Emergency programs to support pandemic-struck businesses less popular than expected

Finance Minister Bill Morneau touted the success of his government's COVID-19 response programs for small businesses during his appearance at the Commons finance committee Thursday — even as his department's most recent briefing for that same committee suggests several of those programs remain undersubscribed.

The Canada Emergency Commercial Rent Assistance (CECRA) program offers subsidies from the federal and provincial and territorial governments to help reduce a business tenant's rent by up to 75 per cent for April, May and/or June, provided the property owner forgives a share of the rent and agrees not to evict the tenant for the three months it covers.

Morneau told the committee he's been "very encouraged" by the government's approach so far.

As of June 8, the federal government had paid out $39 million in rent relief.

But that's less than two per cent of the nearly $3 billion the Department of Finance budgeted for this program.

There are over a million small and medium-sized businesses in Canada. They employ the vast majority of Canadian workers. 

But only a fraction of these businesses are part of this program. The committee's update says over 5,500 small business tenants employing about 38,700 workers have had their rent subsidized.

The Canadian Federation of Independent Business estimates that a half million small businesses could qualify for the CECRA, if their landlords were willing to shoulder their share and apply for the government funding. But many have not done so.

On Monday, the government of Quebec assumed a larger share of this rent subsidy in a push to get more landlords to sign on. That province will now contribute 25 per cent — so landlords there only have to forego 12.5 per cent of the rent.

In other jurisdictions, landlords must be willing to eat the cost of a quarter of the rent in order to participate. 

"After many weeks of discussion, we've seen provinces move forward with bans on evictions," Morneau said Thursday, referencing announcements in Ontario and Quebec over the past week.

Landlords in seven provinces are now prohibited from serving notice to commercial tenants, as businesses struggle to find their feet and reopen.

"The activity between tenants and landlords is starting to change. We've seen a very significant uptick in applications in the last few days," the minister said. "I'm now in a phase where I think there are very encouraging signs this program can have a big impact on commercial tenants."

Loans undersubscribed

Morneau also praised the Canada Emergency Business Account (CEBA), which extends interest-free loans of up to $40,000 to eligible small businesses and non-profit organizations. A quarter of the value of these loans (up to $10,000) is forgivable if the balance is repaid by December 31, 2022.

"I think we have to acknowledge how successful this program has been in getting support out to small businesses," the minister said. "That's very important."

The committee's biweekly report says that since the program started April 9, 663,000 applications have been approved for loans worth over $26 billion.

But elsewhere in the briefing from Morneau's department, it says the government made over $41 billion in credit available for the CEBA.

The projected spending on the program, which mostly reflects the projected cost of the loan forgiveness, is $13.75 billion. 

Even assuming all $26 billion of the loans to date are repaid on time and meet the criteria for forgiveness, there's still considerable room in this budget for more applicants. ($26 billion x 25 per cent forgiven = approximately $6.5 billion)

Thursday's briefing also offered an early indication of the demand for the Small and Medium Enterprise Loan and Guarantee Program, an additional source of operating credit and cash flow term loans of up to $6.25 million, provided by banks and credit unions.

Export Development Canada guarantees up to 80 per cent of the value of these loans, regardless of whether companies are exporters.

So far, EDC is backing 135 loans with a total exposure of about $210 million. That's a tiny fraction of the $40 billion in credit EDC and Business Development Canada made available earlier this spring.

The briefing said the BDC's current exposure was still being collected from the financial institutions extending this credit.

Morneau was asked about a barrier businesses have faced in trying to qualify for the CEBA loans: that they must have had a business account with that financial institution prior to March 1. (Some small businesspeople find it simpler to use their personal chequing accounts.)

Morneau said the government is working to expand the range of businesses it can help.

"The EDC has said that there will be an ability to enlarge the companies that are eligible," Morneau said. "I think that will be out in the coming days."

Wage subsidy behind projections

An earlier committee update revealed that because fewer businesses than expected were applying for the Canada Emergency Wage Subsidy (CEWS), the government cut its projected budget for the 12-week period between April and June from $73 billion to $45 billion.

As of June 8, only $10.5 billion in wage subsidies have been paid.

The government now intends to extend the wage subsidy through late August.

Other program statistics show that fewer workers — roughly 2.2 million — were supported by the wage subsidy in its second period, from mid-April to mid-May, compared to the 2.6 million workers paid with the subsidy between mid-March and mid-April.

The CEWS makes it easier for struggling businesses to avoid layoffs by providing up to 75 per cent of an employee's salary, up to a maximum of $847 a week.

The government hopes more of the 8.4 million Canadians who have received the Canada Emergency Response Benefit (CERB) this spring after losing work during the pandemic can transition back onto employers' payrolls.

The CERB helped people to stay home, but now the economy is trying to reopen. Seeing the number of workers supported by the CEWS go down, not up, was not an encouraging sign.

"The wage subsidy was both announced really late in the day and delivered even later than that," CFIB president Dan Kelly told CBC News earlier this week. "Had we had the wage subsidy in place a lot sooner, I believe many of those employees would never have left their employers."

"Unfortunately, that didn't happen. Employees did get laid off, and now we're trying to hustle ... to pull them back in."

Stalled bill thwarts CEWS changes

Morneau said Thursday he continues to hear from businesses who do not qualify for the CEWS, which originally required employers to demonstrate a 30 per cent drop in revenue from the pandemic.

He said his department has heard about issues with the program "in a number of areas" and he promised more information on his government's next steps "in the near future."

Previously-announced improvements to the eligibility criteria were included in legislation introduced in the House of Commons Wednesday. But the Official Opposition — frustrated with the way the minority Liberal government has limited Parliament's operations to focus on its pandemic response and comply with public health advice — was unwilling to debate it.

The Liberals are considering what to do next, as the wage subsidy's eligibility criteria continue to be problematic for seasonal businesses and start-up companies in particular.