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Thoughts on Canada’s Federal Efforts to Help Small Businesses

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This is based off of a Facebook post I made over the weekend:

Let’s go over some of the things that the federal government has promised to help small businesses and the arbitrary restrictions they have put on it, likely to prevent abuse, but in reality those arbitrary restrictions prevent businesses that actually really need the money from getting it. Please note, I am glad these efforts are here, but they are nowhere as much as is necessary to help small businesses.

First, the Canadian Wage Subsidy: Covers 75% of salaries for up to 3 months of business.

However, you need to have a 30% drop in revenues from your business. So companies like Perks, which are working night and day to keep their revenues up… well they get screwed. Worse, they actually end up worse off because they hired someone to provide the new service (delivery) so they are spending more on employees, and with the new delivery service they were able to keep their revenue drop from going as high as 30%.

delivery

So a business, that needs that subsidy the most, which is actually doing things to adapt to the economy, and could use it and is CREATING JOBS ends up worse off. While a business that has a 30% drop and isn’t doing anything at all to try and stem it, would be able to get 75% of their salaries paid for. So, if their salaries are 40% of their expenditures (which is a really low amount), it is 100% in their interest to ensure they keep that 30% drop in revenues. Do you not see how this causes more problems than it solves?

Second, the Business Credit Availability Program is basically a free cheque to the banks.

The banks get to decide who gets it, and they have tightened up, not loosened their lending standards. Especially since, in the words of a banker I spoke with recently, we are expecting most businesses applying for loans to fail, so we are going to end up rejecting the majority of them. Literally does nothing for the small businesses on Main St.

working

As well, it requires your NoAs and your tax returns to be completed and up to date and _no taxes owing_. Which completely counters the governments’ program of allowing businesses to not pay taxes for the next while to keep their cashflow up.

So, basically a cheque to the banks with absolutely no assistance to the businesses that need it most.

Third, the Canadian Emergency Business Account.

Unfortunately I cannot completely speak to this one that much. However, the restriction that payroll needs to be 50k-1mil actually kills it as a useful loan (assuming, of course, the banks don’t add more restrictions) for most small businesses. Many business owners pay themselves outside of payroll, and try to keep their payroll as minimized as possible. So while there may be 100k+ in revenues in any given year, it wouldn’t be hard for them to keep their payroll below 50k, especially if they hire subcontractors. Commonly these businesses are also the most agile, so yeah. Sucks to be them.

So, again… useless. This time for businesses that are best suited to try and weather this type of disaster.

All 3 programs, while they work for some, so many will slip through the cracks by the arbitrary restrictions that they really don’t do what they are supposed to do.

My advice:

  • Make the 75% for all businesses that are equal to last years, or have reduced revenues. A company could be equal to last March’s revenues, but had expanded employment to compensate. Punishing those companies is literally punishing the successful companies, it’s absolutely stupid.
  • Force the banks to remove restrictions on the small business lines of credit (under 100k) or at least to severely dial them back. Possibly by offering some form of loan insurance.
  • Open up the CEBA to all businesses that have above 100k revenue, regardless of payroll.
  • Open up tax credits for businesses that are implementing unique technological or other solutions to provide their services in this time. Such as Perks adding delivery to their system, or an art gallery finding a way to offer their art online, or a private school developing online learning tools. Similar to SRED, but more broad-based.

There are probably other ideas a well, but the current plan looks good on paper, but fails almost everyone who needs it and who would be the best businesses to succeed at this time.

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