November 24, 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 Rent Subsidy
The Canada Emergency Rent Subsidy (CERS) program provides a subsidy of up to 65% of commercial rent and related property expenses to Canadian businesses, non-profit organizations, or charities who have experienced a revenue decline due to the COVID-19 pandemic. CERS runs from September 27, 2020, until June 2021.
This subsidy is paid directly to qualifying renters and property owners and does not require the participation of landlords.
Any entities eligible for the base subsidy may be eligible for additional lockdown support of up to 25% of eligible expenses if a location is significantly affected by a public health order for a week or more.
There is no minimum revenue drop required to qualify for the subsidy, but the decline in revenue experienced is used to calculate the subsidy amount for each period.
Business, Non-Profit or Charity Eligibility
In order to be eligible, entities must meet one of the following requirements:
- Have had a CRA business number on September 27, 2020; or
- Have had a payroll account on March 15, 2020, or another person or partnership made payroll remittances on your behalf; or
- Purchased the business assets of an entity that met the condition above. The special asset acquisition rules are the same as the Canada Emergency Wage Subsidy (CEWS) and require an election to be made.
- Be an eligible business, charity, or non-profit (eligible entity) per the list on the Government of Canada website.
- Have experienced a decline in revenue calculated by comparing the eligible revenue during the period with eligible revenue from a previous period. The decline in revenue can be calculated online here.
For more information and full program details, visit the Government of Canada 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.