The current global pandemic is already having its share of economic and financial consequences, and could, according to some, lead the world into a recession more severe than that suffered in 2008 [1].

All players in society are called upon to intervene in various ways to mitigate the damage. The government is called upon to implement immediate measures on two main levels. For individuals, who are severely affected by the layoffs and have a sudden lack of cash to meet their personal and family obligations. And to businesses, whose revenues have been and will continue to be affected by the shutdown and coming economic slowdown.

This crisis shows just how vital it is for a company to have ample liquidity to deal with such unforeseen events. At a time when companies were placing great emphasis on maximizing leverage to generate maximum return on their investments, the crisis will surely serve as a reminder of just how relevant the English expression “cash is king” really is.

The mission of government agencies is to help companies that were in good financial health before the crisis to keep their heads above water by providing financial assistance. The aim is to enable them to continue operating until the economy recovers.

The purpose of this article is to present some of the measures adopted by government investment agencies for Quebec and Canadian companies. These measures could, of course, evolve with the pandemic situation.

Measures taken by Export Development Canada and the Business Development Bank of Canada

Export Development Canada (“EDC“), in collaboration with certain Canadian financial institutions, has created the “Canadian Business Emergency Account” program. These are interest-free loans of up to $40,000 to small businesses and non-profit organizations, guaranteed and financed by the federal government via financial institutions.

No principal payments will be due until December 31, 2022, although the debtor may repay the loan prior to this date. Repayment of the loan balance by this date will result in a write-off of 25% of the loan, up to a maximum of $10,000 [2].

The federal government, in collaboration with EDC and the Business Development Bank of Canada (“BDC“), has announced the creation of the Business Credit Availability Program (“BCAP“), which includes the following programs:

• Guarantee program for new operating loans and term loans on self-financing capacity for financial institutions granting loans to SMEs, up to a maximum of $6.25 million, for a total amount of $20 billion.

• Joint lending program between BDC and financial institutions (who will be responsible for underwriting and customer interface management) to provide joint loans to small and medium-sized businesses to meet their cash flow operational needs. This will allow for additional credit amounts of up to $6.25 million (BDC share: $5 million per loan), for a total of $20 billion [3].

Measures taken by Investissement Québec

Investissement Québec has announced the implementation of the Temporary Concerted Action Program for Businesses (“PACTE“). This financing is available to companies operating in Québec, including cooperatives and other social economy enterprises, that are temporarily in a precarious situation due to COVID-19, and whose financial structure offers the prospect of profitability. All business sectors are eligible, with a few exceptions.

Financing is offered in the form of loans or loan guarantees to support working capital. The minimum amount of financing must be at least $50,000 and excludes any refinancing.

According to the information we have gathered at this stage, Investissement Québec’s aim is to guarantee the financial institution repayment of a portion or all of a new loan or credit increase proposed by the financial institution to its client, rather than to set up loans directly to businesses. Through its intervention, Investissement Québec takes on the financial risk or a significant portion of the risk in place of the financial institution, provided certain criteria are met.

In light of the above, it’s clear that government agencies were quick to understand the importance of helping companies in difficulty as a result of the crisis caused by COVID-19. They introduced programs within a tight timeframe, all in collaboration with financial institutions. We hope these measures will help all players in the economy to provide the kind of relief needed to keep as many companies as possible afloat during this crisis and beyond.

By Émilie Therrien and Nicolas Beaulieu

[1] “L’économie risque de faire de l’économie mondiale un champ de ruines”, Véronique Dupont, LaPresse, March 26, 2020, https://www.lapresse.ca/affaires/economie/202003/26/01-5266519-le-coronavirus-risque-de-faire-de-leconomie-mondiale-un-champ-de-ruines.php

[2] Department of Finance Canada, “Additional support for Canadian businesses to cope with the economic impact of Covid-19”, https://www.canada.ca/fr/ministere-finances/nouvelles/2020/03/soutien-supplementaire-aux-entreprises-canadiennes-pour-faire-face-aux-repercussions-economiques-de-la-covid19.html, page consulted on March 30, 2020

[3] Ibid.