As the COVID-19 crisis continues, businesses of all sizes are doing what they can to ride it out. But just like people, small and medium-sized companies have cash flow issues too. And that means they’re being forced to cut hours, salaries and lay employees off.
Many businesses worry they won’t recover at all.
The federal government recently announced an emergency economic aid package for Canadians that also includes income supports and benefits for businesses.
Let’s look at a fictitious small business to help understand how this aid package might help businesses across British Columbia:
Marlo is a 38-year old pastry chef who has owned a small bakery for four years together with her partner. She rents store space and has five employees, including her partner. COVID-19 measures forced Marlo to close her bakery. She’s been keeping her business afloat by offering take out and delivery. But business has slowed, and she realizes she won’t be able to keep her employees on the payroll – most of whom just live paycheque to paycheque – if the situation doesn’t change soon. She’s worried about them and her business.
Support to help your business avoid layoffs
The government recently announced enhanced measures for workers and businesses, designed to keep employees on the payroll.
Which of these measures makes sense for your business depends on whether you plan to keep your employees, reduce their hours or lay them off temporarily.
#1. Hoping to keep your employees on the payroll? Consider the Canada Emergency Wage subsidy (CEW).
Details: The CEW subsidy reimburses businesses for up to 75% of an employee’s salary during the pandemic (up to a maximum benefit of $847 per week). To qualify, the business must prove that it has experienced a 30 percent year-over-year revenue decline in the month of application. The government hopes this will encourage companies to either rehire staff if they’ve been laid off, or keep them on the payroll.
What it means: Using our small business example, Marlo and her partner are each drawing a salary of $1,300 a week. Her three employees each draw $800 a week for a total payroll of $5,000. If business slows to the point where Marlo doesn’t have enough work for her employees to come in, she can keep them on the payroll, paying them 75% of their pre-crisis salary ($600 per week).
Marlo and her partner would be eligible for a weekly wage subsidy of $3,494 ($847 for each of themselves and $600 for each of their employees).
That “catch” is: should Marlo apply for CEW, she’ll need to attest in the CEW application that she’s doing everything possible to pay that missing 25% to her employees. To make up the missing 25%, Marlo will have to rely on her own money, whether that’s through a personal loan to the company, set aside business savings, a loan or some other type of funding.
#2. Need to reduce employee hours? Consider the enhanced Work-Sharing program.
Details: Work-Sharing (WS) is a program that helps employers and employees avoid layoffs when there is a temporary decrease in business activity that’s not within the employer’s control. The government has extended the maximum duration of the program to 76 weeks from 38 weeks, and made it even easier for employers to apply for a work-sharing agreement.
What it means for you: In the case of our fictitious business, Marlo could reduce her employees’ hours as a way to keep them all on the payroll. If they agree to share available work while her business recovers, they’ll receive EI benefits through the program. Marlo can retain her experienced workers, and avoid hiring and training new employees when business picks up. Her employees get to keep their jobs, and maintain their work experience.
#3. Need to lay off employees temporarily? They can apply for the Canada Emergency Response Benefit (CERB).
Details: The Canada Emergency Response Benefit (CERB) provides $2,000 a month for up to four months (between March 15 and October 3) to anyone who’s lost 100% of their income, whether they’re eligible for employment insurance or not. It’s applicable for salaried, contract and self-employed workers, as well as those who are sick, in quarantine, caring for someone who is sick, or taking care of a child due to school closures.
What it means: Your employees can apply for this aid, even if they’ve temporarily been laid off. In Marlo’s case, the CERB provides short-term income support for her staff with the hope that she can hire them back when business picks up.
Increased access to credit and financing
Need to boost cash flow to help keep your business afloat at this time? A small business loan may help you do that.
#4. The Canada Emergency Business Account (CEBA)
Details: Backed by the federal government, the CEBA provides a $40,000 loan that’s interest-free for one year with up to 25% of each loan eligible for forgiveness (in other words, you’ll no longer have to pay that amount).
What it means for you: If you’re a Vancity business member in need of emergency support due to the impact of COVID-19, we can help. The CEBA will provide a $40,000 loan at 0% interest until December 31, 2022 with no minimum monthly principal payments until then. And if you repay the balance of the loan by that date, you’ll be eligible for loan forgiveness up to 25% (meaning you’d only have to pay back $30,000 of the $40,000 loan). You can for the CEBA directly through Vancity here.
#5. The EDC Loan Guarantee for Small and Medium-Sized Enterprises and the BDC Co-Lending Program for Small and Medium Enterprises
Details: The EDC and BDC loans are two additional pillars to the Business Credit Availability Program (BCAP) initiated by the federal government to help businesses. The EDC provides credit and cash flow term loans up to $6.25 million to businesses that were profitable before COVID-19. This loan is designed to provide short-term liquidity to cover critical expenses and would be paid back within 12 months of taking the loan. The BDC co-lending program has the same lending maximum as the EDC (up to $6.25 million) but this loan has three different tiers based on the size of your business as well as up to a 10-year repayment period.
What it means for you: If you are needing a larger scale loan to help finance some of your key expenses, like rent, payroll, and other operational costs, these products could help. Depending on your needs, a shorter repayment term might make the most sense, but our team at Vancity can help you select the right one for your need.
#6 Vancity’s Unity Pivot Business and Bridge loan programs
Details: To support local businesses, Vancity has created two new loan programs. The Unity Pivot Business loan is designed for businesses looking to pivot in the face of COVID-19 and the Unity Bridge loan is designed for those who are self-employed and might be losing income and clients during this time.
- The Unity Pivot Business loan provides up to $150,000 to businesses looking to pivot their product or service in light of COVID-19. For instance, if you are a distillery, you could use the loan to create a new line of hand sanitizer products. The loan may provide you the funding needed to make that pivot.
- The Unity Bridge loan is designed for “solopreneurs.” The Bridge loan provides up to 10% of the small business’s earnings from the previous year up to $10,000.
What it means for you: These two loans are meant to not only help businesses generate new forms of revenue, but to also provide much-needed cash at a time when many local businesses are struggling to cover fixed expenses. In Marlo’s case, the Unity Pivot Business Loan might be used to help pivot the business from in store sales to an online marketplace for them to sell their baked goods. To learn more visit Vancity’s Unity Pivot Business loan page or Vancity’s Unity Bridge loan page.
Freeing up cash flow in the short term
The impact of COVID-19 hit very quickly, leaving many businesses with little time to build up cash reserves. Here are some ways you can free up funds now to use for your immediate business needs.
#7. Take advantage of more time to pay your taxes
Details: If your business owes tax, you now have until September 1, 2020 to pay. You’ll also get a break on GST and HST payments – they’re deferred until June 30, 2020.
What it means: You won’t be charged interest or penalties on what you owe between now and September, giving you a bit of breathing room if you need that cash now to help keep your business afloat.
#8. Request leniency on credit card payments
The details: Many banks have announced they’ll provide COVID-19 relief for small businesses too.
What this means for you: Vancity has cut credit card interest rates to 0% for business accounts, and we’re deferring minimum payments. Ask us about this option.
#9. Ask your bank about a payment deferral program
The details: If you’re facing financial difficulty and worried you won’t be able to make your loan payments, many lenders are offering deferral options.
What it means: Vancity offers several credit management tools, including interest-only payments or deferral of loan payments for up to six months. If you’re a business member, contact us to learn more about what options might be available to you.
Addressing overhead costs
Even if your business is closed, or earning only minimal revenue, you’ll still have to pay for overhead costs like rent and insurance. If you don’t have cash reserves to cover these costs temporarily, besides negotiating with your landlord and service provider on payment options, there are economic measures to help cover these costs.
#10. Seek commercial rent relief from the federal government
The details: The federally announced Canadian Emergency Commercial Rent Assistance (CECRA) will provide forgivable loans to qualifying commercial property owners to cover 50% of three month rent payments payable by small business tenants who are experiencing financial hardship during April, May and June. The loans will be forgiven if the property owner agrees to reduce the rent by at least 75% for their tenants. For small business tenants to quality for this program, they must pay less than $50,000 in rent per month, and have ceased operations or seen a decrease in revenue of 70% or more. This program is expected to be operational by mid-May.
The option also might exist for you to negotiate your existing rental terms and lease with your landlord as it’s in the best interest of both parties to come to an arangement that works. For more tips on how to approach this negotiation, see here.
#11. Read the fine print and negotiate.
The details: Just like your business has financial support options to grapple with COVID-19, so does your landlord and your service providers.
Before cash flow gets critical, talk to your landlord to see if they might be willing to stretch payment. You can also discuss payment options with your suppliers and service providers. Service providers like Fortis, BC Hydro, ICBC, and various telecommunication companies are all providing support for businesses. In addition, check your business insurance policy to see if there’s anything in the policy that can compensate you for lost income.
What this means for you: Marlo has been renting her bakery space for four years now, has a solid track record when it comes to paying rent, and has maintained a good relationship with her landlord. All these factors will work in her favour if she needs to negotiate payment options. For many landlords, working together to find flexible options with a good tenant may be a lot easier than trying to find a new one in this environment. You’re not alone.
We are here for you
It’s safe to say that COVID-19 will affect your business. But it doesn’t have to destroy it. You may be facing immediate concerns, but a thoughtful, well-planned approach in the short term will help your business survive well beyond this current crisis. There is help and Vancity is here to help you.
Helpful links and resources
Here are a number of small businesses resources to help guide you through these trying times.
- The CommUNITY Centre (COVID-19 resources for Vancity members and British Columbians)
- Government of British Columbia
- Small Business BC – Support for Small Businesses
- Government of Canada
- Greater Vancouver Board of Trade
- Canadian Federation of Independent Businesses
This article is part of a Vancity series to help breakdown and explain COVID-19 economic stimulus measures and other forms of financial assistance for individuals and families, businesses, and investors – so they can endure and thrive during these difficult times.
- COVID-19 Economic stimulus package for families and individuals
- 7 money-saving strategies and relief measures for your real-life needs
- How businesses can negotiate with their landlords during the COVID-19 crisis
This blog post was updated on May 19 2020 to include CERCA link and on April 27 2020 to reflect the addition of the BDC, EDC and CECRA programs.