Payday loans for business
An important question for businesses
Payday loans are for individuals, but another form of them are also good for business. Allow me to explain…
Recently, PBS Online Newshour’s “The Business Desk with Paul Solman” fielded an important question about whether businesses are able to function without loans. The question was posed by reader Dennis Long of Santa Monica, California.
Solman handles the question with the help of guest Simon Johnson from MIT.
The question, please
Here is Mr. Long’s question:
Borrowing money to buy new equipment and upgrade makes sense. Borrowing money to pay rent and make payroll sounds a lot like using a payday loan center to borrow against his paycheck. With the collapse of the “Commercial Paper Market” last fall, it became apparent to me that ALL of the major corporations, banks, and many municipalities are unable to function without their “SuperSize” Payday Loan center. Am I wrong?
Solman and Johnson’s response
Solman leads off the response in the affirmative. As it existed in optimal times before collapse, the commercial paper market was an outlet for short-term borrowing by businesses. For new companies that are looking to get off the ground, there are basically two ways to ensure that you will have the necessary capital. One way is to sell shares of your company to the public. The other is to borrow money. Even for established companies, the idea is to earn more money than the current rate of interest. Borrowing on the commercial paper market, says Solman, effectively puts your money to work.
Johnson concurs. “Even the most solvent, profitable firms can do better with a loan,” he says. He then given the example of a grocery store. A store must pay for deliveries before picking the stuff off the shelf and paying. But then again, the store can make arrangements with a supplier to wait on payment. This means that the supplier is giving the store a loan. The suppliers themselves finance loans of this nature through commercial paper, a revolving loan or something similar, he says.
Payday loans and good will
Unfortunately, this doesn’t work as an effective means of exchange between employer and worker. Promising to pay them later inevitably leads to strikes and job desertion, even in a difficult economy. Cash Advance Mojo says that if the recent example of Detroit Public Schools is any example, very difficult times are ahead. Employment is required for payday loans, so that’s something anyone should keep in mind if they expect to face short-term financial surprises beyond their budgets in the days to come.
Related articles
- Business lending still pinched (money.cnn.com)
- Flaherty touts tax cuts as economic stimulus (cbc.ca)
- Programs quietly easing credit crunch (money.cnn.com)
Well, I certainly hope that the paper market doesn’t collapse for Wall Street’s sake. If it does, there’s no end to the bailout they’ll need at that point. They may have to go back to actually doing something for money again, like selling products, providing services, having to seem worthwhile to customers – business could change as we know it forever.