We understand that this is difficult time for business owners in Canada with the recent outbreak of the Coronavirus (Covid-19). We have seen a lot of fast movements just in a few weeks, from sports events being cancelled, to local restaurants closing, and now a full lock down. This has placed a large drain on the economy in the short term because a lot of businesses have been placed on hold for at least the next month or so.
There is a lot of uncertainty around the virus situation and right now the Federal government has decided it is best to have people stay at home until the spread of the virus subsides. This was a wise call to ensure the health care system across Canada does not hit capacity for a spike of new medical cases. The approach was focused on a short-term shutdown and voluntary slowdown on all non-essential activities in order to reduce the overall long-term impact on the economy. Despite the uncertainty around the situation, the Canadian government has stepped in and has provided some support as follows.
The Federal government has implemented a fiscal stimulus package to help Canadian business owners through this difficult time. We wanted to outline the package and support for business owners:
1) Helping Businesses Keep their Workers
To support businesses that are facing revenue losses and to help prevent lay-offs, the government is proposing to provide eligible small employers a temporary wage subsidy for a period of three months. The subsidy will be equal to 10% of remuneration paid during that period, up to a maximum subsidy of $1,375 per employee and $25,000 per employer. UPDATE: Additional wage subsidiary of 75% of payroll for small businesses for a 3 month period would be available. Further details are to be released soon
Businesses will be able to benefit immediately from this support by reducing their remittances of income tax withheld on their employees’ remuneration. Employers benefiting from this measure will include corporations eligible for the small business deduction, as well as non-profit organizations and charities.
2) Flexibility for Businesses Filing Taxes
The Canada Revenue Agency will allow all businesses to defer, until after August 31, 2020, the payment of any income tax amounts that become owing on or after today and before September 2020. This relief would apply to tax balances due, as well as instalments, under Part I of the Income Tax Act. No interest or penalties will accumulate on these amounts during this period.
3) Government financing programs:
The Business Credit Availability Program (BCAP) will allow the Business Development Bank of Canada (BDC) and Export Development Canada (EDC) to provide more than $10 billion of additional support, largely targeted to small and medium-sized businesses. This will be an effective tool for helping viable Canadian businesses remain resilient during these very uncertain times. BDC and EDC are cooperating with private sector lenders to coordinate on credit solutions for individual businesses, including in sectors such as oil and gas, air transportation and tourism. The near-term credit available to farmers and the agri-food sector will also be increased through Farm Credit Canada.
The Office of the Superintendent of Financial Institutions (OSFI) announced it is lowering the Domestic Stability Buffer by 1.25% of risk-weighted assets, effective immediately. This action will allow Canada’s large banks to inject $300 billion of additional lending in to the economy.
The Bank of Canada also took a series of actions to support the Canadian economy during this period of economic stress, enhance the resilience of the Canadian financial system, and help ensure that financial institutions can continue to extend credit to both households and businesses. This included cutting the interest rate to 0.75% as a proactive measure in light of the negative shocks to Canada’s economy arising from the COVID-19 pandemic and the recent sharp drop in oil prices.
4) Other programs in draft:
Further to the Prime Minsters announcement on March 27, 2020, the Federal government is planning to provide additional support in the following ways:
(a) Additional wage subsidiary of 75% of payroll for small businesses for a 3 month period. Further details are to be released soon
(b) GST/HST remittances will be deferred until June 30, 2020.
(c) Interest free small business loan up to $40,000. Certain conditions will apply.
For more information please see the link below for the government’s site on the stimulus package.
Government Assistance through the Business Development Bank of Canada (BDC)
The government has provided funding to the BDC to support entrepreneurs and small businesses regarding working capital and other financing assistance during this time.
Terms & Conditions
(1) Working Capital loans up to $2MM;
with 12 months interest only payments (potential for 6 months no payments)
(2) 36-month term to a 60% balloon;
(3) Pricing: Floating Only (Base – 1.75%) approximately 3.30%
(1) Most recent three years of accountant prepared year-end financial statements;
(2) Most recent interim financial statements (if year-ends are more than 3 months old) with comparisons to the previous year’s interim period (if available);
(3) Projections and a cash flow forecast (a 6-month cash flow forecast may be most applicable); The purpose is to understand the company’s true cash needs for the next six months.
(4) An organizational
chart to the beneficial ownership level (i.e. shareholder level).
For more information please see the link below to BDC’s website: