Trudeau announces 75% wage subsidies and interest-free loans for Canadian small businesses
Prime Minister Justin Trudeau announced on Friday that the federal government will now offer wage subsidies to 75% of employees to eligible small and medium-sized enterprises (SMEs).
“Our hope is that employers pressured to fire people because of COVID-19 will think again. “
Trudeau said the goal is to help companies keep their employees on the payroll and expressed hope that companies that have already made the decision to fire people will reconsider their decision. “Our hope is that employers pressured to fire people because of COVID-19 will think again,” he said.
The 75 percent wage subsidy will be available to “qualifying businesses” for up to three months and will be retroactive until March 15.
On Monday, Trudeau shared more promised details of the initiative, noting that Canadian businesses that have experienced a 30% drop in revenue due to COVID-19 will be eligible for the 75% wage subsidy.
The program applies to all Canadian businesses, large and small, as well as nonprofits and charities. There is no restriction on the number of employees. The 75 percent wage subsidy will be available on the first $ 58,700 of an employee’s salary, Trudeau saying that means up to $ 874 per week through the government for Canadians.
Finance Minister Bill Morneau and Small Business Minister Mary Ng are expected to provide more details to businesses on the details and costs on Tuesday. Trudeau declined to comment on how much this grant program will cost the federal government at this point.
The percentage of startups that don’t have books clean enough to be able to show that 30% drop, even if they’ve experienced it, is surely a factor to consider.
– Aron SALOMON (@aronsolomon) March 30, 2020
The decision to increase the wage subsidy program from the 10% announced last week, comes as many business organizations and companies have request the government to take such a step. Many companies have already made the decision to lay off employees, either permanently or temporarily, citing the need for higher subsidies. The Canadian government’s higher wage subsidy program is now more in line with measures taken in countries like the UK and Denmark.
Matt Roberts, partner at ScaleUp Ventures, who commented on the lack of substantial support for Canadian startups, told BetaKit: “This is great [the government] seen what our European counterparts are doing and followed suit.
While CEOs of Canadian startups welcome today’s decision, some who have already chosen to make layoffs have told BetaKit they will wait until more details about the program are revealed before making a decision on rehiring employees. “We need to do due diligence and wait for the mechanics of this program to be clarified,” said one CEO.
The measure is one of four announced by Trudeau during his daily press briefing on Tuesday. He noted that the government’s top priority is to make sure people stay employed and businesses will be able to weather this economic storm.
The Prime Minister also announced loans of $ 40,000 from banks which will be interest free the first year. Loans will be available for businesses with a payroll of less than $ 1 million. The loans will be guaranteed by the government and approximately $ 10,000 of these loans could also be forgiven for qualifying businesses.
A Additional $ 12.5 billion goes to Export Development Canada (EDC) and the Business Development Bank of Canada (BDC) to help SMEs generate liquidity. Trudeau noted that businesses will be able to apply through their financial institutions for government-guaranteed loans.
Roberts, formerly Associate Director of BDC’s IT Venture Capital Fund, acknowledged that BDC is probably the best institution to quickly implement and deploy the loan program.
“Before, there was no mechanism or balance sheet availability for BDC to do anything,” Roberts said of Friday’s announcement. “[BDC] did not have a government approved and supported program that would allow them to deploy capital at a very rapid rate. It is obviously the government that says to the BDC: “we will settle this with you – this is a new policy, do it”.
A press release providing more information on EDC and BDC loans explained that SMEs could potentially access up to $ 6.25 million. Through BDC, businesses can apply for a new co-loan program that will bring together BDC and financial institutions to co-lend term loans, up to a maximum of $ 6.25 million. 80 percent of the loans will be made by BDC and 20 percent from financial institutions. Eligible financial institutions will carry out underwriting and financing directly for clients.
EDC is preparing to provide guarantees to financial institutions so that they can issue new operating credits and cash flow term loans of up to $ 6.25 million. The loans will also be 80% guaranteed by EDC and are expected to be repaid within one year.
BDC noted that eligible businesses could obtain up to $ 12.5 million through these two loan streams. BDC clarified on Friday that to be eligible for its co-loan program, businesses must have been directly or indirectly affected by “recent events” and have been financially viable before the impact of COVID-19. How BDC or the financial institutions will make this assessment has not yet been disclosed.
“Expanded wage subsidies alone, while necessary and welcome, are not enough to keep Canadian businesses afloat.
The federal government is also set to defer Goods and Services Tax / Harmonized Sales Tax (GST / HST) payments, as well as duties and taxes owed on imports, until June. Trudeau called it the equivalent of providing up to $ 30 billion in interest-free loans to Canadian businesses. The deferral will apply to installments that fall due in March, April and May, and take effect immediately. The Canada Revenue Agency would strive to eliminate administrative burdens in order to facilitate business access to these measures.
Trudeau acknowledged that the measures are unprecedented, but noted that “they are necessary as we have to navigate these coming months of limited economic activity.”
“Focus on the things you need to do today and know that your job will be there, that your relationship with your employer will continue,” Trudeau said, stressing the need to follow the advice and direction of professionals in the field. health.
In a Tweet, John Ruffolo, founder of OMERS and co-founder and chair of the Canadian Innovators Council (CCI), expressed hope that the new grant and loans will be “the right medicine to save many small and medium-sized businesses. . Ruffolo and the CCI have been in contact with federal government departments, offering recommendations on how best to support startups in the innovation sector in Canada, including a massive injection of cash into the economy.
“The government is finally hearing the concerns of frontline businesses by offering wage subsidies, and we urge them to continue to find ways to appropriately support Canadian entrepreneurs during this difficult time,” said Benjamin Bergen, CEO of CCI. “The government’s decision to inject short-term liquidity into our SMEs through government guaranteed loans is critical to Canada’s long-term economic recovery, as increased wage subsidies alone, although necessary and welcome, is not enough to keep Canadian businesses afloat.
“I think a number of startups are going to look back and see whether or not they can rehire these people,” Roberts added. “A number of companies will forgo layoffs they may have to make in the short term. Not everyone will be rehired, but I think a good number of people will come back. “
Bergen said the measures announced on Friday would be helpful for SMEs that were on track to “hit a wall” and go bankrupt in April. He added that CCI now hopes to see Canada’s financial institutions and FinTech lenders execute these programs quickly.