Canada’s tight-knit group of large banks can be a well-oiled machine in times of crisis, and may have been the logical choice to administer the federal government’s $71-billion program to pay a 75-per-cent wage subsidy to help small and medium-sized businesses weather the coronavirus crisis.
Instead, Canada opted to build an entirely new system within the Canada Revenue Agency, and it is anticipated that payments won’t flow to business operators for six weeks, on top of the three weeks many have been closed with no wage subsidy at all.
The decision has drawn criticism from business groups, including the Ontario Chamber of Commerce, whose officials say the wait is far too long to avoid layoffs on a scale that economists suggest will leave many businesses unable to operate once the economy restarts.
John Ruffolo, co-founder of the Council of Canadian Innovators, is urging Ottawa to change the way it will manage wage subsidies to help business operators with less than 500 employees in Canada.
“I recommend the banks (do it),” Ruffolo said. “They could have done it in 48 hours.”
Canada’s Big Five banks would be the “best distribution channel” for the new program because it could be carried out simply through “know your client” processes already in place for bank customers, said Ruffolo, who is also former chief executive of OMERS Ventures, a unit of one of the country’s largest pension funds.
Since any portion of loans granted to cover wages would be backstopped by the government and forgiven, the banks would not even need to perform credit adjudication, he said.
The scope is so different from 2008 and 2009. This is an elephant — the government — sitting on the economy
Mitch Frazer, Torys LLP
In the United States, hundreds of large and community banks have been tapped to deliver similar wage-related aid for small businesses. Although there have been some early backlogs and complaints, payments are already flowing under the eight-week US$349-billion program backed by the U.S. Treasury and approved by Congress last week.
Treasury Secretary Steven Mnuchin took to Twitter Friday morning to say the system was up and running and that community banks in the U.S. had already processed more than 700 loans for US$2.5 million.
The 12-week Canada Emergency Wage Subsidy, unveiled last week, boosted a previously planned 10-per-cent wage subsidy with a promise to cover 75 per cent of a worker’s pay up to $847 a week. It is for firms that have lost 30 per cent of revenue or more and retroactive to March 15, though it could be May before the money is disbursed.
The Canadian Federation of Independent Business polled businesses and released survey results Monday that show just 29 per cent of firms say the program will help them avoid further layoffs or recall staff.
Mitch Frazer, chair of the pensions and employment practice at law firm Torys LLP in Toronto, said Canada’s big banks may have been a logical choice to manage the payroll subsidy system, as they were efficient in handling aspects of the financial crisis a decade ago.
But he noted the banks are already swamped with new, time-consuming work resulting from the pandemic and resulting business shutdowns, including responding to large volumes of business and retail clients who are suddenly unable to service their debts such as mortgages.
“I just don’t think it’s practical. I think what people are looking at is, in an ideal world, who can deliver this most efficiently … (but) this is an unprecedented economic event,” Frazer said, noting that 44 per cent of Canadians reported two weeks ago that they had at least one family member out of work.
“The scope is so different from 2008 and 2009,” he added. “This is an elephant — the government — sitting on the economy.”
Frazer said the decision to create the wage subsidy system within the CRA, rather than using the banks, may also have been the result of horse-trading as the government divvies up the responsibility for managing different aspects of the crisis.
He said he believes the wage subsidy program is workable, even if it takes longer without the banks. Since the money is guaranteed by the government and will eventually flow, it gives businesses and their employees some comfort to make decisions and cut deals with landlords, he added.
As well, some businesses will be able to tap an interest-free emergency loan of up to $40,000 to help them bridge the gap until they receive funds through the emergency wage subsidy program.
“You can use the loan to pay for the payroll costs and then get reimbursed,” Frazer said, adding that he has seen no prohibition on tapping these emergency funds to pay employees.
However, he noted businesses that don’t have a payroll of between $50,000 and $1 million won’t qualify for the emergency loan, of which $10,000 is forgivable if the rest of the loan is repaid by the end of 2022.
Frazer said he believes the government is working with financial institutions, the Business Development Bank of Canada and Export Development Canada, to establish more loans to help businesses beyond the funds and guarantees available under the two previously announced multi-billion-dollar programs.
The big banks are already part of those programs and Canada’s six largest banks have said they will give temporary relief to hard-hit credit card customers, including lowering interest rates, something the federal government is understood to have been pushing for.
“It is my understanding that there will be (more loans) from the BDC and EDC, but (I’m) not sure about what the details are yet,” Frazer said.
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