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The CFO’s Shame Of Accepting Government Assistance

This article is more than 3 years old.

When the $2 trillion CARES stimulus bill passed congress, the finance chief forums were buzzing. CFOs had 2 questions: Almost all of them asked how can I apply for this government assistance, which is a critical lifeline for my company? But of those who asked about applying for the loan, over 30% also asked how can I accept this government assistance which can be seen as an embarrassment to me? With the Payroll Protection Plan (PPP) money completely used up and Congress battling to release more funds, do CFOs still have qualms about taking the funds?

For most CFOs, this is the first time they are considering government forgivable loans or grants. During the 2008 financial crisis, government support was focused on financial institutions and even within that sector, less than 10% of banks received aid.

Some CFOs may be concerned with whether receiving financial assistance would put a negative mark on the corporate credit long-term and impact access to capital in the future. Others chafe at the restrictions included with the assistance including, a cap on executive salaries, limit on layoffs, restrictions on dividends and share buybacks, among others.

This is a tremendous crisis and a time to think differently. Every company across sectors and regions is impacted. Goldman Sachs predicted 34% contraction in GDP with 15% unemployment. The stock market dropped almost 30% from its peak a month ago. About 70% of small businesses applied for the CARES act loan.

The size and nature of this government assistance is unprecedented. The CARES stimulus bill of over $2 trillion was the largest ever, for any country. And it passed overwhelmingly with bipartisan support.

Most companies were in great financial shape at end of 2019. However, the complete loss in revenue, uncertainty about duration of the economic downturn and difficulty in accessing liquidity in the disturbed financial markets will challenge all companies. No one should look back in 2021 and question why a company accepted government assistance in the COVID-19 crisis.

CFOs have a fiduciary duty to protect the interest of their shareholders. They should look for the best options to finance the company and assure liquidity to weather financial downturns.

CFOs have always made decisions based on understanding government policies and navigating companies to benefit from favorable policies. No CFO has any doubts about taking a tax deduction for interest expense or recognizing a tax credit for their R&D.

It’s true that taxpayers will ultimately shoulder the cost of these government programs. However, companies that accept PPP will use those funds to pay employee salaries. Without those funds, many employees would be laid off and would apply for unemployment. Tax payers would pay for the unemployment benefits as well.

The decision to apply for stimulus under the CARES act should be based on good forecasting analysis on whether the company needs the additional emergency funding and what are the sources and options for funding.

In addition to the short-term consideration, there is also the long-term perspective of how the decision will be viewed in the future. For many CFOs, the fundamentals of capitalism are success through hard work and fair competition. CFOs that do careful analysis and access government loans and comply with the terms and enable their company to be positioned well for survival and success beyond the crisis will build a positive reputation for their company. Surely, there is no shame in that.

 

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