A few days ago, I posted a few thoughts on Twitter about what the Federal Government and the big banks are doing to support small businesses during the COVID-19 pandemic. The short answer is “a little, but probably not enough”. You can find the Twitter thread here. Below is a slightly edited version.
In the last two days, the Federal Government and the big banks have announced measures to help small businesses get through the next few months as we all adapt and react to the COVID-19 crisis. I’m going to focus on the announcements that apply to small businesses. A lot of what was announced on Wednesday applies to individuals and individual tax relief – I’m not going to comment on those items.
The usual disclaimers apply: These are ideas, thoughts, comments, musings, etc. It’s not legal advice, and it may not apply to your situation. Canadian law is regional – something that might work in BC might not work in another Province. If something here sounds interesting to you, do you own investigation, speak to a lawyer, and get advice is specific to your business.
For the TL;DR crowd, I think there are two major messages. One: BEWARE THE DEFERRAL. This applies mainly to the big banks and their announcement that they will allow mortgage payments to be deferred for six months. Two: Is that it? For a lot of small businesses, the measures announced today don’t go very far. If I’m wrong about that, please correct me!
Beware the Deferral
First: The announcement on Monday/Tuesday that the big banks are going to “defer” mortgage payments for six months. This is interesting for landowners, and maybe for those who have long term equipment financing, but in my view it won’t work for a lot of people. Like I said, BEWARE THE DEFERRAL. The banks did this for people affected by the fires in Fort McMurray a couple of years ago, so we have some data on how it turned out. It’s not an interest rate reduction. It’s not interest relief or loan forgiveness. It’s not “pay interest only for 6 months” (though that might be what a lot of people do to make it easier in the long run). What the banks are saying in the media is “you don’t have to make payments for 6 months BUT we’re still going to charge you interest.”
So if this is something that you think might work for you, do your own math to make sure you’re not digging yourself into a deeper hole. If your business bounces back in month 3 or 4, great, but are you going to be able to make 6 months of interest payments in September?
Second: mortgage deferral is nice for landowners, but useless for tenants. If you’re running a small shop and you’re forced to close, knowing the landlord might be able to defer his mortgage payments isn’t going to help you pay your rent, which is still due in 12 days. But knowing that the landlord can defer his mortgage payments might allow you to negotiate something that gives you some rent relief in the short term. This depends on your landlord, and maybe you can work together with your landlord to achieve a common goal.
Is that it?
Third: The EI sickness benefit is good, but scope is pretty narrow. Getting 55% of your earnings (capped at $573 per week) if you need to stay home for 2 weeks (or more) will help small businesses, and their employees.
Fourth: Contributing 10% to employee wages is nice, but will it make a difference? For comparison, Denmark is offering 75%. Even the United States (that bastion of socialist policy) is considering an 80% contribution.
Fifth: I’m having trouble finding a fifth. So, Is that it? I suppose we could go back to the $10 billion credit facility announced last week. That’s going to be administered through the BDC and Export Development Canada. Maybe loans will help some people. But again, lending money to businesses that don’t know if they will survive (because they don’t know how this crises will actually affect their business) isn’t always a good idea.
What about professionals who have been told by their regulating bodies to stop providing services (massage therapists, speech therapists, etc.) for the time being?
What about small business owners who have to reduce their working hours after March 30 because their children aren’t going back to school?
I know we don’t live in Norway (where the government has said that laid off workers will get 20 days pay, and freelancers and self-employed persons will get 80% of their average income based on the last three years), but it seems to me that government needs to do more to provide small businesses with real support at this critical time.
UPDATE MARCH 20, 2020:
The Council of Canadian Innovators has made a proposal that I think could work well. It’s a zero or low interest loan model that looks a bit like the student loan program. This might be a way to address the issues that typically attach to BDC loans and other government loan programs. There’s a Globe and Mail article that references the proposal that you can read here.