Canada’s banks spent the weekend in intensive talks with Ottawa to iron out details of a program that will give interest-free loans to small businesses suffering due to the new coronavirus, but the length of time needed to process those loans has become a key point of discussion.
A working group of bankers and federal officials has agreed on most of the core issues, including eligibility criteria, the banks’ process for verifying clients and preventing fraud, the terms of the loans, and what reporting the government will require from banks, according to financial industry sources.
One sticking point remains to be settled, the sources said: Government officials are pressing for a five-day waiting period before banks disburse funds to clients who qualify for loans. That would give the government time to verify borrowers’ details and ensure businesses aren’t applying more than once. Banks have pushed back, however, urging the government to make it possible for them to issue funds the same day, to shorten wait times for business owners who are already pleading for more relief.
Banks and government have rushed to get the loan program ready since it was announced on March 27, with input from groups such as the Canadian Federation of Independent Business, as well as business leaders including former BlackBerry co-chief executive Jim Balsillie and venture capital investor John Ruffolo, who is vice-chairman of the Canadian Council of Innovators. The loan program will offer small businesses loans of up to $40,000 interest-free until the end of 2022. Banks will administer the loans, which are guaranteed and funded by the federal government, up to a cap of $25-billion.
The loans are designed to boost cash flow for small businesses that are struggling to stay afloat as a result of strict measures introduced to control the spread of the coronavirus and its resulting COVID-19 disease. Initially, banks signalled that the program, which is called the Canada emergency business account, was unlikely to be ready before mid-April. But they shortened that timeline last week, when several banks and large credit unions said they expected to be ready to launch by the week of April 6.
Discussions between bankers, lawyers and government continued Sunday, and the program’s terms could be finalized as early as Monday, sources said. Banks and government alike are eager to get funds flowing as fast as possible, the sources said, but the exact timeline to start taking applications is still uncertain.
The Globe and Mail is not identifying the sources because they were not authorized to discuss details of the talks.
“We do not comment on ongoing discussions,” said Maéva Proteau, press secretary to Finance Minister Bill Morneau, in an e-mail.
“Our government continues to work around the clock to ensure all Canadians and small businesses have the support they need to weather this crisis. Ensuring that the money to businesses is delivered very quickly is a priority. We have been collaborating with the banks very closely and we expect that they will continue to work with us in order to deliver this program expeditiously.”
In order to track which businesses take the loans, banks will require applicants to show they have an operating company registered in Canada, and to apply to the bank that currently holds their main operating account. That bank will share that information with the federal government, which will vet it against applications sent to other financial institutions, then confirm the funds can be released, according to a source familiar with the plans.
Banks are expecting a flood of applications – the country’s largest lenders each have hundreds of thousands of small-business customers – and the federal government is pushing for a five-day waiting period to help cope with that volume, the source said.
Because the loans are guaranteed by government, it is federal taxpayers who are assuming the risk that some businesses will fail to repay their loans. The government has also promised to forgive 25 per cent of each loan, up to $10,000, if the borrower repays the balance before Dec. 31, 2022. After that date, unpaid balances will be converted to a three-year term at a 5-per-cent interest rate.
To qualify, businesses must prove they had an annual payroll between $50,000 and $1-million in 2019, based on tax records. The Big Six banks have been building online application portals to field applications and to automate as many loan approvals as possible, to avoid bogging down call centres that are already strained by about 500,000 requests from clients to defer payments on mortgages, credit cards and other loans.
The new loan program is part of a suite of measures tailored to help small businesses that Mr. Morneau unveiled in late March. Two other lending programs that will offer loans of up to $6.25-million are still being developed, a source said.
One of those programs will allow Export Development Canada to guarantee new operating-credit and cash-flow term loans that banks issue to small and medium-sized businesses. The other will join the Business Development Bank of Canada with banks to make co-loans to businesses for cash-flow requirements. The government has set aside $20-billion for each program, and banks are expected to assume 20 per cent of the risk for those loans.