The government’s plan for saving small and medium-sized businesses from liquidation puts them in a bind that brings to mind the one Yossarian had to contend with. The problem, in a nutshell, is this: Chapter 11 bankruptcy may be many firms’ best hope for surviving the present crisis. But to take advantage of it, they need credit—the cheaper the better. Firms can get cheap credit through either the Small Business Administration’s (SBA’s) Paycheck Protection Plan or the Fed’s Main Street Lending Programs. But there’s a catch: to qualify for these loans, they mustn’t file for Chapter 11.
That’s Catch-11, and it, too, is some catch.
In this post, I’ll quickly explain how Chapter 11 bankruptcy can help firms survive the crisis, and why many firms may need financial assistance to take advantage of it. Next I’ll explain why they can’t get such assistance from either the SBA or the Fed. Finally, I’ll consider some options for getting around Catch-11.
Read the rest of this post →