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What You Need to Know About New Support Programs for Entrepreneurs

02/04/2020


Canadian businesses are currently facing unprecedented challenges. To support entrepreneurs, there are two support programs: the Working Capital Loan COVID 19 program and the Business Credit Availability Program (BCAP).

Accessing the Working Capital Loan – COVID 19

The Business Development Bank of Canada (BDC) and Export Development Corporation (EDC) have created a $10 billion Working Capital Loan and are each contributing $5 billion to the program.

Through this Working Capital Loan, the new relief measures for qualified businesses include:

  1. 36 month subordinated working capital loans of $100,000 up to $2 million with flexible terms.
  2. Principal payment postponements during the first 12 months for all qualifying businesses and for existing BDC clients.
  3. Following the initial 12-month principal payment free period, 40 percent of loan is to be repaid within the remaining 24 months.
  4. 60 percent is payable in a balloon payment due at the 36th Month.

The business must be viable and in good standing. Excluded from the program are:

  • Start ups
  • Refinancing loans from other institutions
  • Special Accounts (SA) and Business Restructuring Unit (BRU)
  • Head office special initiatives such as syndication, HO-Mortgage, etc.

The Working Capital Loan – COVID 19 requires a General Security Agreement and a Personal Guarantee by ownership. Pricing is BDC Rate less 1.75 percent (currently this is 3.3 percent).

What You Need to Apply:

  • Application for financing can be requested from your local BDC officer and must be hand signed
  • Statement of personal affairs needs to be requested from the local BDC officer and completed – and signed by each shareholder with ownership of 25 percent or more – and must be hand signed
  • Government Photo ID of all majority shareholders (ownership of 25 percent or more) along with a copy of most recent telecommunications and/or electricity bill as well most recent bank and/or credit card statement for verification purposes
  • Site Visit (two to three photos of office premises) – Since BDC / EDC cannot verify the business location in person, 2-3 photos of the office premises will help for verification purposes if you have them
  • Ownership chart
  • Last three years of accountant-prepared financial statements
  • If your company’s fiscal year end is more than three months old, interim statements are required with prior year comparable figures for the same time period
  • Monthly cash flow forecasts for at least the next six months
  • Specifics around the impact of COVID-19 on the business:
    • Has this reduced your activity level?
    • Have you experienced partial and / or complete closures of your facilities or operations?
    • What activity level do you anticipate over the next six months?
  • On a situational basis, BDC may require some degree of written concurrence from your primary lending institution that the bank will not pull their line of credit or other lending facility even if the new BDC / EDC financing puts the company in breach of covenants

Accessing the Business Credit Availability Program – BCAP

The Canadian federal government has also announced the creation of a combined $65 billion of funding to be accessed under the BCAP:

  1. $40 billion to be offered through the new Small and Medium Enterprise Loan and Guarantee
  2. $25 billion to be offered through individual interest-free loans of up to $40,000 to small businesses and not-for-profits be made from the Canada Emergency Business Account.

These programs are being offered in partnership with Canadian chartered banks and other qualified financial institutions which will conduct the underwriting and manage the interface with their customers.

The Small and Medium Enterprise Loan and Guarantee Program will operate as follows:

  • Small and medium-sized businesses can get support through a new program that brings BDC together with financial institutions to co-lend term loans to these businesses for their operational cash flow requirements. Eligible businesses may obtain incremental credit amounts up to $6.25 million. BDC provides 80 percent and a financial institution provides the remaining 20 percent.
  • EDC will also provide guarantees to financial institutions so that they can issue new operating credit and cash flow term loans of up to $6.25 million to small and medium-sized businesses, as a result of a new domestic mandate enhancing EDC’s role in supporting Canadian businesses through COVID-19 crisis. These loans will be 80 percent guaranteed by EDC, to be repaid within one year.
  • Eligible companies could obtain up to $12.5 million through these two lending streams.
  • Applications must be made and can only be adjudicated through the existing bank or other authorized financial institution with whom the applicant has an existing banking relationship with.

The Canada Emergency Business Account Program will operate as follows:

  • Small businesses may apply for an interest-free loan of up to $40,000 through the $25 billion established for this program and purpose.
  • The funding is targeted to small businesses and not-for profits to help cover their operating costs during a period where their revenues have been temporarily reduced due to the economic fallout from the COVID-19 virus.
  • This will better position the applicants to quickly return to providing services to their communities and to creating employment.
  • The applications must be made through the applicants existing financial institution.
  • To qualify, each applicant must demonstrate that they paid between $50,000 to $1 million in total payroll in 2019. Repaying the loan in full prior to December 31, 2022 will result in loan forgiveness of 25 percent of the loan being repaid, subject to a cap of $10,000.

If you are a Canadian entrepreneur that has been impacted by COVID-19 and you want to discuss how these new programs can support your business, please contact your local advisor or the Corporate Finance Partner in your nearest office:

Vancouver
[email protected]
Edmonton
[email protected]
Calgary
[email protected]
Winnipeg
[email protected]
Toronto
[email protected]
Montreal
[email protected]
Halifax
[email protected]


Learn more at MNP's COVID-19 Business Advice Centre

Strategies and tools to help your company navigate the coronavirus crisis, stay resilient and take the next steps towards recovery.