APPEL: Government Does Business No Favors With Loans, Tax Credits

Let us take a quick look at the realities of the intersection of politics and business as it impacts real businesspeople in our great American capitalist system.

My hunch is that most politicians have never started or run a business, have never had to make payroll, or pay a vendor. Never have they had to tell long time employees “Sorry, but your job is gone.” They have no clue what it takes, emotionally and economically, to sustain a business that puts food on the table of their family and their employees’ families. Perhaps the biggest delusion offered by politicians and bureaucrats when addressing an economic crisis like COVID is their incessant addiction to the tired old pabulum of loans and tax credits.

Let us take them one at a time.

First, government loans or guarantees. It does not matter how low an interest rate is or how long the payout, a loan to keep a business running through bad times still must be repaid plus interest; otherwise, it’s a grant, and nobody makes their business forecasts based on the prospect of loans becoming grants. In America, I hesitate to guess but that most businesses are not highly profitable to start with. So even if times improve and if the business can survive, a ding against its cashflow in the form of loan payments is a big deal. It could mean no growth, no profits for investors or the owner for an indefinite time; it could be like trying to swim against a strong current with heavy chains around one’s neck.

Beyond the hit to cashflow that comes from loan payments, disaster loans count against the business’ ability to borrow additional conventional funds that it may need. So, if a business borrows from the government just to sustain current operations, they may not be able to borrow enough or at all to meet future cash flow requirements, make payroll, or grasp growth prospects.

That means that when a politician or bureaucrat speaks glowingly of how he or she has made loans available, then an astute businessperson should run, not walk, away as fast as they can.

Except in the rare cases of being in a region in which luckily there is a booming economy or of the offer of a forgivable loan, borrowing is a cancer that eats away at the fundamental life of a business. Worse, slow-recovering businesses, as most small businesses are, may be operated by non-sophisticated businesspeople who do not recognize the danger of borrowing more and more just to keep body and soul together. The result a spiral of failure, unemployment, and emotional collapse.


When they are trying to show how much they are helping, the other folly promoted by politicians is tax credits. The problem is that a business must be making money to use a tax credit, they must have a tax liability to use them against. That means that they must be making a profit or expect to make a future profit and most businesses impacted by disaster make no profit and have poor future prospects. In the real world that translates into a situation of which only strong businesses can take advantage, but those folks already are doing well and do not need credits from the government in the first place. Message to small and weaker businesses hammered by outside forces – tax credits are of no value to you.

So, the next time you hear a politician expressing outrage that businesspeople are rebelling against their orders, just remember that these politicians have no clue as to the impact on ordinary folks, or worse they simply do not care. In the politician’s mind all he or she knows is that there are loans and tax credits available so why should business people complain. The answer is simple, loans and tax credits will not help a struggling businessperson when there is no cash flow and no profit. Being closed down by a politician is in so many cases a disaster from which the businessperson may never recover from.

When politics intersect with business the old expression fits, “The worst words a businessperson can hear are “Hi, I am from the government and I am here to help you””.



Interested in more national news? We've got you covered! See More National News
Previous Article
Next Article
Join the Conversation - Download the Speakeasy App.

Trending on The Hayride

No trending posts were found.