Why government aid programs aren’t saving many small firms
Measures offering COVID-19 relief like CEBA don’t apply to tinier enterprises
If revenue at Julie Skirving ’s eightyear-old clothing business continues dropping at its current rate for the rest of spring and into the usually lucrative summer season, she said it might not make it to the fall.
“I would have lost hundreds of thousands of dollars in revenue and it would be nearly impossible to make up any ground afterwards,” Skirving said over the phone from Logan & Finley, her clothing store in Toronto’s trendy Queen Street West neighbourhood, home to myriad independent businesses starved for income since the coronavirus pandemic lockdown began five weeks ago.
The Canadian Emergency Business Account (CEBA) loan program that provides $40,000 interest-free loans is supposed to help small businesses weather the storm, but some such as Logan & Finley have fallen through the eligibility cracks because they are simply too small.
Skirving, who only employs three part-time workers, doesn’t qualify for a CEBA loan because her payroll was less than $50,000 for the 2019 fiscal year. Qualifying businesses have to prove they paid between $50,000 and $1 million to their employees in 2019.
“The odds are against me,” she said. “My e-commerce business is generating just seven per cent of the revenue I used to have. I’ve been turned away by banks … it’s just very hard to get any kind of financing right now.”
Since the pandemic hit, federal and provincial governments have come up with a variety of income support programs for businesses including CEBA, a 75-per-cent wage subsidy up to a maximum of $847 per week, loans dispensed through the Business Development Bank of Canada (BDC) and Export Development Canada (EDC), and a slew of tax relief measures.
But none of these initiatives provide any financial relief to tiny independent businesses. Even CEBA fails despite being a program that was designed precisely to help smaller enterprises.
Meg Watson, the owner of Frances Watson, another independent clothing store in Toronto’s Parkdale
neighbourhood, is so incensed that her business has been left out in the cold that she put a sign on her store window that reads “CEBA won’t save us.” The slogan has since spawned a social media hashtag, #CEBAwontsaveus.
“Telling us we must close our businesses and stay home without any security to do so leaves our hands tied,” she said. “We are doing our part for the greater good, but cannot roll over like martyrs.”
Just paying her store’s rent costs $5,000 a month, Watson said, adding she has suffered a 96-per-cent drop in sales since mid-March, and has $60,000 in invoices due very soon for a spring clothing collection.
“Even if the economy comes roaring back to life like Trudeau promises, I will not have any product (to sell) out of fear I cannot pay to purchase it,” she said.
The prospect of hundreds of small businesses closing down — clothing shops, flower stores, nail and hair salons — is a real one and could dramatically change the cultural makeup of a city such as Toronto, said Janet De Silva, chief executive of the Toronto Region Board of Trade.
“We cannot let that happen,” she said. “Small micro-businesses make our neighbourhoods work and that’s why 80 per cent of our recovery efforts are focused on getting Main Street back.”
An expansion of CEBA’s eligibility criteria to include all businesses regardless of payroll amounts would be a good start, De Silva said, adding that some form of rent relief is crucial to keep small businesses afloat.
The Toronto Region Board of Trade recently submitted a recommendation to both the Ontario and federal governments proposing that landlords get a tax break on the rents they collect, which would help both landlords while they ask banks to defer mortgages and their tenants.
“If landlords don’t have to pay anything immediately, that trickles down to their tenants,” De Silva said.
Sara Jameson, owner of Sweetpea’s flower shop in Toronto, agrees that rent relief is the one thing that might actually get her through this crisis.
She said she’s in a unique situation, because although she paid out almost $300,000 in salaries to her employees last year, she’s unsure if her business qualifies for CEBA since it went through a major restructuring in February that culminated in the business being registered as a new numbered corporation.
“If they evaluate the business as a new corporation, then I don’t qualify,” Jameson said. “If I do get the loan, I’ll be over $80,000 in debt by August with no clear plan as to how to pay it down. If I don’t get the loan, I’ll have to beg my landlord not to shut us out.”
Prime Minister Justin Trudeau on Wednesday hinted at some form of rent relief for commercial tenants, although no details were given.
“I’m really appreciative of what the government has been doing so far, and I don’t want to be the kind of person who’s always complaining,” Skirving said. “But we are really the kind of tiny businesses that need help … otherwise the list of us that will go bankrupt is going to be pretty long.”
Financial Post