July 9, 2020
We continue to update this information as new updates become available, but should you have questions about any of these government initiatives or programs, please contact your Smythe Partner directly.
Quick Links to information on this page:
- Cash Flow Management
- Canada Emergency Commercial Rent Assistance
- Obtaining Additional Financing
Cash Flow Management
Given the current economic uncertainty, effective cash flow management will be critical for the success of many businesses. This will likely involve a combination of:
- Managing working capital levels
- Managing discretionary expenses
- Obtaining additional financing
Working capital management can take the form of:
- Implementing Credit Policies
By implementing credit policies with your customers you can speed up the collection process. This could include requiring upfront deposits, reducing the credit terms or offering incentives for early payment. Always ensure you follow-up on overdue accounts.
- Utilizing a Just-in-Time Inventory System
Unless it will hurt your ability to sell, don’t carry extra inventory.
- Using Credit Terms to your Advantage
Unless they are offering worthwhile incentives, don’t pay your suppliers until it is necessary.
A tool that should be utilized to help with managements’ decision making, is a cash flow forecast. This will help you assess the impact of working capital and expense management decisions, as well as determine whether additional financing will be required.
If you decide that you need to obtain financing (see below), it is likely that the lender will require a forecast as part of the application process.
Canada Emergency Commercial Rent Assistance
The Canada Emergency Commercial Rent Assistance (CECRA) program reduces the rent burden for small businesses that have been affected by COVID-19.
The program is designed to reduce rental payments for small business by 75% for the months of April, May, June and July 2020. CECRA will cover 50% of the rent, while the tenant is responsible for paying up to 25% and the property owner forgiving the remaining 25%. Note: only tenants approved in the April, May and June application are eligible for the July extension.
Commercial Property Owner Eligibility
- Commercial property owner with one or more affected small business tenants
- Have entered into an agreement for rent reduction in April, May and June that:
- Reduces rent by at least 75%
- Places a moratorium on eviction of the tenant
- Acknowledges forgiven rent will not be retrieved at a later date
Small Business Eligibility
- Rent is less than $50,000/month per location
- Annual gross revenue is less than $20 million
- Tenant has experienced a minimum 70% decline in pre-COVID-19 revenues
For more information and full program details, visit the Canada Mortgage and Housing Corporate website.
Obtaining Additional Financing
As part of the economic stimulus package, the Government of Canada is working to ensure businesses have access to traditional financing, from both the government and private lenders.
Among the products being targeted to COVID-19 relief are:
- Working Capital Loans
Funds to provide working capital for the operations, and cover general operating expenses, as opposed to capital purchases or expansions. There are currently programs in place where loans can be approved within 48 hours or may be available without any payments for the first six months. BDC loans of up to $100,000 can be applied for online.
- Canada Emergency Business Account (CEBA) Interest-Free Loans
On March 27, 2020, the Government of Canada announced the Canada Emergency Business Account interest-free loans that provide up to to $40,000 for small businesses and not-for-profits that have been financially impacted by COVID-19. The loans are available through eligible financial institutions in cooperation with Export Development Canada (EDC). The loans are interest-free for one year, and 25% (up to$10,000) of the balance is forgivable if the business repays the loan by the end of 2022. Businesses are required to have had annual payroll of $20,000 to $1,500,000 in 2019 to qualify.
- Loan Guarantee for Small and Medium-Sized Enterprises
As part of the Business Credit Availability Program, EDC is partnering with financial institutions to guarantee 80% of new loans or credit requests up to $6.25 million for small and medium-sized enterprises. Financing is meant to be used for operating costs and is available to exporting and non-exporting companies. The idea behind the program is to encourage additional funding from banks as the EDC provides a re-payment guarantee of 80%. This program is now available through your bank or credit union.
- Bridge Financing Program
Offered though BDC Capital, this special program may match (with a convertible note) a current financing round being raised through qualified existing and/or new investors made into eligible Canadian start-ups. This program is best suited for high-potential companies that have venture capital investors willing to support them. BDC will then invest alongside these groups. There are seperate criteria for both companies and investors who wish to take advantage of this program – for full details, click here.
- Term Loan and Lease Payment Relief
Ability to delay payment of principal for up to six months on existing loans.
- Increases to Existing Line of Credit
Financial institutions are providing increases to the borrowing limits on existing lines of credit.
- Purchase Order Financing
Flexible terms are being offered to ensure existing and future orders can be fulfilled.
- Buyer Financing
Export Development Canada is providing buyer financing and direct financing for international sales to ensure Canadian businesses are able to participate in international trade opportunities.
To ease the cost of borrowing, the Bank of Canada lowered its target for the overnight rate by 50 basis points to ¼ percent, resulting in the Bank Rate being ½ percent and the deposit rate being ¼ percent. This brings the policy rate to its effective lower bound.
If your business requires cash flow management or additional financing, please contact your Smythe Partner directly as additional reporting may be required. Our team can match your business with the appropriate product and guide you through the process and provide financial information to the lending institutions.