Letter from the editor: Canadian business faces a crisis; Ottawa needs to take extraordinary measures

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I heard from many small business owners over the weekend who are deeply worried about how they’re going to make payroll. Despite the seeming inevitability of businesses across the country temporarily closing their doors due to the COVID-19 crisis, the government has been slow to pull the trigger on decisive measures to match what some of its European counterparts have done.

To be fair, the situation has deteriorated rapidly. Just Friday, Finance Minister Bill Morneau announced $10 billion in relief through the Business Development Bank of Canada (BDC) and the Export Development Bank of Canada (EDC). “We’re going to do whatever it takes to support and stabilize our economy,” Morneau said at the press conference. The credit will “allow us to offer more loans on commercial terms to credit-worthy businesses,” BDC Spokesperson Shawn Salewski told me that day.

It’s already clear that’s not good enough. 

Look at the restaurant business, for example. OpenTable is sharing daily reports on how reservations have plummeted in restaurants across the country. In less than a week, year-over-year bookings in Toronto and Calgary went from being on par last Sunday night to being down 50 per cent on Saturday night. Some have closed outright as a precaution.

The measure now seems like a drop in the bucket, a failure to recognize just how bad things are going to get. Handing out commercial loans is not going to save the hundreds of thousands of small businesses that will soon be struggling to pay their rent or their employees. 

This week, the government is expected to announce a “significant fiscal package” that will “stabilize our economy, to support our businesses and to protect Canadians during this difficult period.” Morneau said. It could come as soon as Monday, according to tourism minister Melanie Joly, who said repeatedly in a scrum Sunday night there would soon be “important news” to share. At the time of this writing, Prime Minister Justin Trudeau has a press conference scheduled for 1 p.m. Monday.

Though it is not yet clear what he will announce, these are exceptional times that require wartime efforts.

Last week, Sweden and Germany led the way with zero-percent interest rates and “unlimited” credit to businesses to ensure their liquidity for the next few years. The measure “should be regarded as a form of insurance that enables Swedish companies–-particularly small and medium-sized enterprises–-to feel secure that the credit supply will not fail,” said Stefan Ingves, the governor of Sweden’s central bank.

“We are not feeling our way around, we are putting all our weapons on the table.”  said German Finance Minister Olaf Scholz. “This is the bazooka, with which we are doing what is necessary now,” Scholz said. 

The German government will initially make €20bn ($33.7 billion Canadian dollars) available to the KfW state development bank, and “there is no upper limit on the loan amount that KfW can grant,” Economy Minister Peter Altmaier said.

On Sunday, the U.S. Federal Reserve also cut its interest rates to zero. 

Canada should follow suit with a zero-interest loan, repayable in two years, to any small- or medium-sized-business owner who needs it. And the companies should be incentivized through tax credits to maintain their workforce. If a company gets a loan and still ends up laying off its employees over the next six months, that should be factored into its tax return. 

Now is a time for big ideas, not half-measures that only serve to increase anxiety.

A provocative post from Jon Shell, managing director and partner at Social Capital Partners, offered several thoughtful recommendations on what can be done to “shift the burden from those who can’t afford it to those who can.”

Among his recommendations are extending or postponing the terms of agreements so that nobody is standing when the musical chairs stop. If a business isn’t able to attract customers, they shouldn’t have to pay rent. If a landlord isn’t getting rent, they shouldn’t have debt repayments to the bank. And on it goes.

The crisis is forcing everyone to rethink their assumptions on a daily if not hourly basis. As federal officials and bankers think about what to do next, their primary driver should be the health and well-being of the SMEs that run the economy.  

There is going to be a liquidity crunch unless the government acts quickly to make sure that small businesses are protected. 

It’s time for Canada to bring out the bazooka.

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