(New York)

There is one sector that is facing a worrying meltdown as coronavirus rolls on. It isn’t as obvious as you may think—its not retail, or restaurants, or autos. Rather, it is insurance. Insurers are about to be hit with otherworldly losses. The head of Lloyd’s of London says COVID-19 will be the most expensive event in the history of insurance, wiping out previous records set during 9/11 and Hurricane Katrina. The range of payouts coming is enormous, spanning event cancellation to management liability to business interruption. According to Lloyd’s “You’re into tens of billions, if not hundreds of billions of loss that will be discussed over time”.

FINSUM: This might not have been immediately apparent to some. Look out.

(New York)

In a topic that wreaks of moral hazard, private equity firms are increasingly the beneficiaries of government bailout funds. The situation is similar to the Crisis-era bailout of Chrysler, which was owned by Cerberus Capital Management. The Financial Times summed up the situation best, saying “Should they use government money to support companies whose deep-pocketed private equity owners have often thinned out their balance sheets and left the slimmest financial cushion?”, continuing with a quote from a professor at Oxford, “We cannot have a world in which one can borrow to earn more and pay little taxes if things go up and when things go down then the taxpayer comes to the rescue”.

FINSUM: Private equity will probably get more bailout money as this lockdown rolls on, but the Democrats will surely attach a lot of strings to it.

(New York)

In what seems one of the most predictable outcomes of the Coronavirus pandemic, asset managers have decided to pounce and launch virus-specific ETFs. Pacer ETFs has just launched the Pacer BioThreat ETF (ticker: VIRS, of course), which tracks a custom index which follows “U.S.-listed stocks of companies that help protect against or recover from biological threats to human health based on a proprietary, multi-step research process”. Other providers, such as EQM, are doing the same.

FINSUM: This is not as gimmicky as it sounds. Companies that have businesses that benefit from coronavirus are going to be a sustained investment focus for some time.

All the buzz in the small business world today is about Congress’ new PPP funding package. The $484 bn deal gives $310 bn to helping small businesses as part of a continuation of the Paycheck Protection Program. It also sets aside some of that money to be processed specifically through small banks.

COVID Loan Tracker was started by small business owners Duncan and Rita MacDonald-Korth to help their fellow small business owners understand when PPP and EIDL advance money starts flowing. The site works by crowdsourcing knowledge on applications and loan disbursements. Our goal is to help the small business community and empower journalists with the data they need to keep the government accountable.

PLEASE HELP SMALL BUSINESS OWNERS BY FILLING OUT THE FORM

While the deal may be a sigh of relief to small business owners waiting for money, it does not go nearly far enough. Firstly, on the positive side, it does give billions of Dollars to be processed through small banks, which clearly did a great job the first time around. COVID Loan Tracker’s stats show that 82% of all successful PPP money was processed by small banks.

However, the new program does not allocate money specifically to companies of a certain size, which means the free-for-all of “first come first serve” will continue to disadvantage small companies. Bigger small businesses (up to 500 employees) have extensive accounting staff and sterling paperwork, which means they will once again be able to submit applications much more quickly than genuine small businesses. The program needed to have a feature which made sure “X” Dollars were allocated to genuinely small business, such as those under 25 people.

So, yet again it looks very much like the PPP won’t help the small businesses that need it most.

Treasury Secretary Mnuchin thinks $310 bn towards a new Paycheck Protection Program will be enough to satisfy remaining demand. We at COVID Loan Tracker think he is sorely mistaken.

The government and the SBA in particular have continually mentioned a figure of around 1 million applications that were in-process but stranded by the first round of the program running out of money. Based on that calculation, the logic for the size of the new program is very simple: if $349 bn funded 1.7 million applications in the first round, then surely $310 bn will fund the remaining 1 million applications that got stranded.

PLEASE HELP SMALL BUSINESS OWNERS BY FILLING OUT THE FORM

Unfortunately, this assumption grossly underestimates the real number of stranded applications because it does not account for “shadow applications”. Many small business owners never had their applications formally submitted to the SBA for an E-Tran number because they were still collecting/correcting/submitting paperwork that was requested by their lenders. Many applicants did submit all paperwork, but because of faulty systems, their applications were never submitted. Both founders of COVID Loan Tracker had this happen to them on multiple application platforms despite applying the first day, and thousands of small businesses have shared similar stories with us.
Because of this,

COVID Loan Tracker believes there are closer to 5m stranded applications—mostly from genuine small business owners who lacked accountants and did not have perfect paperwork at-the-ready. Even counting shadow applications, there are also small business owners who simply did not apply because the money ran out so soon—meaning even more applications are forthcoming. Accordingly, we believe demand for the new round of PPP will be extremely high and that funds will be exhausted in 7-10 days.

COVID Loan Tracker was started by small business owners Duncan and Rita MacDonald-Korth to help their fellow small business owners understand when PPP and EIDL advance money starts flowing. The site works by crowdsourcing knowledge on applications and loan disbursements. Our goal is to help the small business community and empower journalists with the data they need to keep the government accountable.