COVID-19: Governments Respond with Business Support Programming
Immediate government funding was announced on March 18th to support ‘economic hibernation’. The majority of the measures introduced support market liquidity and continued access to financing for Canadian businesses. The main purpose of this stimulus is to ensure Canadians have enough resources to purchase life essentials during the global pandemic.
Social distancing measures and the major negative shock to the Canadian economy are anticipated to last 3-6 months. Program specific details continue to emerge and we will share more information as it becomes available. It is anticipated that additional fiscal stimulus will be introduced at the appropriate time to re-start the economy after we have successfully flattened the curve.
Canada’s COVID-19 Economic Response Plan: Support for Business
On March 18, 2020, Prime Minister Trudeau announced a new set of economic measures to help stabilize the economy during this challenging period. These measures, delivered as part of the Government of Canada’s COVID-19 Economic Response Plan, will provide more than $27 billion in direct support to Canadian workers and businesses.
Supporting Canadian Business through the Canada Account
The Government is changing the Canada Account, which means that the Minister of Finance is now be able to adjust the limit of the Canada Account to deal with this exceptional circumstance. The Canada Account is administered by Export Development Canada (EDC) and is used by the Government to support exporters when deemed to be in the nation’s interest. This will allow the Government to provide additional support to Canadian companies through loans, guarantees, or insurance policies during these challenging times.
Helping Businesses Keep their Workers
To support businesses that are facing revenue losses, and to help prevent lay-offs, the Government is proposing to provide eligible small employers with a temporary wage subsidy for a period of three months. The subsidy will be equal to 10% of remuneration paid during that period, up to a maximum subsidy of $1,375 per employee and $25,000 per employer. Details are not yet released, but it is anticipated the wage subsidy will be administered by reducing payroll remittances.
Flexibility for Businesses Filing Taxes
The Canada Revenue Agency will allow all businesses to defer, until after August 31, 2020, the payment of any income tax amounts that become owing on, or after, March 18, 2020, and before September 2020. This relief would apply to tax balances due, as well as instalments, under Part I of the Income Tax Act. No interest or penalties will accumulate on these amounts during this period.
Ensuring Businesses Have Access to Credit
The Business Credit Availability Program (BCAP) will allow the Business Development Bank of Canada (BDC) and Export Development Canada (EDC) to provide more than $10 billion of additional support, largely targeted towards small and medium-sized businesses.
Applicants with a minimum of two years of revenues may apply for low-interest loan funding between $5,000 and $100,000 to support short-term cashflow needs. The loan terms are offered at 3.3% interest for a period of 60 months. Loan repayment is subject to the following:
- Repayment of interest only over the first six months of the term. After six months, loan is repaid at principle + interest;
- Disclosure of current financial position with respect to assets and liabilities.
Note there are no penalties for early repayment of loans.
The Office of the Superintendent of Financial Institutions (OSFI) announced it is lowering the Domestic Stability Buffer by 1.25% of risk-weighted assets, effective immediately. This action will allow Canada’s large banks to inject $300 billion of additional lending into the economy.
The Bank of Canada has cut the interest rate to 0.75% as a proactive measure during this period of economic stress to enhance the resilience of the Canadian financial system, and help ensure that financial institutions can continue to extend credit to both households and businesses. The fiscal stimulus announced today are being reviewed and a further rate rut is being considered and may still be introduced in the coming weeks.
Supporting Financial Market Liquidity
As a further proactive and coordinated measure to bolster the financial system and the Canadian economy, the Government announced on March 16, 2020, that it is launching an Insured Mortgage Purchase Program (IMPP). Under this program, the Government will purchase up to $50 billion of insured mortgage pools through the Canada Mortgage and Housing Corporation (CMHC).
This action will provide long-term stable funding to banks and mortgage lenders to help facilitate continued lending to Canadian consumers and businesses, and add liquidity to Canada’s mortgage market. Details of the terms of the purchase operations will be provided to lenders by CMHC later this week.