COVID-19 has sent a massive shockwave through the Canadian economy. Businesses, both large and small, are trying to make it through this unprecedented situation, but the financial blowback is going to be hard to weather on their own. If you’re a business owner, you should read this guide on the financial solutions that are available to you right now.
Sudden Business Closures
Since COVID-19 arrived in Canada, more and more businesses have closed their doors. At first, some companies were losing so many customers due to the encouragement of social distancing that they did not have the profits to remain open. Then, the province ordered all non-essential businesses to shut their doors to the public as a safety measure. Any business that was not in one of the following essential fields would have to temporarily close:
- Supply chains
- Food services (grocery stores, convenience stores, restaurants, beer/liquor stores)
- General services (pharmacies, gas stations, couriers, veterinary offices, funeral homes, vehicle repair businesses, security services, laundromats, hotels, at-home childcare, cheque cashing services)
- Community services (sewage, waste collection, water treatment, infrastructure repair, environmental rehabilitation, business inspection, social services, and government services)
- Financial services
- Agriculture and food production
Businesses that sell essential items (hardware supplies, pet/animal supplies, office supplies, safety supplies, and vehicle parts) to the public were allowed to remain open, as long as they used alternative methods of sale to encourage social distancing.
These emergency measures are temporary. Currently, there is no expected date for them to be waived. The government is promising updates on a regular basis. Any individuals or businesses that stay open and ignore these safety measures could face expensive fines from the Ontario Provincial Police.
What Alternative Options Are Available?
You don’t have to consider the government’s news as a sign of defeat. There are ways to adapt your business to these circumstances.
Office spaces can do their best to work from home. As long as workers have access to the internet, they can stay in communication with the rest of their coworkers and complete tasks digitally. If an employee doesn’t have important supplies like a computer or phone, you should order them as soon as possible and have them delivered to the employee’s home address.
If you have a store that currently has shelves stocked with untouched products, you should consider creating an e-commerce site. That way, customers can safely browse your wares and order what they want. Plenty of companies are staying afloat by offering online deliveries with curbside pick-up.
Federal Government Relief
The Canadian government has responded quickly to COVID-19’s economic impact by rolling out different relief plans for businesses. The government has put these plans in place to prevent as many layoffs and closures as they can.
If these relief efforts aren’t enough, and you need to lay off staff members, you should know that there is also financial relief available for individuals. Ending someone’s employment is an uncomfortable decision, but you may feel better knowing that they can fall into a big safety-net after you do it. For more information about the financial benefits and relief opportunities for individuals, you should read our blogpost “Everything You Need to Know about Financial Help during COVID-19.”
The Canadian government has introduced several initiatives to help businesses to get through this difficult time. One of these initiatives is CEBA. The Canada Emergency Business Account (CEBA) was made available in April 2020. The account provides interest-free loans of up to $40,000. This is designed to help small businesses and not-for-profits cover operating costs. The loans can be acquired through your bank.
The federal government also established the Business Credit Availability Program (BCAP) to keep businesses across a variety of sectors afloat. BCAP is providing operating credit and cash flow term loans to SMEs (small and medium-sized enterprises). It’s also offering a co-lending program for term loans to support cash-flow. Again, this relief option can be accessed through your regular bank.
The Canada Emergency Wage Subsidy (CEWS) is another relief program recently rolled out by the federal government. CEWS could provide a 75% wage subsidy for eligible employers for a maximum of 12 weeks. The subsidy encourages employers to keep workers on payroll or to re-hire those that were laid off during COVID-19. Originally, businesses that suffered a drop of at 30% in gross revenues from March 2020 to May 2020 would qualify for the subsidy. That qualification has since been adjusted to a 15% decline by March 2020.
Deferrals and Extensions:
The federal government is doing more than creating funding options. It is finding ways to take the financial stress off owners’ shoulders for the time being. So, they have deferred all payments for GST/HST and import duties for businesses until June 30th. The Canada Revenue Agency is also deferring tax payment obligations for August 31st, 2020. These actions will make sure that you can focus on operating costs instead of other financial responsibilities.
The Ontario Government has also been preparing to ease the financial strain on businesses. They have put $1.9 billion into the Workplace Safety and Insurance Board for the sake of emergency relief. If your business is covered by WSIB, you can apply for provisions from the relief package.
The WSIB will continue to give full coverage to businesses. For additional support, they arranged to have premium payments deferred for six months and to cease interest accrual/penalty charges on any outstanding premium payments.
The City of Toronto is also finding ways to support local businesses and encourage them to ride out the crisis. One of the things that the city has done is establishing extended grace periods for property tax payments and utility payments. The grace period will now be up to 60 days.
Toronto Hydro is charging small businesses the off-peak rate for electricity 24 hours a day, seven days a week. And for any owners who have missed payments and are worried about having the lights cut off, the utility company has suspended electricity disconnections until July 31st, 2020.
Other Financial Help That You Can Turn to
Unfortunately, there are still a lot of businesses that feel left behind with the government’s COVID-19 emergency aid programs. Some feel like the amount of support is not enough, while others feel like the roll-out of these programs was far too late. If the government relief isn’t giving you any confidence in your business’s stability, you can always turn to our certified insolvency counsellors to help you with your financial recovery plan.
Stretching Your Funds:
You have accessed funding for your business. Now, you’re wondering how you can make it last.
The first thing that you should do is make a comprehensive monthly budget to follow. It will probably look very different from a budget you would make before COVID-19 hit. You will have to look at the adjustments in payroll and materials. For instance, you may have fewer staff wages to cover, but more packaging and transportation to pay for.
Start by calculating all of the funds that you have available. Once you find the total, deduct your fixed essential costs (for example, rent). Then, deduct your variable costs — these are expenses that you can modify to work with your budget, spending more or less depending on your needs. An example of a variable cost is advertising/publicity.
If you don’t think your budget has enough room to cover essentials, you should start trimming the variable costs. Instead of investing a chunk of your funds into advertising/publicity, share updates about your business and photos of your products on social media. It’s a simple and affordable solution.
Another way to cut costs is to reduce your inventory to items that are proven to sell. Stocking up on supplies that don’t sell very well will feel like a waste of money, and it could be demotivating during an already stressful time. You don’t want to see them gather dust on the shelves.
Once you’ve determined the right balance for your budget, you should put it onto an Excel spreadsheet or fill it out in a budgeting app. That way, you can keep a close eye on your spending and be careful not to go overboard.
If you’re having trouble putting together a monthly budget, you can talk to one of our licensed insolvency trustees. We also have helpful budgeting tips and instructions on our website.
What about the Future?
You’re managing to stay afloat because of government support and a strategic budget, but you’re worried about what will happen when it comes to repaying your loans. The COVID-19 crisis may be over for the general public, but the crisis with your business is still happening.
Consider signing up for our credit counselling in Toronto to see how you can improve your debt repayment strategy and repay those loans on-time. Our counselling sessions focus on everything from debt management to creating budgets to building credit. These lessons will guarantee that you have the skills and the confidence to reach your highest financial goals.
If credit counselling isn’t enough, there are other professional insolvency related services that can help you repay your outstanding debts and gain some financial stability, like a Division 1 Proposal or Corporate Bankruptcy.
Division 1 Proposal:
What is a Division 1 Proposal? A Division 1 Proposal is a legally binding agreement that is covered under the federal Bankruptcy Insolvency Act. In essence, it lowers your total debt amount so that you can manage repayment.
It’s similar to a Consumer Proposal, with a few key differences:
- A Consumer Proposal is for an individual who owes up to $250,000 (not including a mortgage on their main residence).
- A Division 1 Proposal is for an individual who owes more than $250,000 (not including a mortgage on their main residence). It is also a proposal option for companies. Companies can owe less than $250,000 because they are not allowed to file Consumer Proposals.
If you’re thinking of committing to a Division 1 Proposal, you have to consult a licensed insolvency trustee. They will help you file the proposal and then arrange a meeting with your creditors. A majority of creditors have to agree to your proposal’s terms. If they do, you can proceed with the repayments. If they don’t agree to your terms, you will have to file for corporate bankruptcy.
If you’re a business owner dealing with insolvency in the aftermath of COVID-19, and you can’t apply for a Division 1 Proposal, you should file for corporate bankruptcy. Partnerships and corporations can apply as a business. If your business is a sole proprietorship, you can apply for a personal bankruptcy.
Bankruptcy is a debt relief method designed for people and companies who owe more than the total equity of their assets and are unsure about how they’re going to pay it back. After filing with a licensed insolvency trustee, the trustee will begin the settlement of your assets. The settled assets will be distributed amongst your creditors as a form of repayment.
Click here to learn more about our corporate bankruptcy services and what else a trustee will do for you during the process.
Social Distancing with David Sklar & Associates
Residents of the Greater Toronto Area have had their lives turned upside-down by the pandemic of COVID-19. Here at David Sklar & Associates, we understand that many residents have been thrown into financial instability because of this health crisis and are concerned about what to do next. If you need financial help, we are still here for you. We offer over-the-phone consultations and electronic document signing so that you can access our services from the safety of your home. We want to encourage our clients to prioritize their health as best as they can during these uncertain times.
The government is rolling out more support options to keep up with the rippling effect of COVID-19 on the public and the economy. Hold tight. Get the support that you need. And if you need more help, David Sklar & Associates is here for you and your business.