The recently-announced, new federal business loan will provide a lifeline for many retailers and small business owners across Canada who are on the brink of collapse as a result of the punishing economic blow the COVID-19 pandemic has dealt them for nearly a year.
The Highly Affected Sectors Credit Availability Program (HASCAP), with the Business Development Bank of Canada, will work with Canadian financial institutions to offer government-guaranteed, low-interest loans of up to $1 million. Hard-hit businesses, like a chain of hotels or restaurants with multiple locations under one related entity, could be eligible for up to $6.25 million.
“The pandemic has affected employers across sectors and had a tremendous impact on the jobs and lives of Canadians and Canadian families. Our COVID-19 support programs have worked to protect millions of jobs, but we know that the second wave of this virus continues to weigh on many workers and businesses,” said Chrystia Freeland, Deputy Prime Minister and Minister of Finance, in a statement.
“HASCAP gives those in highly affected sectors — like tourism, hospitality, arts and culture — new support so they can weather this storm and be ready for a robust recovery that will create jobs and strengthen the middle class.”
Bruce Winder, author of RETAIL Before, During & After COVID-19 and President of Bruce Winder Retail, said the new program will help some retailers but one can argue that distressed retailers may have already tapped into initial loan programs and this is too late to save them.
“Also, many businesses don’t have the margins and will not have the margins to pay back this new loan so it does little to help them long term. It may keep them alive as ‘zombie’ businesses but will just postpone the inevitable,” he said.
“For those who can use (government support) and make it work it is critical as we are in for some tough times for several more months and this may be the lifeline they need to get them to safer ground during holiday 2021.”
Asked if there is anything else government needs to do for businesses, Winder said: “Some will argue for business grants versus loans but then society must ask if it is government’s job to do so. Governments bailed out business after the Great Recession and received significant backlash from voters.”
Alla Drigola, Director of Parliamentary Affairs and SME Policy at the Canadian Chamber of Commerce, said overall the program is good for businesses particularly in the hard hit sectors like tourism, travel, accommodation and food services.
Many businesses have had trouble accessing the government’s original loan program due to a number of factors and this new HASCAP program really allows these businesses to participate and allows them to bridge to the end of the pandemic, she said.
Drigola said a number of government support programs in the past year have been “critical in helping businesses of all sizes, but particularly small businesses, survive through the pandemic”.
“And this loan program is going to be another tool in that arsenal of the options available. But at the same time businesses can’t operate on debt forever and a program like the HASCAP program can only be made stronger by having a forgivable portion or even expanding that top $6.25 million ceiling to allow some of those medium to larger size businesses to take advantage,” said Drigola.
“But overall I think the supports that have been provided have been critical in ensuring that businesses can survive. But at the end of the day these are just band aid solutions and the best thing the government could do is to manage COVID in a coherent and consistent way across Canada to allow businesses to be able to reopen and get back to business and serve customers of course in a safe manner.”
“We are 11 months now into the pandemic and so it’s important for businesses to have access to funds to make sure that they can remain open,” said Guenette. “We’re happy with the program. Many of the principles are solid so it will be helpful for many firms, especially for those that are mostly affected by the pandemic.
“But we do have some concerns. One is that most of small businesses cannot just take on more debt related to the pandemic at this time. So we’re calling on the government to make a portion of the loan forgivable as part of this program. A little bit like they are doing with the CEBA (Canada Emergency Business Account) program. This would be an important change to be made to the program to make sure that a portion of the loan is forgivable.
“And also the program is leaving out new businesses that started after March 2020. So it’s another federal program after the wage subsidy, after the rent subsidy program, after the CEBA loan program, now this new program also leaves out new business from applying to the program. We’re asking the federal government to either change some of the eligibility criteria for that specific program or put in place a new program for new businesses that were launched after March 2020 who don’t have access to COVID relief federal programs.”
“This will be helpful. We would like for the program to be forgivable, to be a forgivable loan. That would help more . . . The current programs are helpful indeed. The thing is that they need to be extended. They need to continue after June. We need continuous support from the federal government until the end of the crisis, not until summer. The majority of our restaurants will take at least one year just to come back to profitability,” said Bourbeau.
“It is something that we bring to our discussions with the government on a daily basis.”
To be eligible for HASCAP, the federal government said businesses need to show a year-over-year revenue decline of at least 50 per cent in three months, within the eight months prior to their application. They must also be able to show their financial institutions that they have previously applied for either the Canada Emergency Wage Subsidy or the Canada Emergency Rent Subsidy. Eligible businesses can start applying as early as February 1 at principal financial institutions and more widely by February 15.
Dan Kelly, President of the CFIB, said the national organization’s latest data finds that one in six businesses is currently considering permanent closure after months of restrictions and low revenues. Canada could lose as many as a quarter of its small businesses by the time the pandemic ends, he added.
“The government must work to open the application process at all financial institutions as soon as possible and get the loans flowing out quickly after that to ensure businesses can cover any urgent and outstanding costs,” said Kelly.
“The program also leaves out new businesses that started in 2020. CFIB has pointed out that none of the federal support measures are currently available to new firms and has asked the government to create pathways for them to access HASCAP and all other government support programs.
“CFIB thanks the government for its continued willingness to listen and respond to the needs of small businesses. With the right changes, the federal COVID-19 support programs can help prevent thousands of business closures in the coming months, ensuring a faster economic recovery once the crisis is over.”