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Shawn Lerner, owner and operator of the Balloonery, works on an order in their Toronto shop, on March 10, 2021.Christopher Katsarov/The Globe and Mail

Small businesses that started after – and, in some cases, before – the pandemic began a year ago are still ineligible for the government’s flagship emergency loan program because of the timing of their incorporation.

The federal government launched the Canada Emergency Business Account (CEBA) program on April 9, 2020, to provide zero-interest, partly forgivable loans of $40,000 to businesses affected by the pandemic, with another $20,000 becoming available in December. CEBA was among the government supports announced in the early days of COVID-19, and has been one of the most popular. More than 800,000 businesses have accessed more than $34-billion in total.

But many businesses that otherwise would qualify for the aid are not eligible to apply because of when they incorporated. One of the biggest gaps is for companies that registered with the Canada Revenue Agency after March 1, 2020, even before the pandemic had really taken hold in Canada. Some companies that registered the year before have also been barred.

Shawn Lerner started Balloonery to do balloon delivery and event decor in his Toronto basement as a sole proprietor four years ago. He incorporated in 2019 and set his fiscal year end as Jan. 31.

When the pandemic struck a year later and events such as weddings and birthday parties were cancelled, he and his five employees stopped work for 10 weeks. Mr. Lerner said he tried to apply for CEBA at the time, but was rejected because the company didn’t have a 2019 tax return, because of the fiscal year end date.

When the program was expanded to include sole proprietors, Mr. Lerner said he was not allowed to use his personal tax returns from when he was a sole proprietor because that account became inactive once he incorporated.

Mr. Lerner said he was told a workaround was to apply to the CRA for a change to his fiscal year end, and then resubmit his taxes.

“They gave me every assurance this was a problem they were aware of,” he said.

However, he added, CRA rejected the application as not a valid reason for changing a fiscal year end date.

Corinne Pohlmann, senior vice-president of national affairs and partnerships at the Canadian Federation of Independent Business (CFIB), said that while the federal government has widened eligibility for CEBA loans, the lack of access for new businesses remains a big gap.

“Based on the conversations I’ve had [with the government], they recognize it’s an issue and that they need to find a way to fix it, but they can’t quite figure out how to fix it,” Ms. Pohlmann said.

She said officials told her the problem is how to measure revenue declines for companies that are new. She said the CFIB has suggested using average revenue by sector and region as a baseline.

Youmy Han, press secretary to Small Business Minister Mary Ng, said the government has provided a “wide range of supports” for entrepreneurs. When asked about expanding access to CEBA, Ms. Han suggested the Regional Relief and Recovery Fund could help businesses that don’t qualify for CEBA loans.

“The federal government continues to actively assess its support measures to ensure workers and businesses – including new businesses – have the support they need,” Ms. Han said in a statement.

Ms. Pohlmann said that eligibility for RRRF loans differs geographically and most regions do not accept new ventures. For example, in Western Canada, businesses must have been operational before March 1, 2020.

Mr. Lerner said he considers his company lucky because it was able to boost its e-commerce delivery services, which has left his overall revenue relatively stable. “People are seeing us as a way to stay connected with loved ones that they may not be able to visit in person,” he said.

But he said his margins have shrunk due to higher expenses and the money from CEBA would help cover his operating costs. The government is taking applications for CEBA loans until March 31.

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