Support small businesses facing imminent failure, Ottawa told

Working group stresses need to provide near-term credit, distinguish between 'backstops' and 'bailouts'

Support small businesses facing imminent failure, Ottawa told

When it comes to reopening the economy after an extended lockdown period, there are plenty of unknowns at play. But one thing’s for certain: small businesses must not be left behind.

According to the latest communique from the CD Howe Institute’s COVID-19 Crisis Business Continuity and Trade Working Group, the reopening of the economy is likely to be a gradual process with many headwinds impeding the pace of recovery. It noted the plunge in business revenues arising from the unprecedented jolt to demand for consumption, exports, and capital investment brought about by the virus.

“No business could self-insure against this present shock, and imminent failure of many businesses – particularly small and medium-sized enterprises – could severely impair the pace of recovery,” the group said.

While it emphasized the need to support small businesses, the group also urged policymakers to distinguish between “backstops” and “bailouts.” The government must be mindful of limiting taxpayers’ exposure, while at the same time acknowledging the need to provide essential near-term credit to enable businesses to cover fixed costs.

“As an option for rapid financial support, certain members recommend expanded use of partial guarantees for credit through commercial banks and other lenders,” the group said.

It also noted that rules surrounding the Canadian Emergency Wage Subsidy (CEWS) program risks excluding domestic employers that are integrated in multinational enterprises’ production chains, while many commercial tenants may be shut out from the yet-to-be-detailed Canada Emergency Commercial Rent Assistance (CECRA) program because of the requirement for landlord consent to rent reduction.

“Even with near-term credit support, governments should expect a wave of corporate distress,” the group said. “For certain sectors, the downturn in demand is likely to be protracted.”

In a separate statement, Dan Kelly, president of the Canadian Federation of Independent Business (CFIB) praised the “careful, phased approach” to the reopening of the economy, with some businesses in certain provinces already being permitted to serve customers once more.

He noted that compared to big-box stores, small businesses will be better able to adapt to the continuing need for physical distancing as the latter serve far fewer customers.

However, he predicted a “messy recovery” as employees may hesitate to return to work or prefer to keep using the Canada Emergency Response Benefit (CERB), protective equipment may be hard to procure, and employers may not be certain about the “rules of the game.”

“My advice for governments, business owners, employees and customers: let's be patient, careful and respect each other's perspectives,” Kelly said. “We are in new territory—not everything will be clear or in place as it should.”


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