[quote=flu]I smell a business opportunity here….For folks that give a cash advance at a steep discount of the face value of the IOU….The longer CA drags this out, the more cash strapped folks with those IOU’s will be.
I wouldn’t be surprised if folks/company with cash start offering cash to holders of those IOUs in exchange for those IOUs being purchased at a significant discount.
For instance, suppose J6p has an IOU for $2000. Assuming it would be transferrable, why not offer cash-strapped J6P $1300 cash in exchange for the IOU? While it’s seems like a shitty thing to do, it’s really a win-win proposition for j6p….J6p gets to continue to live paycheck to paycheck, and the person offering the cash gets a premium for taking on the risk in case CA defaults and those IOUs aren’t redeemable
Hell, folks can even advertise this on craigslist and or on those websites that attempts to raise money for 3rd world countries (appropriate, since we’re definitely heading that direction !)
You can extrapolate this to businesses that have a nice big IOU too who need to meet payroll and bills.
I don’t see this doom and gloom…In fact, as shitty as it sounds, I think it creates opportunity.[/quote]
FLU: What you’re talking about is essentially factoring (cash for discounted Accounts Receivable) and it happens frequently in other industries.
Usual rule of thumb is about 1.5% interest per month charged on 100% of the face value of the paper, but for 80% of the face value in cash (the other 20% being reserved as security). It’s a risky business, but it can be exceptionally lucrative, too.
I think you’re right, especially for those businesses in the construction and contracting trades that rely on state work for the bulk of their revenue (the subs working for Edge Construction in Temecula come to mind, for instance). I would imagine there are subs out there that would play ball and probably at significant discounts.
