One of the most pressing issues facing Canadian businesses right now is whether accessing credit can help lessen the financial toll of the coronavirus. Two of the most recently announced government-backed lending options are described below.
1. The Small and Medium-sized Enterprise Loan and Guarantee Program (“Program”)1
The Program is being partly administered by the Business Development Bank of Canada (“BDC”), and enables up to $20-billion in additional lending for businesses. BDC is a Crown corporation, owned by the Canadian government. Under the Program, BDC will partner with conventional banks to co-lend term loans to small and medium sized-businesses. BDC advances 80% of the loan while the borrower’s bank lends the remainder. Loans of up to $6.25-million can be obtained by eligible businesses.
Businesses eligible for the Program must have been (1) financially viable before the coronavirus’ impact and (2) affected by the coronavirus. Further eligibility requirements apply. BDC recommends interested parties contact their primary financial institution.
2. Canada Emergency Business Account (“CEBA”)
CEBA will permit eligible businesses (and not-for-profits) to apply for loans of up to $40,000 which are funded and guaranteed by the Canadian government. The loans are interest-free until the end of 2022; CEBA allows a business repaying its balance before that date to have a quarter - or up to $10,000 - of the loan forgiven. Eligibility is intended to be broad. Businesses and not-for-profits with $50,000 - $1-million in 2019 payroll will be able to apply for CEBA.
Those applying under CEBA are likely to do so through their existing banks, with funds directly deposited into qualifying businesses’ operating accounts. However, important details about CEBA remain unclear. The government has not yet confirmed the interest rate that will apply if loans are extended beyond 2022 (though The Globe and Mail reports a 5% interest rate).2 Another question is how quickly banks, already stretched thin, can prepare for CEBA and disburse funds in the coming weeks.
More governmental supports are available to businesses than the two programs listed above. These include wage subsidies, GST/HST remittance deferrals, and income support. Businesses will need to evaluate these options in combination. No one solution is a panacea, nor are these supports likely to make businesses whole for lost revenues. But there can be no doubt that the survival of many businesses will depend upon how effectively they can adapt to our current reality.
If your business or not-for-profit is considering financing possibilities through this time, a Lerners lawyer would be pleased to assist.
1“New Small and Medium-Sized Enterprise Loan and Guarantee Program to Help Ease Access to Credit for Entrepreneurs Impacted by COVID-19”, accessed March 29, 2020, from: https://www.bdc.ca/en/about/mediaroom/news_releases/pages/new-small-medium-sized-enterprise-loan-guarantee-program-help-ease-access-credit-entrepreneurs-impacted-covid-19.aspx.
2“Banks Say They Need Time to Prepare Ottawa’s New Loan Program”, by James Bradshaw, The Globe and Mail, March 28, 2020.