Business

Emergency aid for small businesses hit hard by COVID-19 'just not enough'

The federal government's emergency aid package is welcome and important, but won't be enough to save many of the businesses hit hard by the coronavirus pandemic, experts say.

CFIB survey suggests COVID-19 fallout could force 1 in 4 small businesses to close doors permanently

Kim Nguyen, owner of Kim Nails and Spa in Toronto, is one of many people across the country fearful for the future of their business because of the COVID-19 pandemic. (James Dunne/CBC)

A wage subsidy, tax deferrals and $10 billion available in loans to keep companies afloat were all part of the federal government's economic support package for small businesses announced Wednesday and late last week.

Experts say they're all welcome and important measures, but won't be enough to save many of the companies hit hard by the coronavirus pandemic.

"Even with this package, a lot of businesses are going to have to make painful decisions," said Frances Donald, chief economist at Manulife Investment Management. "It's just not enough."

Overall, the government is putting up $82 billion to help fight the financial impact of COVID-19.

That figure includes a tax deferral program Ottawa estimates will leave $55 billion in the hands of Canadians, as well as $27 billion in direct support.

Of the direct support, up to $10 billion is allocated to cover employment insurance benefits for people who cannot work because of illness, self-isolation, caring for a sick person or child-care issues. Another $5 billion is set aside for contractors, freelancers and gig economy workers, who would not have been covered under existing EI rules.

Many workers and small-business operators have experienced an immediate cash flow crisis.

"It's really amazing how quickly things happened," said Allan Skok, who runs a chain of day spas. "Never in my wildest dreams would I have thought that things would have moved as quickly as they did."

Allan Skok, president of Sanctuary Day Spas, plans to make use of the government's aid package. (Submitted by Sanctuary Day Spas)

There are two key types of help for small businesses: a loan program and a wage subsidy.

Finance Minister Bill Morneau announced that it will see the government directly pay 10 per cent of salaries for some small businesses, non-profit organizations and charities that keep workers on the payroll.

"We need businesses to keep going so they can keep employees on staff," said Morneau. "This is effective immediately and will help keep Canadians employed."

The subsidy will last for three months, with maximums of $1,375 per employee and $25,000 per employer.

Finance Minister Bill Morneau said nothing was off the table when it comes to further help from Ottawa. (Blair Gable/Reuters)

Skok says he'll take Morneau up on the offer. As the president of Sanctuary Day Spas, Skok just laid off 75 staff members who worked at the chain's five Ontario locations.

He also has no work for the 100 contractors who serve the business.

Skok also had to let go 10 staffers who support Massago, an on-demand mobile app that sends massage therapists to clients. Another 350 contractors, mostly part-time massage therapists, are not getting any work from the app during the outbreak.

Skok laid off dozens of staff at his chain of Sanctuary Day Spas, including this one in Newmarket, Ont. (Submitted by Sanctuary Day Spas)

The only people left on his payroll are seven key managers. Skok says he'll take whatever help is available to hang onto them, hoping he'll soon be able to reopen.

"It all depends on how long this is going to be and there's no playbook here, that's the hard part. There's a shelf life as to how long we can keep them."

European countries are doing more

While the Canadian Federation of Independent Business (CFIB) is largely supportive of the business aid package, its president, Dan Kelly, says the 10 per cent wage subsidy falls way short.

A member survey by the CFIB last weekend found that half of the firms that responded had already experienced a drop in sales. One in four businesses indicated they will not be able to survive a significant drop in income for more than one month.

Dan Kelly, president of the Canadian Federation of Independent Business, said Denmark's aid package was more in line with what Canadians need. (CFIB)

Kelly says businesses need more money to keep workers on staff and able to pay for food and shelter to keep the economy going.

He points to Denmark as an example of what's needed: "If you keep your employees on, the government will pick up 75 per cent of the wages up to about $5,000 a month. And then the employer has to make up the difference."

Donald, the economist with Manulife, agrees more is needed to keep workers onboard.

"Most of what we've seen in this package helps support us at the margin, but it isn't going to prevent large-scale layoffs."

At Wednesday's news conference, Morneau wouldn't commit to raising the subsidy but said nothing was off the table.

Will loans work?

The other key way for small businesses to get help is through the $10-billion credit fund established for lending money to companies so they can continue operations.

For many small businesses shocked by the sudden impact of COVID-19, a big operational issue is paying rent. In a hip Toronto neighbourhood, the owner of Kim Nails and Spa is worried. Kim Nguyen saw her sales quickly fall even before having to close under a citywide order and provincial state of emergency.

WATCH | What the federal COVID-19 aid package will mean for small businesses:

Small businesses forced to shutter during the COVID-19 pandemic are watching closely for how the federal government’s $82 billion aid package will provide for them. 2:00

Without revenue, Nguyen will soon have to lay off her seven full-time and four part-time staff. And even without employees she only has enough money to cover one instalment of her monthly rent — $6,000.

She's not sure how the government's loan program will work and is hoping instead for rent forgiveness from her landlord or legislation to protect commercial tenants.

Skok is also facing tough conversations with five different landlords for his businesses. He's eager to hear what the terms of the government loans will be.

"If it is a favourable credit available to us then by all means I'd be first in line," said Skok. "I'd use that to help pay the rent and help pay the staff and do what we have to do."

And there may be a lot more small business owners will have to do to recover from the fallout of COVID-19.

"We are in the only very beginning of what will be a painful time for a lot of Canadians," said Donald, predicting there will be many more government aid packages to come.