Canadian tech CEOs: BDC loans, payroll subsidy not enough to stop COVID-19 bankruptcies

navdeep bains

The COVID-19 pandemic is having an immediate and direct impact on the Canadian tech and innovation sector, leaving business leaders concerned that the current measures being taken by the federal government won’t be enough to protect companies moving forward.

“Nothing is set in stone, everything is on the table.”
– Minister Navdeep Bains
 

The impact of self-isolation on the economy has been immediate, and Canadian startups have been left to worry about the short and long-term effects of COVID-19 on sales and access to capital. CEOs have expressed concern over the potential length of self-isolation measures, questioning how they will affect their company’s ability to retain employees as cash dwindles.

Over the past week, the Government of Canada has introduced tens of billions of dollars to support businesses and workers. On Wednesday, Prime Minister Justin Trudeau outlined an $82 billion as part of the federal government’s COVID-19 Economic Response Plan. The move came in addition to $1 billion promised last Friday, with measures that included establishing a business credit program to be administered through the Business Development Bank of Canada (BDC) and Export Development Canada (EDC).

While the program is meant to provide more than $10 billion of additional loan support to businesses, some community leaders have called out the program and other government measures for not going far enough in meeting the needs of startups.

BetaKit has spoken with multiple CEOs under condition of anonymity about their thoughts on the situation. Others have been vocal in expressing their opinions on online innovation forums like StartupNorth.

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As it currently stands, BDC is set to provide working capital loans of up to $2 million, offering a deferred payment period of up to six months. The deferred payments are, notably, for existing BDC clients with total loan commitments of $1 million or less; no mention is made of new clients.

The Canadian tech sector has been left wondering how exactly how the program will work, which types of businesses would be eligible, and whether having startups take on debt will be detrimental rather than beneficial. Many Canadian tech startups in early stages of revenue and growth traditionally have not qualified for such measures.

One CEO told BetaKit that they learned the BDC loans require a personal guarantee and a minimum six percent interest rate, based upon a personal credit score. They called the idea “incredibly dangerous” and asked for the government and banks to consider the specific needs of the innovation sector.

“The high-level message is not to be negative. We know the government is doing as much [as they can],” another CEO told BetaKit. “The model that they have to respond to a crisis is based on the 2008 financial crisis. But this isn’t a financial crisis and so the tools don’t work in the same way.”

“[The measures are] helping folks who either haven’t had such a big drop, or it’s really just helping at the edges.”

Similar sentiments have been expressed by John Ruffolo, vice-chairman of lobby group Council of Canadian Innovators (CCI) and OMERS founder. On a Thursday morning conference call with Mary Ng, minister of small business, export promotion, and international trade, held by CCI, Ruffolo relayed concerns he has heard from the community.

He noted that a number of leaders from small-and-medium enterprises (which encompasses the majority of Canadian businesses) have expressed dire situations, with revenues and sales taking extreme hits amidst the current global crisis.

“It’s like a falling knife,” Ruffolo stated. “The measures that the government has introduced, fantastic, it’s going to help a number of folks. But it’s helping folks who either haven’t had such a big drop, or it’s really just helping at the edges.”

The CCI chair called for a massive injection of liquidity into the economy. According to The Globe and Mail, Ruffolo is urging the government and big banks to create a $100 billion stimulus program to support small-and-medium enterprises (SMEs).

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In the Thursday morning call, he pointed to the need for banks to provide low or no interest financing to Canadian SMEs, with the support of the federal government, and to do so rapidly.

The federal government’s economic measures to date have focused on loans, employee subsidies, and employment insurance. While the Canadian tech sector has expressed appreciation over some of the measures and the government’s quick response, there have still been questions about whether such programs will actually benefit the startup sector. Some have wondered whether a capped 10 percent subsidy for employee salaries is enough to support startups that often have shorter runways and long sale cycles.

Through online forums and during the CCI calls, some leaders have also questioned whether additional support for federal government programs like Scientific Research and Experimental Development (SR&ED) and the National Research Council of Canada’s Industrial Research Assistance Program (IRAP) will be necessary.

Minister Ng, for her part, appeared receptive to such suggestions. On Thursday’s conference call, Ng noted that the government is not currently working on any measures around such programs, but expressed an interest in bringing such ideas to the table when speaking with other ministers.

“I hear what you’re saying,” said the minister. “I will take that away and you’re not hearing disagreement from me.”

On Thursday afternoon, Minister of Innovation, Science, and Industry Navdeep Bains also partook in a call with CCI, noting that the federal government is now considering options to for federal programs through the Strategic Innovation Fund (SIF) and Regional Development Agencies (RDAs), which offer financial support for the tech and innovation sector across the country.

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Bains stated that the government’s initial goal was to make sure it was in a position to provide capital and liquidity, then turned to how Crown corporations like BDC and EDC could provide support, and is now willing to use existing government programming to build out supports for businesses.

The minister, who is on the newly formed committee for the federal response to COVID-19, noted that the government is aware that it may need to update and adapt current measures.

“Nothing is set in stone, everything is on the table,” he said, noting that the government has attempted to act in a timely but also responsible manner and is open to being flexible. He also noted that he has received Ruffolo’s proposal and would relay some of the points.

Bains also acknowledged the current struggles of Canada’s tech and innovation sector, noting that the government hopes to focus on talent retention, capital flow, and driving up demand in the economy over the next few months. While this crisis has been likened to the 2008 financial crisis, Bains stated that the government is aware it needs to take different measures for this economic crisis that has been brought on by a pandemic.

To date, Canadian tech leaders have appeared open to collaborating with the government to ensure that the sector’s needs are heard. Many have expressed appreciation and understanding for the government’s efforts, but emphasize the need to quickly implement measures that will save the sector from dire situations.

Photo by Vaughn Ridley/Collision via Sportsfile

Meagan Simpson

Meagan Simpson

Meagan is the Senior Editor for BetaKit. A tech writer that is super proud to showcase the Canadian tech scene. Background in almost every type of journalism from sports to politics. Podcast and Harry Potter nerd, photographer and crazy cat lady.

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