As the federal government rolled out a sweeping package of stimulus measures this week to cushion the economic blow from the COVID-19 epidemic, business owners across Canada immediately sought information as to how they could quickly access the new relief programs. The urgency has been heightened by complete shutdowns across some sectors such as hospitality, retail and tourism—with devastating operational slowdowns across most others, threatening some organizations’ financial viability.
Our team has been working diligently behind the scenes, liaising with government contacts to understand how some of these relief funds will be deployed. We have new information from Business Development Canada on the $10 billion BDC credit program targeted mainly towards small and medium-sized organizations directly impacted by the COVID-19 crisis. The loan facility program is designed to provide organizations with a short-term, low-interest lifeline to see them through until business can return to normal. When that will be remains anyone’s guess at this point, but right now the focus is on stabilization and continuity.
BDC is stressing that any relief loans are intended strictly to provide working capital to struggling businesses, not to consolidate or pay down existing debt. They also want to know how the funds will be deployed. Importantly, eligible businesses needed to be financially viable prior to the impact of the coronavirus situation to qualify. Here’s what we know about the program and eligibility criteria so far:
- Working capital loans will be up to $2 million amortized for 36 months at the base rate (5.05 per cent) – 1.75 per cent. As of today, that rate would be 3.3 per cent
- There will be a 12-month initial principal postponement on loans, as well as a 24-month amortization excluding that initial postponement
- 40 per cent of the principal will be payable on the term of the loan after the initial postponement, while the additional 60 per cent will be payable in a balloon payment at the end
Some of the applicant pre-screening requirements will include:
- An outline of the nature of the business challenges being faced by your business related to the COVID-19 crisis
- Confirmation that relief funds will be used to ensure ongoing operations and not to pay out existing lenders, or to consolidate debt
- An explanation of how your existing operating lender could or will be supporting your business, such as through loan extensions
- An overview of your organization’s financial needs for the next six months and how those needs will be covered
Business owners will be required to provide the following documentation to access emergency loans:
- Year-end financial statements for the most recent three years
- The most recent interim financial statement, to be accompanied by comparable statements for the previous year as available (if the most recent year-end statement is more than three months old)
- Revenue and cash flow projections
BDC will ask the following applicant screening questions:
- At what activity level do you expect to operate over the next six months (e.g., full shut down, partial closure of the premises, reduced capacity, etc.)?
- What are your organization’s key carrying costs for the next six months (e.g., insurance, rent, salaries, etc.)?
- With a working capital loan and/or postponement (and support from other lenders), does this cover your cash needs for the next six months? Do you have other sources of available funding, such as an existing bank line of credit or the ability to inject personal funds into the business in addition to a BDC loan?
- What are your agreements with key suppliers (and customers) on payment terms and support over the next six months? For example, have you entered into negotiations with third parties or, in the case of a manufacturer, have you analyzed your organization’s raw material needs over the next six months?
The BDC is promising additional details on its Business Credit Availability Program in the coming days, along with direct support for industries most severely impacted by the COVID-19 outbreak. Our team is working to glean additional information and will share it as soon as possible.
In the meantime, if you believe your organization is eligible for BDC assistance, take immediate steps to collect the necessary information and analyze your ongoing operational requirements to ensure you have the data required to qualify for a relief loan. If you require assistance in preparing an information package for BDC in advance of a loan application, please don’t hesitate to contact a member of our team now.
Perhaps most importantly, stay safe and focus on your health, as well as that of your employees and loved ones. This is an unprecedented crisis that is testing us all, but we will manage through it together.
Adriano Romeo, Partner