COVID-19 and the actions taken by government investment agencies

Gascon Fiscalité Taxation

The current global pandemic is already having its share of economic and financial consequences and could, according to some, lead the world into a more severe recession than the one experienced in 2008 [1].

All stakeholders are called upon to intervene in various ways to mitigate the damages. The Government is called upon to implement immediate measures, mainly at two levels. With individuals who are severely affected by layoffs and a sudden lack of liquidity to meet their personal and family obligations. And to companies whose revenues are affected and will continue to be affected by the current shutdown and economic downturn.

This crisis highlights how critical it is for a company to have significant liquidity to deal with such unforeseen events. While companies place a great deal of importance on maximizing leverage effect to generate maximum profitability on their investments, the crisis will surely remind us how relevant the term “cash is king” is.

Government agencies are responsible for helping companies that were in good financial shape before this crisis keep, their heads above water by providing them with financial assistance. The goal is to allow them to continue their operations until the economy regains the upper hand.

The purpose of this article is to look at some of the measures adopted by government investment agencies for Québec and Canadian businesses. These measures could evolve with the situation of the pandemic.

Actions by Export Development Canada and the Business Development Bank of Canada  

Export Development Canada (“EDC“), in collaboration with some Canadian financial institutions, created the “Emergency Account for Canadian Business” program. These are interest-free loans for up to $40,000 to small businesses and non-profit organizations, guaranteed and funded by the federal government through financial institutions.

No principal payment will be due before December 31, 2022, the debtor is able to repay the loan before this date. Repayment of the loan balance by this date will result in a 25% write-off of the loan, up to a maximum of $10,000. [2]

The federal government, in collaboration with EDC and the Business Development Bank of Canada (“BDC“) has announced the creation of the Business Credit Availability Program (“BCAP“), which includes the implementation of the following programs:

  • Guarantee program for new operating credits and self-financing term-loans for financial institutions, which provide loans to SMEs, up to $6.25 million, for a total amount of $20 billion.
  • A joint loan program between BDC and financial institutions (which will be responsible for underwriting and managing the interface with clients) to grant joint loans to small and medium-sized businesses to meet their operational needs concerning cashflow. This measure makes it possible to obtain additional amounts of credit up to $6.25 million (BDC share: $5 million per loan), for a total amount of $20 billion [3].

Measures taken by Investissement Québec  

Investissement Québec has announced the establishment of the Concerted Temporary Action Program for Businesses (“CTAPB”). This funding is made available to companies operating in Québec, including cooperatives and other social-economic companies that are temporarily in a precarious situation due to COVID-19 and whose financial structure presents a profitability perspective. All industries are eligible with a few exceptions.

Financing is available in the form of loans or loan guarantees to support the working capital of businesses. The minimum amount of financial intervention must be at least $50,000 and excludes any refinancing.

According to the information we have collected at this stage, Investissement Québec aims rather to guarantee the financial institution the reimbursement of a portion or all of a new loan or a credit increase that has been proposed, rather than setting up loans directly with the businesses. Through its intervention, Investissement Québec then takes the financial risk, or a significant part of it, instead of the financial institution, as long as certain criteria are met.

In light of the above, it is clear that government agencies have quickly understood the importance of helping businesses in difficulty because of the crisis caused by COVID-19. They implemented programs within a tight time frame, all in collaboration with financial institutions. We hope that these measures will help all actors in the economy to provide the form of relief necessary to allow as many businesses as possible to navigate this crisis and beyond.

By Émilie Therrien et Nicolas Beaulieu

[1] « L’économie risque de faire de l’économie mondiale un champ de ruines », Véronique Dupont, LaPresse, 26 mars 2020, https://www.lapresse.ca/affaires/economie/202003/26/01-5266519-le-coronavirus-risque-de-faire-de-leconomie-mondiale-un-champ-de-ruines.php

[2] Ministère des Finances Canada, « Soutien supplémentaire aux entreprises canadiennes pour faire face aux répercussions économiques de la Covid-19 », https://www.canada.ca/fr/ministere-finances/nouvelles/2020/03/soutien-supplementaire-aux-entreprises-canadiennes-pour-faire-face-aux-repercussions-economiques-de-la-covid19.html, page consultée le 30 mars 2020

[3] Ibid.