Tomahawk - to avoid after lockdown

[Lefty]

The reasonable and fair thing to do is to provide some reward for the risk - not to ask for something for nothing. I am staggered anyone thinks this is acceptable.

They should pay interest on the amount loaned. How much are interest rates at the moment?

In reality the reward is simply the company surviving and their job continuing to exist. It's not ideal, but what is ideal this last year?

 

[Primus84]

They should pay interest on the amount loaned. How much are interest rates at the moment?

In reality the reward is simply the company surviving and their job continuing to exist. It's not ideal, but what is ideal this last year?

No the reward isn't that their job still exists, they're providing a loan - either pay interest, pay a bonus, pay a higher hourly rate in the future or provide equity it is simple.

Or are you suggesting in the future that the owners of the business will not derive financial benefits from the business continuing to trade to allow them to buy another Ferrari etc?

I fully appreciate the risks and the sacrifices that business owners take and it is right they should reap the rewards, but when you're asking for a loan from the lowest paid employees then you need to recognise the enormous hardship this will put some under and compensate them for that when you are able to do so.

 

[Lefty]

I don't know why this is even a debate. Yes they should get a reward beyond simply having a job at the end of it and they most certainly should not be coerced into it with the threat of the sack if they don't. At the risk of repeating yet again what Andy_W said numerous times, the situation isn't ideal at the moment by any stretch of the imagination. The purpose of the loan is relevant. The purpose, in this case, is to enable the company survive until the hospitality sector reopens, isn't it?

Also, they are not being asked to stump up savings, they are being asked to forego a proportion of money they are yet to be paid. Now that might not make an iota of difference to anyone who is living hand to mouth, as some employee's will be, but it might make a difference to some who think they can budget accordingly for the next three or four months.

The company have clearly not handled this very well. Even if it has been misreported as they say, they shouldn't have left employees with the leeway to misinterpret the gesture or scheme, if that is what they have done. I expect they were trying not to worry investors or lenders that the business was in imminent danger of folding, so were hoping to keep everything on the down low. An even bigger mistake was not to say that there would be a bonus or interest as an incentive or a thank you. That is what I would have done, but it's easy to say and see these things from a distance, less so when you are in the middle of the crisis.

 

[JustTheGent]

Anyone yet worked why they were undergoing a major expansion when the hospitality industry was on its knees?

 

[Andy_W]

No the reward isn't that their job still exists, they're providing a loan - either pay interest, pay a bonus, pay a higher hourly rate in the future or provide equity it is simple.

So if they loan the money with interest, will that make it ok?

Lets drill down into that....
Say someone is on £1,000 a month, interest rates are what 0.5%? Let's be charitable and call it 5%, good deal now for the staff, yes?
10% loan of £1,000 = £100, say three months of that until they open again (call this June), that's £300 to loan to the company.
5% APR on £300 say from May to November, 6 months.

That's £4.29 interest, in total. At 10 x the current interest rate (which will likely be negative by then) the difference between this being ok, and not ok is £4.29, apparently?

This is why I said they could have said they will pay back interest, it would have prevented most of the flames for next to zero cost. I bet the owners never even realised it!

What makes it ok/ not ok is the full circumstances (which are not known), and the value of the staff keeping their jobs for a year outweighs the interest by about 2500:1.

To me, and it would be the same if I was in that position, I would see the value of the job, far outweighs any material reward, especially in this climate. It's certainly no worse than unpaid overtime, which gets forced on practically every public sector worker.

I can't see people on that rate wanting equity, not at the value which would have matched pre-pandemic, and I wouldn't advise them having equity in the hospitality sector, especially when they wouldn't have immediate access to the cash. They're better off doing the loan, getting it paid back and looking for alternate employment if they hate the employer or this scheme.

 

[Primus84]

So if they loan the money with interest, will that make it ok?

Lets drill down into that....
Say someone is on £1,000 a month, interest rates are what 0.5%? Let's be charitable and call it 5%, good deal now for the staff, yes?
10% loan of £1,000 = £100, say three months of that until they open again (call this June), that's £300 to loan to the company.
5% APR on £300 say from May to November, 6 months.

That's £4.29 interest, in total. At 10% the current interest rate (which will likely be negative by then) the difference between this being ok, and not ok is £4.29.

This is why I said they could have said they will pay back interest, it would have prevented most of the flames for next to zero cost. I bet the owners never even realised it!

What makes it ok/ not ok is the full circumstances (which are not known), and the value of the staff keeping their jobs for a year outweighs the interest by about 2500:1.

To me, and it would be the same if I was in that position, I would see the value of the job, far outweighs any material reward, especially in this climate. It's certainly no worse than unpaid overtime, which gets forced on practically every public sector worker.

I can't see people on that rate wanting equity, not at the value which would have matched pre-pandemic, and I wouldn't advise them having equity in the hospitality sector, especially when they wouldn't have immediate access to the cash. They're better off doing the loan, getting it paid back and looking for alternate employment if they hate the employer or this scheme.

Would you loan money to a credit risk on such favourable terms as 5%?

 

[Andy_W]

Would you loan money to a credit risk on such favourable terms as 5%?

If I was getting 3000, to loan back 300 at 5% yes, as I get 2700 no matter what, and probably get another 6 x 1000 for the 6 months after too.
If I was loaning 300 to hospitality, to go as liquid cash, to get back 305, not a chance in hell.

 

[Primus84]

If I was getting 3000, to loan back 300 at 5% yes, as I get 2700 no matter what, and probably get another 6 x 1000 for the 6 months after too.
If I was loaning 300 to hospitality, to go as liquid cash, to get back 305, not a chance in hell.

I have to say I simply do not believe you, you wouldn't lend to any credit risk at 5%.

Furthermore given the position of the employees and their low income would you loan to your employer at 0% whilst then having to cover the shortfall with a payday loan at a minimum APR of circa 90% but likely to be triple digits APR?

 

[Andy_W]

I have to say I simply do not believe you, you wouldn't lend to any credit risk at 5%.

Furthermore given the position of the employees and their low income would you loan to your employer at 0% whilst then having to cover the shortfall with a payday loan at a minimum APR of circa 90% but likely to be triple digits APR?

Why would I lend at 5% to a hospitality company, that appears to be broke, when I could invest it at near 10%, with it diversified over 500 companies and be safer? Alternatively just not invest it or loan it, or maybe put it in bonds, the reward v risk would be far better. This is probably why they can't get finance, actually, the lenders just look at this and the balance sheet and run a mile, especially with late accounts.

I would hope there are more options from the employees to be honest, than a 90% loan, but if not, and it was the only option, then I would reluctantly take the 90% APR option. Although I detest these with all my heart. But £300 for 6 months at 90% APR is about £100 interest I expect. I think the job is worth that, in this climate, they would be back on 100% pay by June too, and maybe even get some overtime.

 

[Primus84]

Why would I lend at 5% to a hospitality company, that appears to be broke, when I could invest it at near 10%, with it diversified over 500 companies and be safer? Alternatively just not invest it or loan it, or maybe put it in bonds, the reward v risk would be far better. This is probably why they can't get finance, actually, the lenders just look at this and the balance sheet and run a mile, especially with late accounts.

I would hope there are more options from the employees to be honest, than a 90% loan, but if not, and it was the only option, then I would reluctantly take the 90% APR option. Although I detest these with all my heart. But £300 for 6 months at 90% APR is about £100 interest I expect. I think the job is worth that, in this climate, they would be back on 100% pay by June too, and maybe even get some overtime.

Wow so we’ve now ended up with employees having to actually pay in order to loan the business money and you still think it’s ok?

I think you are on a different planet to most ordinary working people.

 

[Lefty]

Give up Andy_W, some people are just unable to get beyond a 'four legs good, two legs bad' mindset.

 

[Andy_W]

Wow so we’ve now ended up with employees having to actually pay in order to loan the business money and you still think it’s ok?

I think you are on a different planet to most ordinary working people.

They're not "paying" though, are they, as that would imply they would be at a permanent net loss, whereas they would actually be at a temporary net gain (over the alternative), followed by full pay, followed by full pay + the previous loan. It's like a very temporary partial refund, at no point would the staff member be anywhere near worse of, than if the company just folded, like many have.

You're looking at just the "loan" in pure isolation, you need to look at what caused the requirement for the loan, the economic outlook, what they also get before the loan, to enable the loan, what comes after the loan and what is the alternative to the loan. You're effectively not looking at the bigger picture.

No, I think I just understand risk v reward, more than "most ordinary working people", probably due to my job being related to it.

You don't seem to have a problem with the business loaning 500k per month (assuming 1k per employee) to the employees, to cover the furlough until it's paid back by the government? Also to cover the administration of this and the accounting etc.

Give up Andy_W, some people are just unable to get beyond a 'four legs good, two legs bad' mindset.

Maybe I need to go with the:
"If I give you 8 apples, then borrow 1 apple, how many apples do you have?"
"If I then give you 1 apple back, how many apples do you now have?"

Or,
If I lose my apple cart (which has been on fire for a year) and gave you 0 apples, how many apples do you have?

 

[Primus84]

They're not "paying" though, are they, as that would imply they would be at a permanent net loss, whereas they would actually be at a temporary net gain (over the alternative), followed by full pay, followed by full pay + the previous loan. It's like a very temporary partial refund, at no point would the staff member be anywhere near worse of, than if the company just folded, like many have.

You're looking at just the "loan" in pure isolation, you need to look at what caused the requirement for the loan, what they also get before the loan, to enable the loan, what comes after the loan and what is the alternative to the loan. You're effectively not looking at the bigger picture.

No, I think I just understand risk v reward, more than "most ordinary working people", probably due to my job being related to it.

You don't seem to have a problem with the business loaning 500k per month (assuming 1k per employee) to the employees, to cover the furlough until it's paid back by the government? Also to cover the administration of this and the accounting etc.


Maybe I need to go with the:
"If I give you 8 apples, then borrow 1 apple, how many apples do you have?"
"If I then give you 1 apple back, how many apples do you now have?"

Or,
If I lose my apple cart (which has been on fire for a year) and gave you 0 apples, how many apples do you have?

Err I think you've missed the point.

They're earning very little, they likely cannot go down a further 10% so will need to borrow that money from somewhere else and pay interest - therefore for them to supply an interest free loan to the business they themselves have paid interest so they are very much in a losing position.

From your posts here it is absolutely clear you have no clue what life is like for a large amount of the population.

 

[Corcaigh_the_Cat]

Anyone yet worked why they were undergoing a major expansion when the hospitality industry was on its knees?

The question everybody is avoiding.

My guess is they took a gamble of Covid not lasting. The gamble failed and now they're pressurising employees into bailing them out.

Why not offer to share future profits with the workforce should they back them?

 

[Andy_W]

Err I think you've missed the point.

They're earning very little, they likely cannot go down a further 10% so will need to borrow that money from somewhere else and pay interest - therefore for them to supply an interest free loan to the business they themselves have paid interest so they are very much in a losing position.

From your posts here it is absolutely clear you have no clue what life is like for a large amount of the population.

Right, going down 10% is bad, it's totally $hit, which I 100% agree on, which I've said 20 times.

But is going down by 100% better?

You seem to think it's worse for someone to pocket £9,000 over 9 month than to pocket £0 over 9 month.

I do, I've been there, I was there for years, not all that long ago.

 

[Primus84]

Right, going down 10% is bad, it's totally $hit, which I 100% agree on, which I've said 20 times.

But is going down by 100% better?

You seem to think it's worse for someone to pocket £9,000 over 9 month than to pocket £0 over 9 month.

I do, I've been there, I was there for years, not all that long ago.

The point I have made all the way through is that the company want something for nothing. If you want a loan then you have to be prepared to compensate the person providing the loan in some manner.

 

[Andy_W]

The question everybody is avoiding.

My guess is they took a gamble of Covid not lasting. The gamble failed and now they're pressurising employees into bailing them out.

Why not offer to share future profits with the workforce should they back them?

That question has been answered, it looks like they had private investment for the expansion (separate company too, which complicates things) and by expanding they increased the number of jobs available.

So by having that investment, that's more people going on 70/80%, than being on 0%. No investor was going to come in and just invest liquid cash, during a pandemic, into hospitality, straight after brexit. The risk would be astronomical, for a tiny reward, there are a million better alternatives.

The shares sound fine on paper but if you think about it in detail, shares lock in money, into hospitality, like private investment, no investor would advise investing in a company which could easily go to zero. No investor would advise investing anything unless the investor had 3-6 months worth of wages saved up. Most low paid people would rather have the cash in 6 months, rather than maybe a tiny share of profits when the business recovers in 3,5,10 years etc. Then there's the admin cost, who buys the shares if they want to sell, what value is £200k loan for 3 month, compared to what the company is/ was worth and what the private investors/ directors have pumped in etc?

 

[Andy_W]

The point I have made all the way through is that the company want something for nothing. If you want a loan then you have to be prepared to compensate the person providing the loan in some manner.

Being brutal about it, the staff have been getting 80% for nothing, for half a year, which is a lot more than 1.5 million have been getting (this is the number I don't want to increase). Fair enough it's come from the government, but the companies employment has enabled this, and the company is lending the staff that furlough money until the government pay it, which is about 3-6 weeks later if I remember correctly (not done a furlough claim for a while).

The company did not need to do this, it could have laid everyone off and just folded, and started again in the summer like lots have done and will do. The funny thing is these companies have been getting sympathy when it's much worse morally, and much worse for the staff.

Wanting something "for nothing", is not really correct as they will likely refund it (if they don't go bust, but then the staff have more to worry about), and they will be giving out, before asking for anything back. They've been burning through cash for a year, to try and keep the business going and staff employed, so I would count this as something that has been "given". The business has probably burnt through 10x what they're asking for as a very temporary loan.

I've said they could pay 5% interest (they really should have offered this, they've made a schoolboy error here), which is 10x the current base rate I think. But there's zero real benefit to this, it would be a con, effectively, as it works out about £5 interest, in total. It would pull the wool over 95% of peoples eyes though, albeit I don't believe for a bad reason.

If you're for a loan with interest, then your basically for a loan without, as the percentage difference is tiny, even more compared to future earnings and risk. The difference between our views here is <0.5% of the expected years earnings by staying employed.

 

[Primus84]

Being brutal about it, the staff have been getting 80% for nothing, for half a year, which is a lot more than 1.5 million have been getting (this is the number I don't want to increase). Fair enough it's come from the government, but the companies employment has enabled this, and the company is lending the staff that furlough money until the government pay it, which is about 3-6 weeks later if I remember correctly (not done a furlough claim for a while).

The company did not need to do this, it could have laid everyone off and just folded, and started again in the summer like lots have done and will do. The funny thing is these companies have been getting sympathy when it's much worse morally, and much worse for the staff.

Wanting something "for nothing", is not really correct as they will likely refund it (if they don't go bust, but then the staff have more to worry about), and they will be giving out, before asking for anything back. They've been burning through cash for a year, to try and keep the business going and staff employed, so I would count this as something that has been "given". The business has probably burnt through 10x what they're asking for as a very temporary loan.

I've said they could pay 5% interest (they really should have offered this, they've made a schoolboy error here), which is 10x the current base rate I think. But there's zero real benefit to this, it would be a con, effectively, as it works out about £5 interest, in total. It would pull the wool over 95% of peoples eyes though, albeit I don't believe for a bad reason.

If you're for a loan with interest, then your basically for a loan without, as the percentage difference is tiny, even more compared to future earnings and risk. The difference between our views here is <0.5% of the expected years earnings by staying employed.

You really don't get it do you?

80% for nothing? The Government has paid for furlough because the impact on the country would have been devastating.

Whether 80% of minimum wage is better than being on benefits is neither here nor there.

The 10% the business is asking them to pay them is coming directly from Government funds to support employees.

Something for nothing is correct becuase a zero interest loan is something for nothing - they've had your cash for a period of time and you've nothing to show for it other than the cash being returned at a later date.

Come on now, be honest, what's your connection to the business or business owner?

You're expecting people on minimum wage to contribute to keep someone else's business going when said business owners are driving around in multiple flash cars? That is ridiculous and offensively out of touch.

 

[Andy_W]

You really don't get it do you?

80% for nothing? The Government has paid for furlough because the impact on the country would have been devastating.

Whether 80% of minimum wage is better than being on benefits is neither here nor there.

The 10% the business is asking them to pay them is coming directly from Government funds to support employees.

Something for nothing is correct becuase a zero interest loan is something for nothing - they've had your cash for a period of time and you've nothing to show for it other than the cash being returned at a later date.

Come on now, be honest, what's your connection to the business or business owner?

You're expecting people on minimum wage to contribute to keep someone else's business going when said business owners are driving around in multiple flash cars? That is ridiculous and offensively out of touch.

Of course, I know that, it's economically a very sound thing to do, to save the economy and save jobs, which is exactly the thing I'm trying to explain/ protect. My point is the people getting the money are not doing anything for it, currently.

Might be "here nor there" to you, but it won't be to them. It's also to have a job to go back to, to not have to sell the house, or car. Having everyone on furlough is unsustainable, so would eventually have to drop and as would benefits, or other services. If furlough prolonged, then the furlough and benefits would not go up, money runs out.

Furlough does not come directly from the government, the company pays it and claims it back (weeks later), this is a cashflow problem.

Funny how you cut out/ ignore the outlay/ losses that the business has had.........and that they pay the loan back, and then also provide future employment.

Nothing to do with the business or ower, or have any link in any way whatsoever. I wouldn't touch hospitality with a barge pole to be honest, wouldn't have done this pre-pandemic either. But during the pandemic, as I've seen first hand the damage done in other sectors and it's brutal, but nothing compared to what hospitality is dealing with.

The staff have a lot more to gain in percentage/ real terms and the loan is not a loss, not permanently.
You again talk about a minor shareholder, with assets (probably not fully owned), which are likely mainly achieved from wealth gained away from this business (which is a limited company). His interest in this business is probably equally limited, he (and the other number of shareholders) might eventually just cut their losses (which are likely substantial).