August 24, 2012 // By: Susan Galer
Loans from the Private Sector
In a white paper entitled, “Fueling Rapid Growth Enterprises”, Andrew J. Sherman, a partner at Jones Day law firm, has a proposal for large U.S. companies: loan a modest percentage of your $2 trillion in cash to high growth small and mid-size businesses. We asked him for the low down on how this idea could create jobs, innovation, and economic growth.
SAP.info: The title of this white paper is very corporate ‘business speak.’ In your own words, what’s this about?
Andrew J. Sherman: The typical small or mid-size business now has 85 percent of its assets tied up in intangibles and only 15 percent or less are tangible. But banks still rely on tangible assets to secure loans, now offered at historically low interest rates. Unfortunately, small, rapid growth enterprises (RGEs) have been frozen out of the debt capital market because they don’t have the hard assets that banks require to lend. A recent New York Times article discussed the expensive alternatives these companies are forced to consider. Yet big companies hold incredibly large amounts of cash.
What’s the proposal to alleviate the problem?
The white paper asks, what if the private sector put together a loan guarantee mechanism that would bridge the chasm between what RGEs need to innovate and create jobs and mitigate risk for banks? It would be a win all around: banks get stronger borrowers, big companies stimulate the economy and get good return on idle capital, while RGEs grow their businesses.
What inspired you to write this?
I’m a problem-solver and I hate inertia. The $2 trillion in corporate treasuries earning low rates of return is a logjam to economic growth. The private sector can put those assets to work without risk. I’m frustrated with the attitude that government will fix everything. To do something positive, we have to band together.
Read on the next page about the engine of productivity.