Click here to learn about Canada’s COVID-19 Economic Response Plan and support available for individuals and businesses

April 27, 2020

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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:

  1. Cash Flow Management
  2. Canada Emergency Commercial Rent Assistance
  3. 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

On April 24, 2020, the Federal Government announced initial information on the Canada Emergency Commercial Rent Assistance (CECRA) program in partnership with the provinces. The program is designed to reduce the rent burden of small businesses by 75 percent.

The CECRA will provide forgivable loans to qualifying commercial property owners to cover 50 percent of the rent payments for April, May and June 2020 of eligible small business tenants affected by COVID-19. The loans will qualify to be forgiven if the mortgaged property owner agrees to reduce the eligible small business tenants’ rent by at least 75 percent for the three corresponding months under a rent forgiveness agreement. This agreement must also include a term not to evict the tenant while in place.

The small business tenant would be responsible for paying the remainder, up to 25 percent of the rent.

For qualifying tenants and mortgaged property owners, the result will be responsibility for the existing rent to be split 25 percent to the tenant, 25 percent to the property owner and 50 percent to the government.

Eligible small business tenants are those paying less than $50,000 per month in rent, and have temporarily ceased operations or have experienced at least a 70 percent drop in pre-COVID-19 revenues.

The CECRA will be administered by the Canada Mortgage and Housing Corporation (CMHC). It is expected to be operational by mid-May and will be available retroactively for April and May.

The Federal Government has also indicated that more information will be released in the coming days, including information for larger businesses and non-mortgaged property owners.

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 to online by clicking this link: https://www.bdc.ca/en/online_financing/pages/loan-application.aspx
  • Interest Free Loans
    The Government of Canada announced Friday, March 27th interest free loans of up to $40,000 will be made available to small and medium sized businesses. The loans are available through commercial banks, with government backing. The loans are interest free for one year, and 25% 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. Businesses should contact their bank to apply.
  • 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.

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