As policy makers around the world seek to mitigate the economic shock from this pandemic, one less obvious but powerful place to look are working capital flows.
Yes we do need direct relief for small businesses like the forgivable PPP loans. We also need things like payroll tax deferrals and other relief from the CARES Act. We also need our capital markets to work so actions like the Fed is taking are necessary and important.
As Sandy Kemper, founder and CEO of our portfolio company C2FO puts it in this blog post:
The greatest financial relief we can give small and mid-sized businesses in this economic crisis is faster payment of their outstanding invoices — liquidity. The lending programs being launched by the world’s governments and central banks and directed to small and mid-sized businesses are extraordinary, needed and laudatory, but will fall short not just in terms of dollars, but more critically, they will not arrive soon enough for tens of millions of the world’s small and mid-sized businesses in dire need.
https://c2fo.com/resources/vendor/how-to-solve-the-16-trillion-small-business-liquidity-trap/
Sandy goes on to calculate that the world’s “150 million small and mid-sized businesses, employing 60% of the world’s working population and generating nearly 50% of the world’s GDP, are owed more than $16 trillion by their customers, half of which are large companies.” Sandy calls that the $16 trillion liquidity trap.
His proposed solution is:
low-cost funding specifically for larger companies to pay their small and mid-sized suppliers immediately
You can read the entire proposal here. It makes a lot of sense.
