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Image: Greta Punch on Unsplash
2020 has seen more junk bonds issued than any other year ever. The cash used to finance these bonds is now tied up by larger companies that, you know, are large enough to issue bonds. This means there's a shortage of money for small businesses to borrow. Is there a relationship between this behavior and what happened with massive musical acts taking PPP loans?
Debt is supposed to be for speculation: machines, warehouse space, racking, technology, top talent, permits, etc. ROIs are part of the debt plan. Because money is cheap to buy (what's the Fed's interest rate again?), the risk upfront doesn't match the long term liability for debtors. The 16 year old taking the 20 USD Andrew Jackson bill from his landlord father will spend it faster on a girl as an "investment" than on an oil change.
Your assignment today is to learn about EBITDA.