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.
From the Transcript
Three times a day, three times a day. Yeah, are we up to three times a day now? It's gotten that bad, yeah, yeah. That's the crisis count exactly. No, I mean, I'd say subjectively, look, there's a new normal, and I think that the new normal is no one knows how long it's going to be, and it's going to start trickling out. Just to be completely frank, I mean, I think we'll talk about maybe some bright spots and some things that could happen, some good stuff a little bit later. But I mean, just the frank thing is I'm sad. I mean, just to be completely honest, I'm sad of all the people that are going to be losing their jobs who already have lost their jobs. I'm sad that. That it's upended a lot of people's lives. And look, mine and yours included. I mean, I'm with my family at home. We've been practicing doing our social isolation part since Friday of last week. It's completely changed life. I mean, I'm sure, you know, I've got three kids under six that are in the house here. So it'd be an absolute miracle if during our discussion, one of them doesn't come bang on the door or barge in and start singing in the background, which is awesome. It's part of the game. Yeah, I mean, it's awesome in some ways. So, yeah, I mean, I would say that the lay of the land is small business. I mean, I'm only going to
Super strong balance sheets. If those businesses go under, I don't know who survives. In absolute terms, it feels like we are in a tough spot and we're right alongside everyone who feels that way. In relative terms, we're in the best position you possibly can be in. We've got good customers that pay us. You know, we've got great balance sheets. We've got no debt, good leadership teams. I mean, like, we're in perfect position relatively, but it still feels terrible. I mean, we're going through all this stuff. I mean, I said in the beginning of the discussion, we are doing twice. A day stand-ups, and we're trying to review every AR and AP and making sure that the AR comes in and that we're really judicious about AP right now, and trying to make sure that we're having active conversations with a lot of our vendors. Hey, what are you seeing? How does this work? What do you think? It is a tough, tough situation. I cannot imagine right now if I had two times leverage. What my previous, you know, we say two times leverage, what we're saying is like two times EBA does, typically what people use as sort of the leverage ratio.
Various family members, of course, just like everyone in the world is going through. But I find, you know, when everything is, I said this to my team, when everything around you is going down, like you just have to find things that you can make go up. And for me, that's the number of conversations that I'm having with those I care about, with a big part of that being the people I work with and with friends. And yeah, I mean, other than that, I'm not sure what to do, right? Is just focus on things that are under my control that I can make those counts go up while everything else goes down. It seems like. At least just speaking from personal experience, the best that I feel, I should start taking a journal five times a day, one through 10. How am I feeling right now? It looks like a chart of the VIX volatility on that score. But the best scores come when I'm just talking to my friends. And it's a give and take. Like sometimes I need to be pepped up and a lot of times, admittedly, I'm doing a lot of the pepping. And yeah, it's a unique thing. We'll never forget it. And there's not much more you can say about it. Yeah, I think the relationships use Key Down are just, they're everything.
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