In response to the pandemic, the federal government has earmarked up to $65 billion in relief for small- and medium-sized enterprises (SMEs), partly through the Business Credit Availability Program (BCAP). It allows financial institutions like Canadian Western Bank to provide loans of up to $6.25 million to their clients.
Manufacturers, wholesalers and energy service companies hit hard by the economic slow down and collapse in oil prices are among the companies that have come to CWB to access the program.
“It’s for companies that want to tap into a form of liquidity to help with any disruption in their business due to COVID-19,” says John Steeves, a senior vice-president and regional general manager with CWB.
The measure is geared at COVID-19-related cash-flow problems such as receivables that are taking longer to collect or emergent short-term expenses due to business disruption. In addition to interest that is set by the client’s financial institution, there is a 1.8% guarantee fee charged by Export Development Canada (EDC). BCAP loans can be repaid over a maximum five-year period. EDC backstops the loans, up to 80%, and the federal government recently announced that the BCAP program would be extended until next June.
Steeves says clients were initially reluctant to explore EDC BCAP loans due to the cost of the additional debt, in this case the 1.8% per annum EDC guarantee fee. However, after consultation, business owners are now starting to see the value of the program to ensure that they maintain sufficient liquidity to run their business. They are also starting to see that “it’s likely the least expensive form of subordinated debt you’re ever going to find,” Steeves explains.
Typically, he says, the BCAP loans that CWB writes have varied significantly in size, from the $500,000-$1 million range, all the way up to the ceiling amount. The business must first be qualified for the program by EDC, and he describes EDC as “a great partner.” “They’ve made the program quite painless and efficient.” He says applicants are being qualified for these loans within a day or two, with the whole process completed within about two-to-three weeks.
Applications can be completed quickly when companies have cash flow forecasts that demonstrate a plan to see them through the next year or so, adds Steeves. “If the company has that at its fingertips, and good companies will, then we can hop on it pretty quickly.”
Interestingly, while BCAP loans, along side other federal pandemic relief measures, appear to be geared at firms dealing with business slowdowns, Steeves points out that there are also more future-oriented applications to consider. A number of businesses have shrunk over the last year. With their volumes down, they have likely collected accounts receivables and paid down operating lines, giving them what can be an artificial sense of liquidity. When they pivot back to growth, Steeves says, “Money typically goes out the door before the cash begins coming in, and businesses will potentially start to experience a liquidity crunch.”
Business owners should simply plan ahead, prepare a cash flow statement and speak to their bank’s relationship manager about the options to avoid any potential issues. In other words, don’t wait until it’s too late.