Reduced Interest Rates
Interest rates are currently at historic lows, which is good for borrowers. The Bank of Canada has recently made two emergency rate cuts in response to “negative shocks to the economy resulting from the COVID-19 pandemic and a recent sharp drop in oil prices”. Many businesses with variable rate borrowing will now pay lower rates as a result. Borrowers with fixed rate payments may wish to gather information to see if a renegotiation would make sense.
Help From Your Financial Institution
As of March 16th, Canada’s six largest banks appeared to emphasize their willingness to help small business customers navigate the current crisis: “Effective immediately, Bank of Montreal, CIBC, National Bank of Canada, RBC Royal Bank, Scotiabank and TD Bank have made a commitment to work with personal and small business banking customers, on a case-by-case basis, to provide flexible solutions to help them manage challenges such as pay disruption due to COVID-19; childcare disruption due to school closures; or those facing illness from COVID-19.” As a result, if you bank with one of these institutions, it may be time to pick up the phone and see how they can help.
Business Credit Availability Program
The Canadian government announced an increase to credit available to small, medium, and large Canadian businesses, by way of the new BCAP (Business Credit Availability Program). Through this program, Export Development Canada (EDC) and the Business Development Bank of Canada (BDC) will provide more than $65 billion in direct lending and other types of financial support. Interested businesses should contact their existing financial institutions so those institutions can assess the client’s financial request. If the needs of the client exceed the level of support the financial institution is able to provide, the financial institution will work alongside BDC or EDC to access additional resources under BCAP.
For organizations who are experiencing reduced revenues related to the COVID-19 pandemic, the Canada Emergency Business Account will provide interest-free loans up to $40,000 for businesses with a total payroll of between $20,000 and $1,500,000 in 2019. Repaying the loan balance prior to December 31, 2022 will result in loan forgiveness of 25%. See your financial institution for more details.
The BDC has additional options available to assist small businesses through this crisis, including working capital loans, payment postponement, reduced rates, industry-specific support, and purchase order financing. Purchase order financing, for example, enables businesses who may be struggling to increase their near-term cash flow in order to pay their suppliers.
More information can be found on the BDC and EDC websites below.