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For small businesses that survive COVID, recovery is expected to be difficult

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Having 12 cases of mini eggs on hand sounds like the makings of a grandiose Easter hunt or the ultimate way to soothe a sweet tooth, but for Josie Rudderham, the confections have put her in quite the crunch.

“We have joked about pouring them into a bathtub and doing a photo shoot because there is enough to do that, but really they are part of the cycle of investing in ingredients to make a lot of sales that didn’t happen,” said Rudderham, the co-owner of Cake and Loaf in Hamilton, Ont.

She spent the first months of the COVID-19 pandemic closing one of her two bakeries, taking on debt, laying off workers during the busy Easter season and offering curbside pickup, but the boxes remain. Worse still, she believes her business won’t fully recover for another decade.

The projections are quite similar for most of the country’s 1.14 million small businesses still lamenting empty dining rooms, stores and cash registers, and fretting about how they can rebound from the pandemic’s economic impacts.

The Canadian Federation of Independent Business says a survey of its 110,000 members shows only 26% of small businesses are reporting normal sales volumes, leaving the remainder at risk of insolvency.

Those that do survive aren’t likely to emerge from the pandemic unscathed. The CFIB estimated in June, before Canadian COVID-19 infections began rising again, that small businesses will incur $117 billion in debt that could take more than a year to pay off.

“The majority of them have said that they are losing money every day that they are open and I guess the question is how much longer can that happen,” said CFIB president Dan Kelly.

Reversing the trend will take a return of sales at a time when many businesses can’t get COVID-friendly insurance, patio season is coming to an end, offices are showing no signs of reopening and Ontario and Quebec are plunging into second waves.

CFIB wants the government to help small business owners recover by suspending evictions and property seizures for shuttered businesses and providing immediate financial support to cover ongoing costs like rent and taxes.

Sheila Block, a senior economist with the Canadian Centre for Policy Alternatives, also believes public coffers have a role to play in the rebound, but warned government relief isn’t a cure-all.

“The only thing that will ensure that small businesses can come back to life is the public health situation and that is going to take some time,” she said.

While the wait continues for a COVID-19 vaccine, Kendall Barber is keen on getting Poppy Barley, the Edmonton-based footwear company she co-owns with her sister, back on its feet.

When COVID-19 struck, the pair temporarily shut down their two Alberta stores, laid off some workers and put plans for pop-ups across the country on hold.

“All of our factories closed, so we had no ability to get products, and even developing our fall collection was hard because tanneries and facilities were closed and located in countries that are much harder hit by COVID-19 than we have been here in Canada,” said Kendall.

Poppy Barley reverted to its roots in e-commerce. Fans of the brand made purchases online, but not enough to make up for what was lost from closures.

Recovery, said Barber, will now rely on meeting the customer where they are.

For Poppy Barley, that means slowly bringing back pop-ups in 2021 and shifting to meet new consumer needs with fewer high heels, footwear made from ultra soft materials that don’t need breaking in and a plant-based collection.

For many small businesses, which have grappled with layoffs, rent problems and mounting bills, recovery will also mean leaning on customers.

“The simple answer is shop, buy their food, spend your money with them,” said Barber.

“On the darkest days getting a great email from someone saying, ‘Keep going. I love what you’re doing’ has also been really meaningful.”

Changing business models will also be a big piece of recovering, said Rudderham.

“I don’t know that I want to get back to the way things used to be, to be perfectly honest,” she said. “I’m not sure that was actually healthy for anyone.”

Before the pandemic, her business took pre-orders and opened six days a week for walk-in purchases, requiring bakers to speculate on what and how much to make each day.

Busy seasons or large orders would sometimes mean overnight shifts to have product ready by morning.

Rudderham envisions a switch where the business could focus primarily on pre-orders and curbside pickup, giving workers steady hours and eliminating the need to employ counter staff to await drop-in customers.

The economics, she said, would allow the business to focus on larger orders and supplying other retailers like a nearby co-op, instead of hoping for people to walk in for a coffee or muffin.

Rudderham isn’t sure how many of those ideas will be implemented, but insists deep thought is key to any recovery.

“This is a chance for everybody to reassess what is really important about the way we live our lives and how we run our businesses because the normal that existed before the pandemic is not a normal that was working for everyone.”


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Liberals revamp rent relief for businesses as second wave threatens job gains

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The Trudeau Liberals sought Friday to get ahead of growing economic concerns linked to rising COVID-19 case counts, vowing new and revamped business supports to keep workers on payrolls and maintain job gains threatened by the pandemic’s second wave.

The government plans to provide direct rent support to commercial tenants at a projected cost of $2.2 billion through the end of the year, rather than flowing the money through landlords who were not keen on a previous version of the program.

A wage subsidy program will cover up to 65% of eligible costs through December, costing the treasury $6 billion over that time, and $11 billion more to a well-used loan program by providing an added $20,000, half of which would be forgivable.

Even though many businesses have reopened, a number are not at full capacity while others worry about surviving a second wave. Prime Minister Justin Trudeau said the government wants to help companies hang on, and keep their workers employed.

Job growth in Canada accelerated rather than slowed down last month, as the economy added 378,000 jobs in September, bringing overall employment to within 720,000 of pre-pandemic levels, and dropping the unemployment rate to nine%.

Still, there were 1.8 million Canadians unemployed in September, with about 1.5 million of them looking for work. Statistics Canada said the unemployment rate would have been 11.9% in September had it included people who wanted a job, but didn’t look for work, in its calculation.

The growth in overall job numbers for workers hit hardest by losses earlier this year, such as those in the service sector and visible minorities, are now at risk as local lockdowns loom, said Trevin Stratton, chief economist with the Canadian Chamber of Commerce.

Losses for those groups could further strain a K-shaped recovery, where some sectors of the economy and workers fare well, and others do not.

“Now that we’re entering this second wave, that’s where we’re seeing this split take place,” Stratton said. “We can’t use a one-sized-fits-all policy response to this.”

The government opted for targeted relief in this second wave to help companies most in need, said Finance Minister Chrystia Freeland.

The rent-relief program, for example, will cover up to 65% of eligible expenses for businesses, charities and non-profits on a sliding scale with income losses, with a top-up for those closed by public health orders that would cover up to 90% of costs.

“This is not for everyone. Some businesses are able to work at full capacity despite COVID-19 and they are doing well and that’s great,” Freeland said Friday.

“This support is not designed for them. These measures are targeted for those who need it most.”

While NDP small business critic Gord Johns was pleased with the new program, he urged the government to backdate funding so tenants in arrears or steeped in debt could get relief their landlords had refused.

Dan Kelly, president of the Canadian Federation of Independent Business, said it was critical for federal and provincial governments to immediately get the welcomed economic supports to affected firms with closures seemingly imminent.

Threatened by surging case counts are gains for restaurant workers, whose industry saw a 72,000 increase in September. That is still 188,000 jobs shy of where it was in February before widespread closures of non-essential businesses.

With winter on its way, outdoor dining may be impractical in some cities, leaving fewer patrons at local bars, pubs and restaurants, even as Canadians are already planning on cutting spending in the area, Statistics Canada said.

“One of the key questions isn’t just what happens in areas like the restaurant industry, but whether the jitters that might show up there spread over to the broader economy,” said Brendon Bernard, an economist with job-posting website Indeed.com.

There are also jitters over the state of the “she-covery,” which in September seemed to catch up with the “he-covery” as mothers and fathers had employment levels that matched what was recorded pre-pandemic as their children went back to school.

Statistics Canada noted a greater share of mothers than fathers worked less than half their usual hours in September, and a higher percentage of mothers than fathers reported working from home in the month, suggesting childcare responsibilities were still falling on women.

Economist Armine Yalnizyan with the Atkinson Foundation said school and daycare closures since the labour force survey was taken suggest October’s figures may reverse some gains, and noted a year-over-year drop in the number of women in the workforce likely linked to the pandemic.

“Gender equity in the labour force is poised to go backwards by decades,” Yalnizyan said, adding that stopping that “really does depend on what our public policies are.”


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Trudeau unveils rent relief for small businesses hurt by COVID-19

Prime Minister Justin Trudeau is announcing significant rent relief for businesses that can’t afford to pay their landlords at a time when their operations are shut down due to the COVID-19 pandemic.

The federal help, expected to lower rent by 75% for affected small businesses, will be provided in partnership with the provinces and territories, which have jurisdiction over rents.

The Canada Emergency Commercial Rent Assistance for small businesses will provide forgivable loans to qualifying commercial property owners to cover 50% of three monthly rent payments payable by eligible small business tenants experiencing financial hardship during April, May and June.

The loans will be forgiven if the mortgaged property owner agrees to reduce the eligible small business tenants’ rent by at least 75% for the three corresponding months under a rent forgiveness agreement, which will include a pledge not to evict the tenant while the agreement is in place.

The small business tenant would cover the remainder, up to 25% of the rent.

Affected small business tenants are those paying less than $50,000 per month in rent and who have temporarily ceased operations, or have experienced at least a 70-per-cent drop in pre-COVID-19 revenues.

The federal Canada Mortgage and Housing Corp. will administer and deliver the program.

Provinces and territories have agreed to cost share total costs and ensure implementation of the program. They will cover up to 25% of costs, subject to terms of agreements with Ottawa.

It is expected the new program will be operational by mid-May, with commercial property owners lowering the rents of their small business tenant’s payable for the months of April and May, retroactively, and for June.


Federal government improves help for small business

The first payments from a $73-billion federal wage subsidy program will flow by the end of the first week of May, acting as a buttress against the economic shock from COVID-19.

The Liberals are hoping the 75-per-cent wage subsidy will prompt companies to rehire vast swaths of the six million Canadian workers who have asked for emergency federal aid since the pandemic brought the global economy to a virtual standstill.

Online applications will open April 27 and officials expect to have processed 90% of claims by May 4 with payments landing later that week, MPs on the House of Commons finance committee were told Thursday.

Canada’s top central banker told the committee the federal fiscal measure would help maintain employer-employee ties to aid in a recovery.

With expectations the freeze on the economy will be lifted before summer, Bank of Canada governor Stephen Poloz warned it might still be some time before the economy is back to its pre-crisis level.

“We’re going to get a V-shaped trajectory, so down very sharply, then of course back up, but not all the way,” Poloz said.

“That’s when it takes another, maybe a year for the economy to get back to the same path that it was on before all this started.”

The longer it takes for economic activity to resume, though, the more likely that businesses will close for good and the longer workers will face unemployment as they look for new jobs.

On Thursday morning, the government announced an expansion to a loan program for small and medium-sized businesses, and promised a new support for companies having trouble paying rent.

The Canadian Emergency Business Account will now provide up to $40,000 in government-guaranteed loans to businesses that had payrolls last year between $20,000 and $1.5 million. It previously offered loans to business with a narrower range of payrolls, between $50,000 and $1 million.

“Our government is here to help you through these challenging times. So when we hear the program is not reaching as many people as it should, we make changes,” Prime Minister Justin Trudeau said, acknowledging the criticism the government faced from companies who had felt left out.

Since the loan program was launched last month, businesses have taken out 220,000 loans worth $8.8 billion, Finance Minister Bill Morneau told the finance committee.

The loans are interest-free until Dec. 31, 2022 and if they’re paid off by then, up to 25% will be forgiven.

Pushed about some small businesses that may still not qualify for the help because they pay in dividends or employ contractors, Morneau suggested those workers would qualify for the $2,000-a-month Canada Emergency Response Benefit.

The federal government is also working on a program to help businesses and commercial landlords cover their rents for at least three months, though the details still need to be worked out with the provinces and territories, Morneau said.

The federal government has upped its spending by over $105 billion to cover fiscal help, with monetary policy playing a supporting role as the economy went into a tailspin from COVID-19.

Adding to the shock has been plummeting oil prices _ Alberta’s benchmark price is down 90% from the start of the year due to declining demand and a glut of international supply.

Poloz said the central bank would likely have slashed its key interest rate in response to the oil price drop alone.

The Bank of Canada made three rate cuts _ two unscheduled announcements _ in March to reduce its target overnight rate from 1.75% to 0.25%, which Poloz said is effectively as low as it can go.

“Just on the basis of the drop in commodity prices alone, I would say we would have cut interest rates by at least 100 basis points, such as what we did in 2015,” he said during his final scheduled appearance before the committee before he leaves his post in June.

“Possibly we would have ended up doing all 150 basis points if that were the only shock we were facing.”

The economic shock from COVID-19 is unlike anything the country has ever seen, Poloz said.

A preliminary estimate by Statistics Canada suggested the economy contracted by nine% last month, which would be the worst one-month drop on record.

The central bank on Wednesday announced plans to start buying provincial and corporate bonds on the secondary market to reduce the risk those markets will lock up. Those measures are to inject up to $60 billion into the economy and will last, tentatively, for a year.

The bank is also increasing the quantity of federal treasury bills it’s willing to buy, beyond a $5-billion-a-week purchase, effectively making more low-interest loans to the government.

 

 


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Small businesses seek rapid rent relief measures as Trudeau promises more support

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Small businesses are hoping for promised rent relief from both landlords and government as the COVID-19-related shutdown drags on and their bills pile up.

The urgency comes as some landlords have already started issuing eviction notices for businesses that didn’t pay April rent, while those who were able to pay are stressed about the months to come.

“We don’t want to be closed, we’re forced to be closed…but we’re still every single day racking up costs,” said Barb Bushe, who co-owns The Point of Light gift shop in Newmarket, Ont.

Prime Minister Justin Trudeau said Thursday his government is working on on a program to help businesses and commercial landlords cover their rents for at least three months. Further details weren’t immediately available since the federal government will have to co-ordinate with provinces on the program.

Landlords, meanwhile, have generally offered short-term rent deferrals on an ad-hoc basis, but Bushe says she wants to see landlords share more of the burden that the mandated shutdowns have forced on the economy.

“It’s all kind of coming down on our backs … you can’t push the debt down to the bottom (group) that have the least liquidity and not expect other players, mid-level players and large players, to really do their part.”

Bushe said she’s asked her landlord, Metrus Properties, for some level of rent forgiveness to share the burden. The company has so far offered a one-month rent deferral, with interest of prime plus one per cent on the unpaid rent over the rest of the lease term.

Metrus did not respond to a request for comment.

Taking a deferral would mean Bushe takes on further debt at a time when there’s no clear picture of when the store will open, and what the economy will look like when that happens.

“No one imagines the economy is going to come roaring back,” she said. “And the money that you lose as you’re closed, that money’s lost for your year. It’s very hard to make it up again.”

A recently formed campaign called Save Small Business proposes that the federal government would compensate landlords for two-thirds of whatever rent discounts they give tenants for three months, so if a landlord cuts a tenant’s rent by $5,000 a month then the government would pay the landlord $3,300. The group suggests capping the payments at $6,000 a month and only offer it to tenants with less than $5 million in annual revenue.

The coalition says that its key criteria for any program are that it is rolled out fast, has broad eligibility, isn’t based on deferrals or debt, and national.

CIBC deputy chief economist Benjamin Tal has also called for direct government support for small businesses to avoid more job losses.

“Some sort of rent solution is essential to increase the effectiveness of other programs and limit the pace of increase in the unemployment rate,” he said in a note earlier this week.

Tal proposed the federal government follow a model put forward by the Rental-Housing Providers of Ontario, where tenants pay what they can and then the government pays the rest. The government then recoups the payments from tenants later on.

“That cost-sharing approach towards rent payment would go a long way to ease the financial pressure facing commercial tenants,” he said.

While Thursday’s announcement from federal government promises more support, its main relief programs so far are a $40,000 interest-free loan and 75 per cent wage subsidies, though it has also called on landlords to be accommodating.

“We continue to call on landlords to exercise compassion and refrain from evictions during this difficult time for businesses and all Canadians,” said Ryan Nearing, press secretary to Small Business Minister Mary Ng.

He said earlier this week that both Ng and Finance Minister Bill Morneau are listening to small business owners and entrepreneurs and that they “continue to explore options to provide support in these unprecedented times.”

The response so far contrasts with some other advanced economies such as Australia’s model, which has put a hold on commercial evictions and mandated that rents be reduced based on tenant’s decline in turnover “to ensure that the burden is shared between landlords and tenants.”

While there have been few cases of outright rent reductions from large landlords in Canada, some have shown more flexibility on terms.

Aleem Jima of Premier Eye Care in Calgary said that his landlord, Brookfield Asset Management, has offered a three-month rent deferral on base rent, and while he still has to pay operating costs, the base rent can be paid back over five years starting in January with a slight added per square foot payment.

Jima said he was grateful for the way they had structured the repayment, and that it contrasts with public offers from several commercial landlords offering a two-month rent deferral that must be repaid within a year.

Brookfield did not respond to a request for comment.

Other businesses are still working through negotiations with landlords, and trying to push alternative arrangements.

Mark Scantlebury, CEO of Extreme Telematics Corp. in Calgary, said the company is getting hit with both the oil price and the direct pandemic shutdowns.

Since the company will be under financial pressure for months, Scantlebury is pushing for a longer-term payback or other arrangements that could hopefully satisfy the landlord, such as paying half-rent for a year and then making it up later to ease the immediate shock, while still giving the landlord cash flow.

“So you still are getting some money and covering off your cost, and we get half rent for double the period. And then everybody kind of is better off. So it’s that kind of collaborative approach.”

He said he understands the dilemma of landlords, but that if they aren’t more accommodating they risk pushing small businesses towards bankruptcy and losing tenants.

“It’s a game of chicken, and it’s a game of risk. You’re trying to figure out what’s the likely outcome.”


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CFIB battles for benefits for COVID-19 affected business

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After weeks of pressure from the Canadian Federation of Independent Business (CFIB), the federal government announced new programs to support businesses during the COVID-19 public health crisis.

The wage subsidy will increase from 10% to 75%. “We asked for this from the beginning and won the battle thanks to member support,” the CFIB said in a public statement. The program will run for 12 weeks, from March 15 to June 6 and apply to the first $58,700 earned by an employee.

Also, the Canadian Emergency Business Account will offer businesses interest-free loans of up to $40,000 with up to 25% in a forgivable loan if it’s repaid by the end of 2022.

CFIB president Dan Kelly says: “75% temporary wage subsidy and $40,000 loans, we fought for them and won, but we’re not done.” 

Indeed, CFIB has brought several recommendations to government, urging officials to take quick action to ensure that business owners, from c-store to gas and car wash operators, have confidence they can access the subsidy to protect jobs: 

           Eliminate the 30% test for small and medium-sized firms or the need for a test for firms ordered by governments to fully or partially close.

           Create a different test to ensure that new or rapidly growing firms can access the support as well.

           Ensure flexibility for firms with special circumstances, including those affected by major events in 2019, where accounting rules do not allow access or facing giant increases in costs.

           Reduce the 30% test to 15% for March to reflect that the major impacts on business began in mid-March.

FAQ about the 75% wage subsidy to eligible small businesses:

Who is eligible?

           Businesses (regardless of the number of employees)

           Individual employers 

           Partnerships

           Not for profit organizations

           Charities

 

How do I calculate a 30% reduction in revenue?

You will have to compare your revenue for the month you wish to receive the subsidy with your revenue for the same month last year and show a 30% decrease.

As the subsidy is for salaries paid since March 15, the three claiming periods are the following:

           March 15 to April 11: compare March 2020 over March 2019

           April 12 to May 9: compare April 2020 over April 2019

           May 10 to June 6: compare May 2020 over May 2019

For employers established after February 2019, eligibility would be determined by comparing monthly revenues to a reasonable benchmark.

What is the eligible period?

For salaries paid between March 15 and June 6.

How much can I receive?

For employees hired before March 15, the subsidy will cover the lesser of:

           75% of the pre-crisis weekly remuneration paid (up to $847 per week); or

           Current weekly remuneration paid (up to $847 per week).

For new employees (hired after March 15), it will cover 75% of the current remuneration paid (up to $847 per week).

Do I have to pay the remaining 25%?

All employers would be expected to at least make their best efforts to top up salaries to 100%.

How can I apply?

Businesses will be able to apply through the CRA’s My Business Account portal, as well as a web-based application. Businesses will have to apply every month.