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

A wage subsidy, tax deferrals and $10 billion available in loans to keep companies afloat wereall 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 companieshit 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 billionis allocated to cover employment insurancebenefits 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 EIrules.

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."

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 centof 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 threemonths, with maximums of$1,375 peremployee and $25,000 per employer.

Skoksays he'll takeMorneau up on the offer. As the president of Sanctuary Day Spas, Skokjust laidoff 75 staff members who worked at the chain's fiveOntario locations.

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

Skokalso 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, arenot getting any work from the app during the outbreak.

The only people left on hispayroll 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 CFIBlast weekendfound that half of the firms that responded hadalready 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.

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:"Ifyou keep your employees on, the government will pick up 75 per cent of the wages up to about $5,000 amonth. And then the employer has to make up the difference."

Donald, the economist with Manulife, agrees more is needed tokeep 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 newsconference, Morneauwouldn't commit to raising the subsidybut 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 KimNails and Spa is worried. Kim Nguyensaw 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:

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

4 years ago

Duration 2:00

Small businesses forced to shutter during the COVID-19 pandemic are watching closely for how the federal governments $82 billion aid package will provide for them.

Without revenue, Nguyen will soon have to lay off her sevenfull-time and fourpart-time staff. And even without employees sheonly has enoughmoney 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," saidSkok. "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.