The federal government needs to expand its emergency wage subsidy program, suspend R&D tax credit audits and get money out the door faster, or many thousands of SMEs – from “Main Street” service businesses to scaling tech firms – will go under, say innovation and business group executives.
“I can’t imagine there being any fewer than tens of thousands of businesses that permanently close their doors by the end of this COVID-19 crisis,” Dan Kelly, president of the Canadian Federation of Independent Business (CFIB), told Research Money.
Some of Canada’s 12,000 Canadian-owned small tech and innovative companies have already folded while others are being bought at fire-sale prices by large U.S. companies, says Suzanne Grant, CEO of the Canadian Advanced Technology Alliance. “Those companies that have got resources are coming in and grabbing the talent.”
Ben Bergen, executive director of the Council of Canadian Innovators (CCI), says restricting the Canada Emergency Wage Subsidy program to companies that can show a 30% year-to-year drop in revenue unfairly disqualifies high-growth tech firms. While these companies may have grown their year-to-year revenue, they’ve also incurred much greater wage costs from adding more employees, he says. “This current wage subsidy leaves them on the sidelines in terms of being able to support their business.”
Also, innovative startups that have been operating for less than a year or haven’t yet become profitable would be ineligible for the wage subsidy.
The government should eliminate the 30% criteria at least for small businesses, Kelly says. “Just the fact there are conditions, especially for smaller companies, they’re going to say: ‘I can’t afford to take the risk. I’d better just lay off my employees.’”
Another concern is that the government has said it will take three to six weeks for wage subsidy funds to land in business accounts. That timeline typically amounts to three pay cycles for businesses, Kelly notes. The CFIB is already hearing from some of its 100,000 members that they’ve had to permanently shut down their businesses while many say they won’t be able to make their next pay cycle, he says.
“In six weeks, we’re going to lose too many companies,” Grant says. “We would urge the government to find ways of getting cash to them quickly.”
SR&ED funds should be “immediately released”
The federal Scientific Research and Experimental Development (SR&ED) tax credit would help cash-starved companies. However, businesses scheduled to be technically and financially audited so they can receive the tax credit are still waiting for nearly $200 million.
The CCI, in a letter to government, recommends suspending all technical and financial audits for the SR&ED credit until 2021 and pay claims on submission. “This would inject capital into companies that is currently held up in lengthy audits.”
In a separate letter, CATA recommends the government immediately release the backlogged funds and also create a one-time $3.6-billion “Emergency Resilience and Rebound Canada Fund,” administered by Innovation, Science and Economic Development Canada, for pre-qualified businesses currently receiving SR&ED credits.
A big challenge facing service businesses, such as small cafes, local gyms, barbershops, nail salons and others, is being able to pay their monthly rent. Kelly says provincial governments need to waive property taxes for commercial properties for at least the next quarter and provide up to $5,000 to businesses to help cover some of their fixed costs.
“If governments, for good enough reasons, are ordering businesses to close down, then governments need to pick up some of the costs associated with that,” Kelly says.
The federal government’s new Canada Emergency Business Account, which provides interest-free loans of $40,000, should provide businesses with the $10,000 unforgiveable portion of the loan upfront, Kelly says. With so many businesses uncertain when or if they’ll be able to reopen, he adds, “The main message from our members is: ‘We’re not looking for more debt right now.’”
Altogether, more than one million small businesses (99 or fewer employees) in Canada provide seven in 10 jobs (approximately 10 million people) and account for two-fifths of GDP.
However, even with faster and enhanced government help, some of these firms “will definitely go under,” Bergen says. “I think our question right now is: How do we salvage as much as we can for when the rebuild does happen?”
Click here for the CFIB’s COVID-19 Small Business Help Centre
Click here for the CCI’s dedicated COVID-19 Slack channel for Canadian tech workers
UPDATE: In an update on April 13, CATA said the federal government has “restarted” the SR&ED program to address the backlog of nearly $200 million in unprocessed claims. In addition, CATA said that talks are underway with several ministries, including Finance and Revenue, to create a $3.6-billion Resilience and Rebound Fund that would provide zero-interest loans (with forgivable portions) to pre-qualified companies currently receiving the SR&ED tax credit.