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Ottawa’s new loan program to help small businesses affected by the new coronavirus may take weeks to launch, according to financial industry sources.

The program will see the federal government backstop bank loans of up to $40,000 interest-free until the end of 2022. It’s part of a package of measures announced in Ottawa on Friday by Finance Minister Bill Morneau, targeting small- and medium-sized businesses.

Banks are racing to craft the loan program, which offers to forgive one-quarter of each loan, up to $10,000, if businesses repay their balance before Dec. 31, 2022. Small- and medium-sized businesses that had payrolls between $50,000 and $1-million in 2019 will be able to apply, including non-profits, and the government is willing to guarantee up to $25-billion in loans.

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But several key details of the new loan program are still to be hammered out over the coming days, including the timing of its launch and some eligibility criteria, even after a week of intense high-level talks between banks and government officials. And while many small businesses that are hobbled by the restrictive conditions deployed to control the spread of COVID-19 are clamouring for immediate help, bankers warned it will likely be at least mid-April before they can accept applications.

In addition, Export Development Canada will guarantee new operating-credit and cash-flow term loans that banks issue to small- and medium-sized businesses, up to $6.25-million per loan, to a maximum of $20-billion.

And the Business Development Bank of Canada will join with banks to make co-loans to businesses for cash-flow requirements, also up to $6.25-million per loan and capped at $20-billion. BDC will fund up to $5-million per loan, and banks will fund the rest, assuming some of the risk.

“During this time, some businesses may need cash injections to stay strong," said Mr. Morneau at a Friday press conference. “This will help businesses have more money at this challenging time.”

But Mr. Morneau gave no sense of how soon the loans would be available, saying only that more details will be announced “shortly.”

Banks have asked federal officials for at least two to three weeks to prepare the interest-free loan program to work smoothly, according to multiple financial industry sources. The banks will need to build new technology to accept applications, craft adjudication processes, work out how government will provide the funding, and put safeguards in place to protect against potential fraud, the sources said.

Banks have already been working to keep pace with hundreds of thousands of applications for loan deferrals, which has taxed their systems and call centres.

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The Globe and Mail is not identifying the sources because they were not authorized to discuss details of the program.

Eligibility will be broad, and businesses will be asked to apply to their existing banks, to avoid unnecessary new account openings and to make monitoring the flow of funds easier, the sources said. The funds are expected to be deposited directly into businesses’ existing operational accounts.

If businesses extend the loans beyond the end of 2022, when the interest-free period expires, banks expect to charge 5-per-cent interest, according to two sources familiar with the plans. But that interest rate has not yet been finalized with government officials.

“Canada’s banks have been working around the clock to bring much-needed relief to their customers across the country,” the Canadian Bankers Association said in a statement. “Each bank will have more information to share with their small-business customers in the weeks ahead, as specific plans are clarified by the federal government.”

Ottawa is expected to provide funds to banks for the loans upfront, or as loans are issued, so that banks assume no risk on those loans and incur minimal costs. Even so, banks will need to devote significant staff and resources to get the program up and running and administer it, at a time when large numbers of staff are working remotely or in isolation, and customers are flooding banks with calls for relief.

“There is no doubt that small businesses are the backbone of the Canadian economy and the urgent need for relief among this important segment of the economy is significant," said Laura Dottori-Attanasio, head of personal and business banking at Canadian Imperial Bank of Commerce, in a statement.

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“We are working with the federal government to get the new loan program up and operating so we can get support in the hands of our small-business clients as quickly as possible.”

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