06 May How Small Businesses Can Stay Afloat During the Pandemic Without Government Help
Published: May 6, 2020 at 8:57 a.m. ETBy
Welcome to the world of bartering, where paychecks have gone away for some 30 million Americans — but the need for goods and services hasn’t
“I’m a licensed and insured contractor that specializes in masonry, framing, bathroom and kitchen remodeling, additions,” the Craigslist ad said, “and want to barter my services for absolutely anything. Make me an offer.”
And that’s why Willmar Perez is now the owner of a 2008 Toyota RAV4, a sport-utility vehicle. The 34-year old Springfield, Va., man agreed to do a complicated two-day job for a client, which involved digging a trench three feet deep in the client’s yard. A job like that over two days would normally cost “$6,500, maybe $7,000,” Perez said. “The guy had no money though, so he offered me the Toyota.”
The SUV, according to Kelly Blue Book, is worth about that much, so it was a good trade for both Perez and his client.
Welcome to the world of bartering, where paychecks have gone away for some 30 million Americans— but the need for goods and services hasn’t.
Dating back to the Middle Ages, bartering isn’t exactly new, but “thanks” to an economy battered by the coronavirus, offers to trade anything and everything are all over Craigslist, Facebook, Nextdoor and other social media platforms, and are spreading, it seems, as fast as the virus itself.
But don’t think that bartering is always as informal and loose as Perez’s deal with the homeowner. What most people don’t know is that there is a huge, legal and regulated barter network in the United States, codified by a 1982 law signed by President Ronald Reagan and enforced by the IRS. It’s within this framework that scores of barter exchanges exist around the United States, with each catering in turn to thousands of businesses, usually small ones. Typically, barter transactions between small businesses generate $3 billion to $4 billion in value annually.
Such transactions can add efficiency to the marketplace. Here’s how. Perez told me he took the Toyota as payment, even though he didn’t need a 12-year old SUV. So to monetize it, he’d have to spend time searching for a buyer. Very inefficient.
Instead, says Ron Whitney, president of the International Reciprocal Trade Association, a barter exchange would simply have extended that $6,500 to $7,000 to the Toyota owner, who could then either give the car to Perez, which he did—or keep it and provide $6,500 to $7,000 in goods or services to someone else. In other words, the Toyota owner would have had options.
For his part, Perez would then get $6,500 to $7,000 in “trade dollars” that he could use for something he needed, like plumbing supplies for a future job. He too, would have options. See how it works?
Barter exchanges, as a middleman of sorts, takes a small fee for helping to facilitate such deals.
“That’s the beauty of what organized barter exchanges do,” says Whitney. “Members don’t have to buy from who they sold to—which can often impede one-one trades since the value of what the seller has rarely matches the value of what the buyer needs.”
He adds that barter exchanges “are virtually a microcosm of the yellow pages. It’s service companies, it’s professionals, it’s retail businesses across the board. It’s a perfect business network for these difficult times that we’re living in right now.”
Much of this activity is taking place in the shadow of what the Trump administration and lawmakers on Capitol Hill have been doing to help small businesses. With all due respect to them, barter exchanges, with their built-in business networks and credit—at a time when access to capital from banks can be difficult—can help make the difference between life and death for small companies.
Whitney offers an example: “If you’re an orthodontist, and have been in business for 30 years, a barter exchange might extend you $30,000 or $40,000 in credit coming out of the gate. You can use that to advertise while offsetting your cash expenses now—and then you pay for it with your services in the future.” It preserves cash when cash is tight—like it is right now.
So don’t take the mistake of thinking that bartering is always informal or unregulated. In the case of Perez the plumber and his client, it was, and represented what Whitney calls a “one-on-one” trade. “But what we are involved in,” he says, “is third-party bartering, where there are barter exchanges involved that are perfectly legal, tailor-made business networks that are out there in virtually every city in America and across the globe. They provide an alternative marketplace for business people. It complements the existing cash system.”