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Black Cat Artspace in Toronto seen on May, 6, 2020.

Christopher Katsarov/The Globe and Mail

Ottawa has flooded the private sector with an unprecedented wave of grants and loans over the past seven months aimed at pulling the economy back from the brink of a COVID-19-induced depression.

The price tag on that battery of programs for businesses large and small is approaching $80-billion – and counting.

Some have been timely. Some have been easy to get. Some have been broadly popular. But none have been all three. Delays, confusion and complexity have hampered the effectiveness of many of the programs.

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Small businesses, already hardest hit by the pandemic and lockdowns, have been at a particular disadvantage. With limited financial and accounting expertise, many have found it hard to navigate the complexities of the wage subsidy program, the rent relief program and others. Despite providing a majority of employment in Canada, small businesses have received a smaller share of wage subsidies than medium-sized and large enterprises.

Despite early stumbles and continuing bumbles, the federal government has won praise from economists and business groups for acting – sometimes decisively – to avoid what could have been an economic conflagration. Recession, not depression, has been the result. One concrete sign of the benefits of Ottawa’s intervention: Canada’s labour market has outperformed that of the United States, with proportionately fewer jobs lost in this country.

In a statement, the government acknowledged the “immense uncertainty” created by the second wave of the coronavirus and pointed to changes announced earlier this month in wage subsidies and interest-free loans, as well as new benefits targeted to businesses directly impacted by public-health measures and its revamped rent subsidy program. The statement did not directly address criticisms of those and other business support programs, but Chrystia Freeland, Deputy Prime Minister and Finance Minister, said the changes came from “ongoing consultations” with business.

A definitive verdict on how those programs performed, and their ultimate benefit, cannot yet be rendered, in part because many are continuing and the path of economic recovery is still uncertain. Instead, The Globe and Mail has assessed the programs on how well they have been delivered, how easy they are to access and how much they have been used. Call it a midterm report card.


BDC co-lending program/EDC loan guarantee

Loans for small and medium-sized businesses

Total loan capacity: $40-billion

Loans to date: 703 worth $646-million via BDC as of Sep. 30, 573 worth $890-million via EDC as of Oct. 20

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Expiry date: June 30, 2021

The Business Credit Availability Program (BCAP) has plenty of money available. The hard part has been getting those funds to businesses.

To encourage banks to lend to companies that need cash flow to ride out the pandemic, the federal government agreed to share the risk. The Business Development Bank of Canada (BDC) will provide 80 per cent of some loans of up to $12.5-million as a co-lender in partnership with banks, and Export Development Canada (EDC) will guarantee 80 per cent of new bank credit lines or term loans up to $6.25-million.

After six months, only $1.54-billion has been disbursed of a potential $40-billion, while a program launched recently to lend up to $60-million to medium-sized companies has made just three loans so far totalling $106-million.

In many cases, neither banks nor their borrowers saw much benefit to tapping the program. Lack of demand has been a factor, as business owners turned first to other relief programs that offer grants and subsidies, instead of taking on pure debt. But bankers and businesses also say there is a flaw in the program’s design: It doesn’t reduce the risks to private-sector banks, which decide whether to make the loans, as much as intended.

The greatest need for credit is in sectors that have been hit hardest by the pandemic, such as retail, restaurants, hospitality and tourism. Those businesses, especially small ones, have the toughest time proving to lenders that they have a real prospect of recovering and repaying a new loan.

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Bankers assessing loans are taking the pandemic into account. For example, account managers at Royal Bank of Canada are focusing more on clients' 2021 financial forecasts than 2020 results. But banks have to stay within certain risk limits, watched closely by regulators, and the BCAP programs don’t change that. “You have to have a [business] model that’s working to be able to access the debt,” said Mike Cussen, RBC’s vice-president of business credit.

Toronto solar-tech company Morgan Solar Inc., which has a staff of 30 and revenue in single-digit millions of dollars, discussed applying for a BCAP loan of between $1-million and $2-million with its bank, but didn’t pursue it. “We were pretty well told, ‘Look, there are no different terms that you are going to get as a result of this than you otherwise would have gotten,’” said chief executive Mike Andrade. With no clear advantage for either side, it “ended up being a bit of a staring contest.”

After a slow start, demand for BCAP loans has gradually increased. The government’s Throne Speech in September promised improvements to the program. And with tens of billions of dollars in payment deferrals for commercial loans expiring, more business owners may soon need new credit. But the BCAP programs still lack a key catalyst: a compelling incentive to use them.

James Bradshaw


Canada Emergency Business Account (CEBA)

Small business loans up to $60,000

Total loan capacity: $55-billion

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Loans to date: $31-billion as of Oct. 15

Expiry: Dec. 31, 2020

For many companies, CEBA offered crucial help.

Launched in early April, CEBA provides no-interest loans to small businesses and forgives a portion of that debt, contingent on repayment. After a recently announced expansion kicks in, eligible companies will be able to borrow up to $60,000, of which $20,000 is forgiven if the balance is repaid by the end of 2022. Small businesses have until the end of this year to apply.

There is much businesses like about CEBA. It was relatively quick to roll out and get sorely needed cash in accounts. And the funds could be used for a variety of purposes, such as paying staff or stocking up on personal protective equipment.

Compared with some other support programs, CEBA has proved quite popular: As of Oct. 15, nearly $31-billion had been disbursed to more than 750,000 Canadian businesses.

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For “uncomplicated, traditional businesses” with employees on payroll, “CEBA worked remarkably well,” said Dan Kelly, president and CEO of the Canadian Federation of Independent Business. However, “you had to be in the right zone” to take advantage.

Indeed, the primary concern with CEBA has been about eligibility. In CEBA’s first iteration, companies needed to show payroll expenses of $50,000 to $1-million in 2019 – a rule that excluded thousands of businesses that don’t pay employee wages.

CEBA’s initial design showed how the federal government “misunderstood the independent business community” and how companies are structured, Mr. Kelly said.

Like other programs, CEBA has been continually tweaked. Ottawa moved the payroll range to between $20,000 and $1.5-million. It also granted access to companies that don’t pay wages, including sole proprietors receiving income directly from their businesses, companies relying on contractors and family-owned corporations that pay dividends. Instead, those companies need proof of non-deferrable expenses, such as rent and utilities.

Despite a bevy of changes, some companies are still unable to get CEBA loans – notably businesses run through a personal bank account, rather than a business account. For months, the federal government has said it’s exploring ways to include such companies, but no plans have been announced.

In the coming weeks, businesses will be able to tap CEBA for an additional $20,000 loan, following the initial tranche of $40,000.

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“As soon as those applications are open, I’ll be applying for that,” said Natalie Borch, owner of the Pink Studio, a fitness and dance studio in Toronto, which is currently restricted by reimposed lockdown measures in the city. “It was a massive relief to get CEBA," she said. "Zero interest is huge.”

Matt Lundy


Canada Emergency Commercial Rent Assistance (CECRA)

Forgivable loans for landlords of small businesses

Allocated spending: $2.97-billion, $569-million of which comes from the provinces

Spending to date: $1.96-billion

Expiry: Sept. 30, 2020

Canada Emergency Rent Subsidy (CERS)

Grants available directly to small businesses on a sliding scale depending on revenue loss

Allocated spending: estimated $2.2-billion through Dec. 19, 2020 if the subsidy receives parliamentary approval

Spending to date: n/a

Expiry: June, 2021 (program to be reassessed after Dec. 19, 2020)

Six weeks of pandemic shutdowns had already elapsed before Prime Minister Justin Trudeau announced CECRA to help cash-strapped entrepreneurs pay their rent, and it took another month before Canada Mortgage and Housing Corp. opened applications for the 75-per-cent rent subsidy.

Tenants were initially only eligible for relief for April, May and June if they paid less than $50,000 a month in rent, brought in less than $20-million in gross annual revenue and saw revenue drop by at least 70 per cent because of the pandemic.

Within weeks, it was clear the program was not doing what it was designed to do. Landlords needed to apply for CECRA to get forgivable loans worth half their small-business tenants' rent – if both landlord and tenant agreed to pay the remaining two quarters.

But filling out piles of paperwork while absorbing a quarter of their costs didn’t incentivize many landlords to apply. Pam Singh learned early on that her landlord wasn’t interested. At one point, Ms. Singh used crowdfunding to cover rent costs for her business, Pam’s Roti Shop, on Bloor Street West in Toronto.

Customers flocked to the restaurant during the summer to grab food to eat outdoors nearby, but Ms. Singh has seen revenue drop as temperatures fall. Without CECRA, she’s already had to cover fixed costs herself, and it’s not clear how long the roti shop can stay open. “The best thing [would be] to give tenants the money, and let us pay the landlord,” she said.

The joint federal-provincial program was riddled with other problems. Ontario initially listed incorrect information about the program on its own website, which prompted some accountants and lawyers to provide incorrect advice to clients. Where small businesses operate also affected their relief: Some (but not all) provinces simultaneously banned many commercial evictions, and some businesses with government landlords weren’t eligible for CECRA.

Meanwhile, the federal government waited until the last possible moment in both June and July to extend the program into the following month. The extension into September wasn’t announced until Sept. 8, leading some landlords to cash full rent cheques – putting even more financial pressure on small businesses – only to find out the subsidy would be extended

CECRA was designed under finance minister Bill Morneau, whose focus on fiscal prudence and fraud prevention in pandemic relief programs found him at odds with Mr. Trudeau’s broader vision for supports. When Mr. Morneau stepped back from politics in August and was replaced by Deputy Prime Minister Chrystia Freeland, the minority Liberals quickly signalled they would revise CECRA.

Once again, the wheels of government turned slowly. Details of the successor program, CERS, weren’t announced until Oct. 9, with a promise to make eligibility retroactive to Oct. 1. By last week, CECRA had only helped about 135,000 small businesses – even though research from the Canadian Federation of Independent Business found nearly 400,000 should be eligible.

The new program will let entrepreneurs apply directly to the Canada Revenue Agency for grants to help with rent or mortgage interest expenses, with a sliding scale of funding available depending on the extent of their revenue loss. It, too, has come with delays. October is nearly over, and applications haven’t opened – because the program has yet to get parliamentary approval.

Ms. Singh is tired of talk from governments saying they’ll support small business, after being left behind for seven months: “When are you going to do it?”

Josh O’Kane


Canada Emergency Wage Subsidy (CEWS)

Payroll rebates for companies experiencing revenue declines

Projected cost: $68.5-billion through to Dec. 19; no budget published for 2021

Spending to date: $44.0-billion as of Oct. 18

Expiry: June, 2021

Canada emergency wage

subsidy (CEWS) claims

All approved applications by value

As of Oct. 18

Under $100K

1,305,030

$100K to $1M

 

64,460

$1M to $5M

 

3,120

More than $5M

340

JOHN SOPINSKI/THE GLOBE AND MAIL

SOURCE: canada revenue agency

Canada emergency wage

subsidy (CEWS) claims

All approved applications by value, as of Oct. 18

Under $100K

1,305,030

$100K to $1M

 

64,460

$1M to $5M

 

3,120

More than $5M

340

JOHN SOPINSKI/THE GLOBE AND MAIL

SOURCE: canada revenue agency

Canada emergency wage subsidy (CEWS) claims

All approved applications by value, as of Oct. 18

Under $100K

1,305,030

$100K to $1M

 

64,460

$1M to $5M

 

3,120

More than $5M

340

JOHN SOPINSKI/THE GLOBE AND MAIL, SOURCE: canada revenue agency

Wage subsidies to defray payroll costs were intended to be the centrepiece of coronavirus rescue measures. But there was a delay during the early weeks of the pandemic, when the federal government initially stuck with a limited scheme – a 10-per-cent wage subsidy for small businesses. So, many businesses laid off employees before the start of the full-blown program in late April. “The first iteration of the program didn’t hit the mark at all,” says Alla Drigola, director of parliamentary affairs and SME policy for the Canadian Chamber of Commerce.

But Ms. Drigola says the revised subsidy program, with 75 per cent of salaries up to $58,700 rebated for qualifying companies, was critical in keeping employees connected to the workplace.

Ottawa has tweaked and extended CEWS several times since, most recently freezing subsidy rates at a maximum of 65 per cent of qualifying salaries through to December. Payments to date run significantly behind the total budget. For the week of Oct. 18, $1.33-billion was paid out in subsidies, the lowest amount since mid-August, in part reflecting lower subsidy rates under new rules. But many companies may be waiting until 2021 to submit applications in order to determine which of several options for calculating financial losses is most beneficial for them once they have their full-year results.

Some economists say the program is too scattershot, because it subsidizes the wages of all employees, not just those at risk of being laid off. Other critics have pointed to the program’s complexity as well as the initial inflexibility of the all-or-nothing eligibility criterion of a revenue decline of at least 30 per cent.

Disbursements under Cews program

In billions of dollars

Value of

subsidies paid

Cumulative value

of subsidies paid

$4.0

$50

3.5

40

3.0

2.5

30

2.0

20

1.5

1.0

10

0.5

n/a

0

0.0

May 11

June 1

July 6

Aug. 2

Sept. 13

Oct. 11

JOHN SOPINSKI/THE GLOBE AND MAIL

SOURCE:Canada Revenue Agency

Disbursements under Cews program

In billions of dollars

Value of

subsidies paid

Cumulative value

of subsidies paid

$4.0

$50

3.5

40

3.0

2.5

30

2.0

20

1.5

1.0

10

0.5

n/a

0

0.0

May 11

June 1

July 6

Aug. 2

Sept. 13

Oct. 11

JOHN SOPINSKI/THE GLOBE AND MAIL

SOURCE:Canada Revenue Agency

Disbursements under Cews program

In billions of dollars

Value of subsidies paid

Cumulative value of subsidies paid

$4.0

$50

3.5

40

3.0

2.5

30

2.0

20

1.5

1.0

10

0.5

n/a

0

0.0

May 11

June 1

July 6

Aug. 2

Sept. 13

Oct. 11

JOHN SOPINSKI/THE GLOBE AND MAIL, SOURCE:Canada Revenue Agency

The government introduced changes in July that made the program more flexible by tying subsidy rates to the percentage of revenue decline. But that had the side effect of increasing the thicket of rules – a particular problem for small businesses.

There are signs that CEWS has provided stability for businesses. Bank of Montreal chief economist Doug Porter says employment in Canada has suffered less than in the United States during the pandemic, even though the number of hours worked followed similar paths in both countries. While there’s no firm proof, the smaller rate of job losses in Canada indicates that CEWS succeeded in forestalling layoffs, he says.

That was certainly the case at Delvinia Holdings Inc. Adam Froman, CEO of the Toronto technology company, says he would have had to lay off as many as 15 of his 80 employees if not for $1.6-million in wage subsidies. Instead, Delvinia is now adding 20 new workers, with revenues rebounding enough in October that it no longer qualifies for further CEWS payments. “It built a bridge as things were sliding down,” he says.

Patrick Brethour


Large Employer Emergency Financing Facility (LEEFF)

Bridge loans of $60-million or more for large companies

Total loan capacity: No limit announced

Loans to date: $320-million as of Oct. 21

End of program: No expiry date

When LEEFF was announced in May, it was hailed as a key support for companies in the hard-hit industries such as aviation and energy. But five months on, just two companies have benefitted from the program: Gateway Casinos & Entertainment Ltd., which had a $200-million loan approved in September, and B.C. coal miner Conuma Resources Ltd., which had a $120-million loan approved on Wednesday.

Two factors explain the strikingly low number: unattractive terms for LEEFF loans, and a robust credit market propped up by central bank intervention. Well-established companies have been able to raise money from banks and bond markets, so they have not needed to turn to the government for expensive loans with strings attached.

The program is open to all industries, and targets companies with more than $300-million in annual revenue that need at least $60-million in bridge financing. Fourteen companies have applied for LEEFF loans, according to a source with knowledge of the program.

Four of the applications are active. Of the others, most have been paused as the companies look for alternative financing, the source said. The Globe is not identifying the source as they were not authorized to speak on the issue.

Outdoor recreation retailer MEC, for instance, applied for a LEEFF loan, but halted the process before seeking creditor protection in September and agreeing to be sold to a U.S. private equity firm, the source said.

Defenders of the program argue that the low number of applicants and approvals does not indicate failure. LEEFF loans were designed to be less attractive than market-based alternatives, with the government acting as a “lender of last resort,” as Mr. Trudeau put it in May. Critics, however, say offering intentionally unappealing loans does little to help companies facing a sudden cash crunch.

In May, then-finance minister Bill Morneau said the program would be “very important” for companies in hard-hit sectors, such as energy producers and WestJet and Air Canada. So far, this has not proved to be the case.

“LEEFF was announced with significant restrictions at a time when industry was looking for short-term emergency liquidity,” said Ben Brunnen, vice-president of fiscal and economic policy at the Canadian Association of Petroleum Producers. “It just wasn’t the type of relief that companies were looking for.”

The loans have a high interest rate, which increases each year. The rate on the unsecured part of a loan starts at 5 per cent for the first year, rises to 8 per cent in the second and climbs by two percentage points each year afterward.

LEEFF recipients also have to agree to halt dividend payments and share buybacks, restrict executive compensation and report climate change metrics. The government is entitled to receive share purchase warrants (if the company is public) and can appoint an observer to the company’s board.

“The terms are commensurate with a ‘last resort’ option that has clearly been unappealing not just to aviation, but across every sector,” said Mike McNaney, CEO of the National Airlines Council of Canada. “We’re looking for loans and loan guarantees that are at a very low interest rate, and reflect the reality of the crisis we’re facing.”

– Mark Rendell

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