the country, the program itself has definitely had issues.  Most notably, the program ended up funding businesses many wouldn’t even classify as small, and a lot of money given to businesses was used to pay government fines, buy out other companies, or simply pad the pay of executives.

Moving away from the fund itself, the terms of the loans seem pretty reasonable. Most of these loans have an interest rate of just one percent, while others won’t have to repay the loan at all (under the condition of keeping all employees on payroll).  Under normal circumstances, these terms would be more than enough to keep businesses afloat.  Unfortunately, as we all know, these are not normal times.  While small businesses are guaranteed six months forbearance under the package, the loan will still come due. How will a business owner afford to make these loan payments?  I believe they simply won’t be able to because even once social distancing protocols are relaxed, the economy will still be slow to move forward.

I think I can best illustrate my point by drawing on my own experience with agriculture in the 1980s. In the early 1980s, the US agriculture sector crashed. As the economic devastation spread to the rest of the economy, I worked in general debt restructuring and liquidations. Debt restructuring is the process of reassigning more favorable rates and terms to a debt based on the premise that the bank would lose less money.

The Farmers Home Administration (FmHA) was authorized to issue billions of dollars in low-interest loans to assist farmers with their massive financial losses. At first, the farmers were appreciative of the financial support. However, as time passed by, farm income did not return to the pre-crash levels, not even close.  In fact, for nearly a decade, year after year, the government issued bailout after bailout to keep farmers in business.  In the end, those low-interest loans were, at least in part, responsible for the financial demise of agriculture. Then, like now, the probability of incomes returning to their pre-crash levels is not likely.  Ultimately, the farmers did not receive enough in price increases to enable them to make those payments, and over time that debt ballooned. Nearly twenty-five percent of all farm assets were lost, and the number of farmers dropped from 6.8 million to only 2.2 million by the end of the crisis. The farm crisis brought about profound social, political, and economic reforms in the agricultural sector.

Implications for Today

When I look back in time to the farm crisis of the 1980s, one of the primary issues the farmers faced was the high debt they were carrying on their farms.  When annual incomes dropped from the high in 1973 of $92 Billion to just $8 Billion in 1983, the farmers were just unable to make their debt payments.

Today, according to the SBA, there are about 30 million small businesses that employ about half of the workforce.  Typically, the largest operating expense is the cost of facilities, either through debt payments or rents, and both have skyrocketed in the past decade, similar to housing costs.

My concern is that like the farmers of the 1980s, today’s small businesses will be unable to recover their pre-COVID revenues and, like the farmers of the 1980s, be unable to make the payments on their facilities. In short, the rent is just too damn high.

James Nelson is the author of “Stealing Home: How Artificial Intelligence Is Hijacking the American Dream.”    A recent Kirkus Review of his book raved, “Though he paints a grim picture of a complex subject, Nelson’s righteous anger makes this book a must-read for not only those in the real estate and banking industries, but also for anyone who seeks to understand why, in the words of activist Jimmy McMillan, the ‘Rent is Too Damn High.’ The author combines the indignation and passion of an activist with the technical knowledge of a seasoned banker.”




Download Sample Chapter