Brent Beshore – Update on Small Business and Private Equity - [Invest Like the Best, EP.164]

Episode Summary

Executive Summary: Patrick O’Shaughnessy and Brent Beshore discuss COVID’s immediate damage to small businesses, the liquidity and solvency crises facing owners, and policy ideas to preserve jobs and restart capacity. Beshore argues that simple, broad, fast aid—especially payroll support and bridge financing—could prevent permanent shutdowns and mass layoffs.

Main Topics: Small-business collapse under COVID (Priority: 5/5): Revenue fell off a cliff as shutdowns and distancing froze commerce. Owner finances and emotional burden (Priority: 5/5): Business losses are often personal losses, making shutdown decisions devastating. Liquidity vs. solvency (Priority: 5/5): Aid must address both cash flow gaps and true balance-sheet impairment. Policy proposals for emergency support (Priority: 5/5): Beshore outlines payroll co-pay, payroll-tax relief, bridge loans, and looser bank lending. Restarting after mothballing (Priority: 4/5): Even temporary closures create customer, supplier, and staffing problems that make reopening hard. Private equity in a downturn (Priority: 4/5): Unlevered firms are better positioned, but still face hard choices and distressed opportunities. Psychological toll and social isolation (Priority: 3/5): Both speakers describe fear, communication, and family strain during the crisis.

Key Arguments: Small businesses often mix personal and business finances, so losses hit owners directly. No business can withstand an 80% to 100% revenue drop for long. Payroll support should preserve jobs without fully socializing losses. Simple government programs will be used far more than complex tax-credit schemes. Balance-sheet products can bridge firms through shutdowns without permanent impairment. Private equity firms with leverage face severe stress as EBITDA collapses. Mothballing a business creates restart problems with staff, suppliers, and customers.

Data Points: March 19: March 19th - Date of the conversation during early COVID shutdowns Children at home: 3 kids under six - Beshore describes his family situation during social isolation Layoffs at one restaurant chain: over 150 people - Beshore cites layoffs at a friend’s restaurant chain Survival window for a no-debt restaurant: four or five months, six months at most - Estimate for surviving shutdown with no debt and no building debt Businesses contacted: 30 or 40 businesses - Beshore says many owners have reached out in distress Payroll support level proposed: 80% - Government co-pay for small business payroll expenses Payroll salary cap proposed: $100,000 - Salary threshold for the payroll co-pay proposal Policy lookback date: March 1st - Employees would need to have been on payroll by this date to qualify Policy rehire date: April 15th - Employees laid off could be rehired by this date to qualify Small business bond term: 10-year loan term or longer - Proposed bridge-finance structure Small business bond rate: 3% or less interest - Suggested interest rate for the bridge-finance product Small business bond size: $5 million - Suggested maximum size for the proposed loan product SBA loan timing: 60 to 90 days - Normal SBA processing time cited by Beshore SBA average timing: 90 being more on average - Beshore says average SBA timeline under normal conditions Future tax ratio example: two times EBITDA - Leverage example used to explain distress in private equity Countercyclical stress estimate: 95% of businesses - He predicts most businesses will be less profitable than in 2019

Pivotal Quotes: "there's a new normal. And I think that the new normal is no one knows how long it's going to be." — Brent Beshore: Describing the uncertainty small businesses face "I don't know a single business owner that's not desperate right now. A single one." — Brent Beshore: Summarizing the emotional and financial state of owners "When everything around you is going down, like you just have to find things that you can make go up." — Patrick O'Shaughnessy: Describing his personal coping strategy

Implications: The unresolved issue is speed: aid, lending, and reopening plans must move fast enough to keep viable firms alive before cash and relationships vanish.