Federal small business loan program set to launch Thursday, but wage subsidy faces political impasse

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A $25-billion federal loan program for small business is ready to launch but the government and opposition parties are at odds over legislative plans to pass separate wage subsidies for businesses affected by the COVID-19 pandemic.

At a news conference in Toronto, Finance Minister Bill Morneau said the country’s largest banks will start taking applications for no-interest loans of up to $40,000 for small businesses starting on Thursday.

The loans are guaranteed by $25-billion in government funds, and businesses that had payrolls between $50,000 and $1-million in 2019, based on tax records, are eligible to apply. One quarter of each loan, up to $10,000, will be forgiven if businesses repay the loan balance by the end of 2022, and any remaining balance after that will convert to a three-year term at 5-per-cent interest.

The country’s largest banks each have hundreds of thousands of small-business clients, and are bracing for a flood of requests for the loans, even though some small-business owners are wary of taking on more debt in a crisis.

“Our systems are ready,” said Dave McKay, chief executive officer of Royal Bank of Canada, after the company’s annual meeting on Wednesday. “We can process a significant amount of volume and applications quickly.”

Policy makers have worked to shorten the turnaround time needed to approve and disburse the loans, as many business owners plead for rapid relief. Government officials initially suggested a five-day waiting period, from submitting an application to receiving the loan, to allow for verification and fraud prevention. But after a weekend of intensive talks with bankers and lawyers, the government expects it will be able to approve most loans more swiftly.

Mr. Morneau said the government’s hope is that loans will be processed within about two days, but that the timing will vary by company and institution.

“The objective is to get money in people’s hands as quickly as possible," he told reporters.

Businesses in need of the loans are being urged to apply through the financial institution that holds their main operating account, and the government is aiming to make it available "as broadly as possible" through smaller financial institutions, including credit unions, Mr. Morneau said.

“To the extent that someone is finding it a challenge with the institution that they’re at, of course they will be able to go to another institution,” he said.

Mr. Morneau and Prime Minister Justin Trudeau also confirmed Wednesday that the government has agreed to greater flexibility for businesses applying to the proposed Canada emergency wage subsidy (CEWS).

Earlier this week, the government provided opposition parties with a draft bill to implement the new wage subsidy program. The parties are in the midst of negotiations over the bill, and a date for Parliament’s return has not yet been announced.

The program will provide a 75-per-cent wage subsidy to eligible employers, up to a maximum benefit of $847 per week per employee.

Employers had expressed concerns that the initial rules were too rigid because they required them to show a 30-per-cent drop in revenue for the months of March, April and May over the same months last year.

As first reported Tuesday by The Globe and Mail, Mr. Trudeau and Mr. Morneau confirmed that the bill includes several concessions on that front.

Specifically, employers will be able to use an average of January and February revenues as the comparison period under certain conditions. For March, companies will only be required to show a 15-per-cent reduction in revenue. The 30-per-cent rule remains in place for April and May.

The Finance Minister described the wage-subsidy program as an “enormous” public expenditure and said the revisions will bring its expected price tag from $71-billion to $73-billion.

Business groups generally welcomed the revised rules, but some said it would be even better if the government were to remove the revenue-reduction threshold entirely.

The timeline for passing the wage-subsidy bill appears to be connected to opposition-party requests for increased parliamentary scrutiny of the Prime Minister and cabinet. Mr. Morneau said the Bloc Québécois is prepared to support the bill and he urged the other opposition parties to reconsider their positions.

Conservative MP Pierre Poilievre declined to comment specifically on the negotiations between the parties, but he said Wednesday that his party supports a return to regular Question Periods in the House of Commons.

“We are proposing that there be some form of a Question Period so that we can hold the government accountable,” he told reporters, insisting that the government should be blamed for not acting more quickly to launch the wage subsidy.

The House of Commons sat briefly last month in drastically reduced numbers in order to allow for physical distancing.

Mr. Trudeau said Wednesday that he welcomes parliamentary scrutiny – but it should be done online rather than in person.

Mr. Trudeau also warned that employment numbers to be released Thursday will be painful.

“It’s going to be a hard day for the country," he said. “We’re facing a unique challenge, but I know that if we pull together, our economy will come roaring back after this crisis.”

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