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09 Apr 2020
Economic downturn
Suggestion View - 203
Relief loans for businesses

In a severe economic downturn, many businesses have to reduce their operating expenses to match the loss of revenue. They have to retrench their workers.

I suggest that they should ask all their workers to take partial no-pay leave, e.g. 30% of the working week. The workers will suffer a reduction in their income, but they can apply to the government for a relief loan for the period of the downturn. 

The government should also extend to the business a relief loan to cover their rental, payroll and utility expenses. This relief loan is available for the period of the downturn. It will carry a modest interest rate, e.g. pegged to the rate of inflation.

This allows the businesses to continue as before and keep their workers partially employed. It will cause minimal disruption to the businesses and allow them to be ramp up their activities when the upturn returns. 

The relief loans can be managed by the banks and are covered by a 100% government guarantee. A reasonable cap can be set to prevent abuses. 

With the 100 guarantee, there is no need for the banks to carry out a strict evaluation of the loans.

However, the bank can extend additional loans to cover other expenses, and that can be on commercial terms and be subject to their evaluation.

There will be some abuses, but the extend will be small and they can be managed at a later date. It is important that the relief loans be available quickly and with only modest first level evaluation.

I believe that this approach will be helpful to protect employment and businesses.

Several countries have adopted this approach in granting assistances to businesses affected by the severe economic downturn.

Tan Kin Lian

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