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One of Canada’s largest banks and the country’s export credit agency are rolling out targeted relief for small- and medium-sized businesses amid mounting calls for help coping with the intensifying economic fallout from the new coronavirus.

Bank of Montreal is offering to increase operating lines of credit for small businesses and advance funds to help ensure employers can make payroll. It is also promising to defer payments on loans, credit cards and credit lines for Canadian small businesses, while providing similar “tailored relief” for larger commercial clients that could include access to extra working capital. Medium-sized businesses are being offered one-on-one advice on options to maintain their liquidity.

Starting Tuesday, Export Development Canada said it will support exporters by guaranteeing their bank loans up to $5-million, ensuring companies "can access more cash immediately.” And for credit insurance customers, EDC will cover losses for goods shipped even if the buyer has not accepted them, subject to some terms, and waive the waiting period for claims.

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The relief measures were issued after Canadian businesses pleaded for relief from governments as restrictions aimed at curbing the spread of COVID-19 are choking off vital cash flows. All of Canada’s major banks have promised assistance to business clients, and lenders have been in talks with the federal government about ways to provide a range of financing options, including working capital and lines of credit, to help see companies through hardships in the coming months.

But BMO chose not to wait for government action. Instead, the bank offered immediate lifelines to clients, even as the bank’s head of North American personal and business banking, Ernie Johannson, said BMO stands ready to act on any policies that federal and provincial governments may introduce to help make businesses more resilient.

“The financial challenges that have developed as a result of COVID-19 are placing a strain, especially, on small businesses across Canada," Ms. Johannson said in a statement.

Other Canadian banks have also pledged support for commercial and small-business clients, but BMO’s new policies are some of the most specific relief measures rolled out so far. Last week, Canadian Imperial Bank of Commerce said it would allow small businesses to defer some payments on loans. It also expanded a call centre team staffed by small-business experts to handle requests for relief and promised extra support for businesses that need new loans or help with cash management.

Lawyers who advise both lenders and companies that borrow money say banks have faced a flood of requests to tap into existing credit facilities as liquidity dries up with many businesses shuttered in response to the coronavirus outbreak.

Restaurants and retailers, in particular, have already looked to draw on revolving lines of credit, said Osler Hoskin & Harcourt LLP partner Joyce Bernasek, who works on financing agreements for both banks and borrowers. “The banks are just inundated – and I think the shutdown orders will just continue this – with requests by all the companies that they lend to, to be drawing money.”

Cash flow constraints and business interruptions could soon put many companies on the wrong side of covenants in their lending agreements, such as requirements to meet financial metrics such as minimum earnings or debt-to-equity ratios or even to carry on business in general.

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If covenants are not met, lenders could call for the immediate repayment of loans, but banks have so far been flexible in their approach.

“Generally speaking, banks don’t like to call events of default on credit facilities. And I think there is an understanding as well within the banking community generally that we have to carry on through this period,” Ms. Bernasek said.

So far, staff at Canadian banks have been “calm and focused” while trying to find solutions for clients, said David Cohen, the national leader of Gowling WLG Canada’s financial institutions and services group.

“Banks need to figure out, with government, how to get this money to the right businesses as quickly and as efficiently as possible, without burdening them with so much debt that they can’t survive it on the other side,” he said. “Nobody is under the illusion that profitability will not be extinguished for a period of time.”

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