Given many government and banking programs began in March – and were set to run for six months – much of the financial relief available to businesses is coming to an end. It is important for owners, therefore, to prepare for upcoming deadlines and have a transition plan in place.
In a recent discussion with Jeff Heard, RBC Business Account Manager and Joy Yang, RBC Senior Commercial Account Manager, the two shared insights and advice for business owners who are preparing to operate without some of the programs they have relied on to get through the last few months.
Q: What programs are currently scheduled to come to an end, and when?
Yang: One of the key programs is the Canada Emergency Wage Subsidy (CEWS). While the application period was set to end September 30, 2020, the federal government recently announced changes that would extend the relief. The extension is great news for business owners, but it’s still important to plan for life after the subsidy.
Learn more at the Government of Canada website
The Canadian Emergency Business Account – otherwise known as the CEBA $40,000 loan program – has been through some changes a couple of times. Eligibility expanded to include more businesses, including those with a 2019 payroll of $20,000 or less that are able to demonstrate eligible non-deferrable expenses greater than $40,000 and less than $1,500,000 in 2020. Note that expenses will be subject to verification by the Government of Canada.
Businesses with a 2019 payroll between $20,000 and $1,500,000 are still eligible to apply for CEBA. The deadline to apply was recently extended to October 31st, 2020.
As program deadlines and eligibility requirements continue to be updated, visit the Government of Canada website.
For complete details about the Canada Emergency Business Account, visit the Government of Canada website
The EDC Business Credit Availability Program (BCAP) provides working capital to businesses who need access to funds due to COVID-19. The guarantee is for new operating lines of credit or new term loans and owners must obtain approval by June 30, 2021. Be sure to apply early enough to secure approval by this deadline.
Q: A number of programs have seen extensions from the government – including the latest updates to the CEWS. Can owners expect deadlines to be extended again?
Heard: I know many owners feel we are still in the midst of the pandemic. Of course the government has recently announced an extension to CEWS and we are on the third iteration of CEBA. While programs have changed and extended along the way, owners should assume and prepare for no further changes. If there is a change or an extension, that’s a bonus, but not something we should be counting on.
Q: What about loan deferrals that businesses might have taken advantage of? Are there associated deadlines that owners should be aware of?
Heard: In cases where financial institutions provided deferral relief options, a lot of those run up to six months. If business owners began taking advantage of a deferral at the end of March, we’re looking at the end of September for those to finish up.
Q: It can be difficult for owners to plan when the timing of relief measures is somewhat uncertain, the re-opening landscape remains unclear and revenue is hard to predict. How can they prepare?
Heard: Owners must focus on what they can control. There is no promise of revenues returning to what they were before, so looking at things like adjusting prices, examining staffing levels and managing suppliers will be critical to sustaining the business. It’s also important to look at different avenues to pivot – what are some ways to drive new business or sustain old revenue?
Yang: It is certainly hard to plan during these times, so scenario planning is key right now. You need a Plan A that takes into consideration no wage subsidy, and a Plan B for continued subsidies. It’s important to consider what your minimum viable business is, and have iterations based on the amount of funding you will get. Owners need to be ready for every possible outcome.
Q: What advice can you offer business owners who will be faced with what might be a difficult transition?
Yang: It’s really important to be constantly reviewing your cash flow and know what’s required.
Owners need to know what payments are coming up, and how they will make them. It’s also crucial to understand what other programs they might be able to tap into. For example, the BCAP facility is meant to pay ongoing operating expenses. So if rent or other principal payments were deferred, this could be a viable solution if the cash flow isn’t there yet.
Heard: It’s also key to look at the hard costs that owners might not have needed to cut so far. Now is the time to go through those costs and understand what is absolutely critical to re-opening. Are there costs you were able to retain that you should get rid of now? What do you need for your minimum viable business?
Q: As the country goes through a phased re-opening, what options do smaller businesses (i.e. those who don’t qualify for BCAP) have to cover the associated costs?
Heard: Clients who need short term financing to bridge the gap should begin by thinking about how long it might take them to return to normal. Less than a year? Two years? Five years? Then we would look at financing to fit that timeframe.
I like to remind clients that the cheapest money is their own. Next to that, CEBA is a low-cost borrowing option, given its two-year grace period and potential 25% loan forgiveness. Then perhaps it’s a matter of looking at personal financing, such as home equity financing.
Yang: As far as business financing goes, there is an added layer of analysis required to understand how businesses are navigating COVID-19. As such, owners will need to provide detailed cash flow projections and a thorough plan of how they’re planning to sustain their business. While financial institutions have typically looked at past actual revenues, history is no longer indicative of the future.
Given banks are reviewing loan and operating line applications with a different lens and more scrutiny than in the past, the timeframe for getting facilities funded and approved is longer. It doesn’t happen overnight. For this reason, it’s best to start talking with your financial partner early – i.e. before you need financing – rather than waiting until you need the money.
Q: Is there anything else business owners should keep in mind as they re-open?
Yang: Businesses should pay attention to how the government is responding, as they are forming working groups to stimulate the economy and provide updated programming regularly. It’s also important to stay in tune with what’s going on in individual industries – there are many industry-specific programs that are being launched.
It’s also important to remember that we’re all in this together. Support can come in various forms – from the government, the bank or partners in the industry. Part of an owner’s plan might be to go back to vendors and see if they can negotiate some extended payment terms.
As you prepare to operate your business without some or all of the financial relief measures you may have been using, planning for various scenarios, keeping a close eye on your cash flow and preparing for financial gaps in advance will be critical to navigating the transition. Remember, financial advice is always available and RBC advisors are here to help guide you through the next phase of your business.
This article is intended as general information only and is not to be relied upon as constituting legal, financial or other professional advice. A professional advisor should be consulted regarding your specific situation. Information presented is believed to be factual and up-to-date but we do not guarantee its accuracy and it should not be regarded as a complete analysis of the subjects discussed. All expressions of opinion reflect the judgment of the authors as of the date of publication and are subject to change. No endorsement of any third parties or their advice, opinions, information, products or services is expressly given or implied by Royal Bank of Canada or any of its affiliates.