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Managing Small Business Debt during COVID-19

Managing Small Business Debt during COVID-19 - Cook & Co - Professional Accountants - Featured Image

Three-quarters of Canadian small businesses have taken on debt as a result of COVID-19. As of November 3rd, 69% of Alberta businesses are open, 39% are back to pre-COVID staffing levels but only 21% are experiencing normal revenues. The Canadian Federation of Independent Businesses estimates that, if and when revenues return to normal, it will take most Alberta small businesses 1 ½ years to recover.  Business owners have two choices: try to save the business while attempting to settle outstanding accounts, or allow the business to fail with an exit strategy that minimizes the financial consequences.

Financial help available for those attempting to save their business:

    • CEBA (Canada Emergency Business Account) supports businesses by providing financing for expenses that cannot be avoided or deferred thereby helping to position businesses for successful relaunch when the economy reopens. CEBA is available from more than 220 financial institutions across the country. Repaying the balance of the loan on or before December 31, 2022, will result in loan forgiveness of 25%.  CEBA support is being expanded from $40K to $60K and is available to all eligible previous and new CEBA applicants.
    • CEWS (Canada Emergency Wage Subsidy) covers part of employee wages, retroactive to March 15. This enables businesses to re-hire workers, help prevent further job losses, and ease back into normal operations.
    • RRRF (Regional Relief and Recovery Fund) helps businesses and organizations in sectors that are key to regions and local economies. The fund is specifically targeted to those that may require additional help to recover from the COVID-19 pandemic, but have been unable to access other support measures.
    • CERS (Canada Emergency Rent Subsidy) provides direct and easy-to-access rent and mortgage support to qualifying organizations. Charities, nonprofits and qualifying businesses receive a subsidy of up to 65% of eligible expenses until December 19, 2020. Combined with the other support received under the CERS, businesses can receive a rent subsidy of up to 90%.
    • Loan Guarantee (for small and medium-size businesses): Export Development Canada (EDC) is working with financial institutions to guarantee 80% of new operating credit and cash flow term loans of up to $6.25 million to small and medium-sized enterprises. This financing support is to be used for operational expenses and is available to both exporting and non-exporting companies.
    • Co-Lending program (for small and medium-sized enterprises): Business Development Canada (BDC) is working with financial institutions to co-lend term loans of up to $6.25 million to small and medium-sized businesses for their operational cash flow requirements.

Tips for businesses regarding recovery:

  • Take care of your people: Implement best practices for safety. Allow those who can to work remotely. Establish a contingency plan for quarantined workers. Schedule regular updates and optimize technology to keep the lines of communication open and clear.
  • Evaluate capacity and resources: Review your expense items to see where you can shave costs. Find recurring operating expenses that can be suspended for a short term. Align personnel to production/sales. Defer discretionary expenses. Document cash inflow and outflow. Create a rolling cash flow forecast and update it weekly.
  • Communicate with suppliers to confirm whether existing purchase orders will be filled on time. This will help you manage your customers’ expectations and update your cash flow plan. Try to negotiate deferred payment terms for payables.
  • Reach out to customers and confirm that existing and planned orders are still on track. If they owe you money, discuss the ability to pay and the timing of payments. Offer markdowns if they can pay you quickly. You may have to defer production or loosen repayment terms.  Ask customers if they need anything else. With businesses closed and supply chains compromised, there may be a new opportunity for your company.
  • Talk to your banker: Present your banker with a solid restructuring plan. If possible, renegotiate your bank loan so it’s spread over a longer-term, reducing the interest payments and also the monthly repayment cost. Investigate the opportunity to lower interest rates. Consolidate business loans into one payment, which may reduce monthly costs.
  • Consider alternative lenders: Even in tight times, there are those who are looking to invest and alternative methods of financing. Consider peer-to-peer loans, a line of credit, invoice financing, an advance funding loan, non-bank lenders (ThinkingCapital, OnDeck), invoice factoring and a merchant cash advance.
  • Be open to change and move quickly: Look beyond the status quo. Adapt quickly to the changing situation. Look for new market demands. Explore adjacent markets. Consider new ways to use your expertise. Solve unique problems resulting from the situation thereby creating a new niche. Establish a regional supply chain for continuity.
  • Embrace digital possibilities: Digital technologies can provide new marketing, financing and networking opportunities. Create digital products and services. Use online platforms to gain efficiencies and create customer value. Enable remote working. Access regional, national, and global markets in a cost-effective way using e-commerce platforms.
  • Think outside the box: What can you do to increase revenues? Can you lease out a portion of your office to another business? Could you save on rent by working remotely? Get creative. Find ways to generate additional revenue from your existing assets.
  • Get outside help: Outside assistance can help you navigate the changes. Talk to your chartered accountant, your financial planner and/or your banker. They have experience and knowledge that may be helpful.

 

Do everything you can to keep your business running. With luck and perseverance, you can survive and possibly thrive through this pandemic. Learn from this experience so that you can bounce back stronger.

 

Need help navigating the current situation? Draw on the knowledge and experience of Cook and Company Chartered Professional Accountants. Whether you operate a sole proprietorship or a sizable corporation with multiple subsidiaries, Cook and Company uses their experience and expertise to help your business. Contact us for a complimentary consultation.

 

 

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