a guide to working with banks to access relief

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If your business is struggling because of COVID there is relief in the form of access to credit. This resource gives an overview of key government programs designed to help small and medium sized enterprises (SMEs), and considerations for dealing with your existing lenders.

 

Government Relief

The federal government has announced a number of programs to get credit to SMEs, some of which are summarized below. However, details for many of these programs are still being worked out, so check back here often for updates.

Below are some links with more information on some of these programs and information on how to access them through major Canadian banks and financial institutions:

 

Business Credit Availability Program (BCAP)

BCAP is a $65 billion dollar federal support program that will be run as a co-lending program by Business Development Bank of Canada (BDC) and loan guarantee program by Export Development Canada (EDC). A brief overview of the programs is as follows:

BDC Program from SMEs:

  • Different credit availability for different business sizes:

    • Loans of up to $312,500 to businesses with revenues of less than $1 million

    • Up to $3.125 million for businesses with revenues between $1 million and $50 million

    • Up to $6.25 million for businesses with revenues in excess of $50 million

  • Loans will be interest-only for the first 12 months, with a 10 year repayment period.

  • 80% of financed amount provided by BDC and the remaining 20% by your financial institution

  • For operational cash flow requirements, including interest payments on existing debt

EDC Program for SMEs:

  • New partnership between EDC and financial institutions across Canada to support businesses financially impacted by COVID-19 pandemic

  • Up to $6.25 million of credit

  • 80% guaranteed by EDC, to be repaid within one year

  • For payroll and operational costs (not for dividend payouts, shareholder loans, bonuses, stock buyback, option issuance, increases to executive compensation or repayment/refinancing of other debt

Check with your existing bank or credit union for information on applying for BCAP.

 

Canada Emergency Business Account (CEBA)

CEBA is a $25 billion federal support program that will provide interest-free loans up to $40,000 for small business and not-for-profits. Eligibility requirements and program details are as follows:

  • Canadian operating business in operation as of March 1, 2020

  • Has a federal tax registration

  • Total employment income paid in the 2019 calendar year was between CDN $20,000 and CDN $1,500,000

  • An active business chequing/operating account with a primary financial institution, that was opened on or prior to March 1, 2020 and not in arrears on existing borrowing facilities by 90 days or more as at March 1, 2020

  • Has not previously used the CEBA and will not apply for support under CEBA at any other financial institution

  • If repaid by December 31, 2022, up to 25% of principal will be forgiven

  • If not repaid by December 31, 2022, remaining loan balance will be converted to a three-year term loan at 5% interest

Check with your existing bank or credit union for information on applying for CEBA.

 

BDC COVID-19 Working Capital Loans

BDC is also offering working capital loans directly to SMEs. You can find more information on how apply here.

  • Up to $2 million

  • Flexible repayment terms and payment postponement for up to 6 months for qualifying businesses

  • Flexible repayment terms, such as postponement of principal payments for up to six months, for existing BDC clients with total BDC loan commitment of $1 million or less

  • Reduced rates on new eligible loans

 

Support for Indigenous Businesses

The federal government is providing $306.8 million to aboriginal financial institutions to provide interest-free loans and non-repayable contributions to help Indigenous SMEs unable to access the government’s existing COVID-19 support measures. Details will be forthcoming here.

 

Futurepreneur Canada

Futurepreneur Canada is a national non-profit that provides support to entrepreneurs aged 18-39. The federal government is injecting an additional $20.1 million dollars into the program as part of its COVID relief package. You can check the Futurepreneur website for more information.

 

Canada Emergency Commercial Rent Assistance

The federal government will be partnering with the provinces to roll out the Canadian Emergency Commercial Rent Assistance program for SMEs. The program will targeted at landlords to provide them loans, including forgivable loans, if they reduce or forgo the rent of SMEs for the months of April (retroactive), May, and June 2020. Details have not yet been announced.

 

Regional Development Agencies

The federal government will be providing $675 million to the Regional Development Agencies to assist SMEs that are unable to access broader support measures. Support through this program will include bridge financing offerings. Check with your Regional Development Agency for more information. If you are in British Columbia, Western Economic Diversification Canada is your Regional Development Association.

 

BDC Oil and Gas Sector Financing

BDC will be offering viable Canadian-based oil and gas producers, oilfield service companies and midstream providers.

  • Loans of between $15 - $40 million dollars, at commercial rates, repayable on a four year term

  • Funds to be used for operational cashflow and business continuity purposes

  • Qualifying businesses must have been financially viable prior to the current economic environment

 

Consideration for Existing Loans

If you have an existing bank loan and COVID-19 has had a negative impact on your business or cash flows, you should review your agreement to understand the impacts on these arrangements. Considerations under your loan documents might include:

  • Financial covenants and ratios, including with respect to calculations of EBITDA, leverage ratios, interest ratios, security ratios, net worth ratios and fixed charges ratios. Does COVID-19 have any effect on these for you?

  • Are there other positive covenants that might be breached as a result of COVID-19? For instance with respect to payment, performance under other material contracts, or regular financial reporting?

  • Definition of material adverse effect (MAE) or material adverse change clauses (MAC). Is COVID-19 an MAE or MAC? Is there any reporting required in the event of an MAE or MAC? Is an MAE or MAC an event of default?

  • Facility availability. Do you have undrawn facilities you can draw on to support liquidity? If so, are there conditions precedent to drawdown that you need to satisfy that might be impacted by COVID-19? Look out for conditions relating to events of default, MAE/MAC, reps and warranties and covenants regarding ongoing operation.

  • Are there any cash hoarding restrictions? Are there mandatory repayments if cash exceeds certain thresholds?

  • Some representations and warranties are deemed to be repeated following closing (for instance at the end of each month or quarter, on additional drawdown, etc.). Are there any reps or warranties that might be breached as a result of COVID-19? Look at reps and warranties relating to MAE/MACs, litigation, performance of material contracts, financial condition and default.

  • If your loan agreement includes a borrowing base, does COVID-19 have any impact on that? Look at requirements relating to accounts receivable and inventory and how they might impact your borrowing base.

Lenders are aware of the unique COVID-19 challenges facing borrowers, and generally are trying to support and accommodate borrowers in order to protect their investments and collateral. Many banks and financial institutions are offering payment deferrals or other financial assistance to their existing borrowers.

If you have concerns relating to your existing financing arrangements, check with your lender to see what programs might be available.