Canadian Business Support Measures Augmented in New Series of Federal Government Announcements

March 30, 2020

On March 27, 2020, the Government of Canada announced additional economic stabilization measures in response to the COVID-19 crisis. These include (i) a $2.5 billion increase in the amount available under the Business Credit Availability Program (BCAP), (ii) interest-free loans of up to $40,000 for small businesses and (iii) loan guarantees on credit and cash flow term loans provided to small- and medium-sized enterprises (SMEs). This announcement was followed up with some additional details on March 30.

The following summary focuses on the aspects of the updated plan that are of particular importance to businesses. Measures focused on employees are discussed in the posts listed here. For measures related to taxation, please see our post here.

Support for Businesses

Shortly after announcing an initial set of measures designed to support Canadian business, Canada’s federal government provided additional relief in its March 18, 2020 and March 27, 2020 statements. The March 18 statement was discussed in an earlier post.

Enhancing business credit availability

The federal government announced that $12.5 billion will be available to Canadian businesses under the Business Credit Availability Program (BCAP). Under the plan, the Business Development Bank of Canada (BDC) and Export Development Canada (EDC) will coordinate with private sector lenders on financing and credit insurance solutions support for Canadian businesses operating in all sectors and regions of Canada.

Private sector lenders that are coordinating with BDC and/or EDC include:

  • Bank of Nova Scotia;
  • Bank of Montreal;
  • Canadian Imperial Bank of Commerce;
  • HSBC Bank Canada;
  • Toronto-Dominion Bank;
  • Royal Bank of Canada;
  • National Bank of Canada;
  • Desjardins Group;
  • Laurentian Bank of Canada;
  • Canadian Bankers Association; and
  • Canadian Credit Union Association.

Some of the financing and credit insurance solutions support being provided in connection with the BCAP plan include: (1) BDC’s offer to (a) provide working capital loans of up to $2 million with flexible terms and payment postponements for up to 6 months for qualifying businesses, (b) provide flexible repayment terms, such as postponement of principal payments for up to six months, for existing BDC clients with total BDC loan commitment of $1 million or less and (c) reduce rates on new eligible loans; (2) EDC’s offer for exporting companies to (a) guarantee loans of up to $5 million that are provided by financial institutions and (b) cover losses for goods shipped even if the buyer has not accepted the goods; and (3) certain financial institutions’ offers to allow for the deferral of payment on applicable credit cards, credit lines and business loans. More details and terms can be found on BDC’s website and EDC’s website.

Businesses seeking support through the BCAP plan are being informed to contact the financial institutions with whom they have a pre-existing relationship so that such financial institutions may assess such business’ financial request. If the needs of the applicable business exceeds the level of support the financial institution is able to provide, then the financial institution will work alongside BDC or EDC to access additional resources that have been made available under the BCAP plan. If interested in accessing relief under the BCAP plan, BDC encourages current BDC customers to contact their account manager (additional contact details can be found on its website). Similarly, EDC encourages current EDC customers to contact their account manager (additional contact details available on its website).

Canadian Emergency Business Account (CEBA)

$25 billion will be available to Canadian small businesses under the announced CEBA plan. Under this plan, EDC will cooperate with private sector lenders to provide interest-free loans of up to $40,000 to small businesses and not-for-profits.

To qualify, these organizations will need to demonstrate they paid between $50,000 to $1 million in total payroll in 2019. Repaying the balance of the loan on or before December 31, 2022 will result in loan forgiveness of 25 percent (up to a maximum of $10,000).

Small businesses and not-for-profits should contact their financial institution to apply for these loans.

Loan guarantee for SMEs

EDC will guarantee new operating credit and cash flow term loans that financial institutions extend to SMEs, up to $6.25 million. The program cap for this new loan program will be a total of $20 billion. The government has announced that these loans will be 80% guaranteed by EDC, to be repaid within one year. Further details on this program are yet to be established.

Co-lending program for SMEs

Up to $20 billion will be available to Canadian SMEs under the announced Co-Lending Program. Under this plan, BDC will cooperate with private sector lenders to co-lend term loans to SMEs for their operational cash flow requirements. Eligible businesses may obtain incremental credit amounts up to $6.25 million, which the government has announced will be risk-shared at 80% between the BDC and the private sector lenders. BDC’s portion of this program is up to $5 million maximum per loan.

Boosting the banks’ lending capacity

In addition to recent Bank of Canada rate cuts, economic liquidity will be enhanced as a result of the Office of the Superintendent of Financial Institutions’ (OSFI) announcement that the Domestic Stability Buffer will be lowered, giving the major Canadian banks $300 billion in additional lending space. Additional relief was announced with respect to mortgage lending.

Reducing the need for layoffs

Eligible businesses will be provided with a temporary wage subsidy, for a period of up to three months, retroactive to March 15, 2020. Initially, the subsidy was to have been equal to 10% of remuneration paid during that period, up to a maximum subsidy of $1,375 per employee and $25,000 per employer. However, the Government of Canada announced on March 27, 2020 that this wage subsidy will be increased to 75% of remuneration paid. According to a March 30 statement by the Prime Minister, the subsidy will be available to companies experiencing a revenue decrease of 30 percent or more and will apply on the first $58,700 of remuneration paid.

The information currently available provides employers benefiting from this measure will include corporations eligible for the small business deduction (i.e. Canadian-controlled private corporations (CCPC) with taxable capital employed in Canada of less than $15 million), as well as non-profit organizations and charities. However, the Government has announced this will be extended to cover SMEs.

Canada Emergency Response Benefit

The Canada Emergency Response Benefit (CERB) will provide a benefit of $2,000 a month, for up to four months, to eligible individuals (which may include self-employed individuals who are not otherwise eligible for employment insurance) who have lost their income for 14 days or more. For more information about CERB, please read our post here under the “Employment Insurance Programs” heading.

DISCLAIMER: This publication is intended to convey general information about legal issues and developments as of the indicated date. It does not constitute legal advice and must not be treated or relied on as such. Please read our full disclaimer at www.stikeman.com/legal-notice.

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