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A pedestrian walks past a row of closed storefronts as the COVID-19 pandemic continues to take its toll on businesses in downtown Montreal, Jan. 25, 2021.Ryan Remiorz/The Canadian Press

Businesses will be able to tap into a new low-interest, Ottawa-backed loan starting Monday, though some owners and industry leaders warn that extra debt could do more harm than good as Canada looks toward postvaccination economic recovery.

The Highly Affected Sectors Credit Availability Program, or HASCAP, will be open to businesses in all sectors on Feb. 1 if they can show a year-over-year revenue decline of 50 per cent or more for any three of the past eight months. Most loans will range in value from $25,000 to $1-million, and companies must also have applied for either the Canada Emergency Wage Subsidy or the Canada Emergency Rent Subsidy to be eligible.

Chains of multiple businesses run by a single entity, such as restaurant or hotel groups, may be eligible for larger loans of up to $6.25-million. That’s a significant boost to the $1-million maximum that Ottawa first announced in its Fall Economic Statement in November, when the Liberals initially described the program as targeting certain hard-hit sectors as opposed to any businesses experiencing significant revenue declines.

Canadian businesses have been struggling to survive during the pandemic – especially those that depend on in-person experiences such as hotel stays, travel, theatre performances and concerts. Though Ottawa has unveiled a stream of loan and subsidy programs since last March to keep struggling businesses afloat, much of the business community has warned that loans will only prolong cash-flow problems and delay, rather than prevent, bankruptcies.

Tuesday’s HASCAP announcement produced the same concern. “This notion of more debt has many operators very worried – a lot of businesses are leveraged already,” said Walt Judas, chief executive officer of the Tourism Industry Association of BC.

Dan Kelly, head of the Canadian Federation of Independent Business, argued that a portion of the loans should be forgivable. “I don’t think anybody’s expecting their local restaurant or hotel to make 20 per cent more than they made in 2019 to be able to pay off their COVID debt,” he said. “That’s what’s going to tip many of these businesses into bankruptcy – not immediately, but as the economy reopens.”

Small Business Minister Mary Ng announced the program’s details Tuesday. “The repayment terms are very flexible,” she said in an interview when asked about fears of debt accumulation. “You have up to 10 years to repay this, but I would also point to this as one measure among a suite of measures that our government has put out to help businesses get through COVID-19.”

Ms. Ng’s office said on Tuesday that the loans will have a fixed interest rate of 4 per cent with flexible repayment terms of up to 10 years. Businesses can apply through their current banks; only major banks will be eligible to offer the loans as of Feb. 1, followed by some other financial institutions on Feb. 15.

This presents a separate struggle for at least one group of businesses: those with Indigenous owners who primarily work with Aboriginal Financial Institutions, or AFIs, which are often community-controlled and serve many First Nations businesses.

Keith Henry, the Métis CEO of the Indigenous Tourism Association of Canada, said the idea behind HASCAP was “great,” but that it fundamentally leaves many of the association’s members behind because they work primarily with AFIs, which he believed would not be offering HASCAP loans. (In her interview, Ms. Ng said HASCAP would be offered through “financial institutions of all sizes,” and the government said the number of participating institutions would grow over time, but it was not immediately clear whether AFIs could offer the loans.)

Mr. Henry added that fewer than 25 per cent of his members were able to access the federal wage subsidy and rent relief programs, which he worries would prevent even more Indigenous-owned businesses from accessing HASCAP. “If we want to support Indigenous tourism, we need to support Indigenous networks,” Mr. Henry said in an interview.

Principal payments can be postponed for up to the first 12 months after accessing HASCAP loans. The government-guaranteed loans are available until June 30, 2021.

Earlier this week, Statistics Canada revealed that the number of active businesses in the country fell 6.2 per cent between October, 2020, and a year earlier. The declines were particularly steep in accommodation and food services (10.1 per cent), arts and entertainment (10.2 per cent), and tourism transportation (14.3 per cent).

“The bottom line is that this is a good news day. This is a program that’s desperately needed,” said Susie Grynol, president and CEO of the Hotel Association of Canada. “Assuming that we have a smooth execution, it will fill a considerable gap in the support system.”

Ms. Grynol said many hotels will take on debt through HASCAP because they’ve struggled to access other loan programs. “This program is coming in the nick of time.”

For many restaurants, the debt situation is less tenable, said James Rilett, vice-president for Central Canada at lobby group Restaurants Canada. “Unfortunately, most restaurants are in a place where it’s hard for them to take on more debt. Throughout this pandemic, they’ve just been accumulating debt on debt as they dip into their savings.”

However, Mr. Rilett said HASCAP “seems to be a good program” and that most restaurants should be able to access it, should they need it. Much like CFIB, he would have liked to see a forgivable portion of debt, as is the case with the Canada Emergency Business Account.

Revenue at live entertainment businesses has plummeted to nearly zero since the pandemic began. Edmonton’s Starlite Room had already sound-checked the band The Real McKenzies when they were forced to shut their doors last March 12, and they haven’t reopened since.

“Offering a loan like this could just put us in such a complicated position,” said Tyson Boyd, who co-owns and operates the Starlite Room, and is a founding member of the Canadian Independent Venue Coalition. “If we’re weighing the risk of taking on another substantial loan or winding down the business – a lot of people are probably going to really carefully consider winding down the business.”

Despite significant pandemic support for the arts he’s seen in other countries, Mr. Boyd said, “It seems to be overlooked in Canada so far, and I really think the government can do better.”

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