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Re: How much $ do firms borrow for P2?





Burt,

     We've talked about this subject before, but I'd like to tell you (and
others) a little anecdote about a presentation I made to the Small Business
Committee of the Amercian Bankers Association a number of years ago in
Baltimore.  As I was waxing eloquently about the tremendous potential demand for
so-called P2 loans, one of the bankers cut me off in mid-sentence.  "I don't get
it," he said. "Why would a rational small businessperson take on additional debt
for something like that, when his/her first priority is to grow the business?"
When you think about it, this is consistent with what Kelly Moran was saying in
her reply to you.

     I think where we (who have advocated P2 loan programs in the past) miss the
boat is by mis-understanding the relevant opportunity costs of a P2 Project.
Typically, we would calculate  the benefit stream w/o any intervention, then we
would calculate the benefit stream with the P2 intervention, subtract the two
streams, and then calculate an NPV or IRR for the net benefits stream.  But this
analysis is incomplete.  The business has more options than merely doing a P2
Project, and lots of those options  relate to the revenue side, not the cost
side of the business.  Thus, even if a P2 project would "pay," in comparison
with doing nothing, it might not "pay" enough to make it seem worthwhile in
comparison with a variety of undertakings designed to grow the business.  In
terms of economic jargon, the net benefits of a P2 project might well not be of
sufficient magnitude to outweigh the opportunity costs incurred by not
undertaking a "growth-enhancing" project.  Businessmen/women see this, and
bankers see this---it's just us that have a little difficulty seeing it.  Or
maybe the difficulty lies not so much in what we see or don't see, but in our
willingness to accept...............None of this is to deny our old shibboleth,
"P2 Pays."  It's just that P2 might not be the killer app that we like to think
it is.