The Government of Canada is actively trying to support local businesses affected by the COVID-19 virus. In tough times such as these, small businesses are facing severe financial impacts from a decreasing serviceable population. By lowering some of their fixed costs, the Government of Canada hopes to keep more of these businesses afloat. Evan Siddall, the CEO of the Canadian Housing and Mortgage Corporation (CHMC), has publicly declared the organization’s intention: To keep housing affordable for individuals, and to keep Canadian small businesses in the game. The virus poses an unprecedented threat to the national economy, but the Canadian government will try to implement measures that soften the blow.
Starting on May 25th, 2020, the Canada Emergency Commercial Rent Assistance plan (CECRA) aims to support small businesses by significantly lowering the cost of their rent in the short term. In terms of responsibility, the CHMC will carry out this plan by guiding the efforts set by the federal government, as well as any governing provincial bodies and territories. At its core, the CECRA plan aims to reduce the cost of rent for struggling businesses by 75 percent for the months leading to July, 2020. The loans issued out to qualifying businesses will be provided to the property landlords, and will be entirely forgivable under the circumstances. The loans paid out will directly cover half of the landlord’s gross rent obligation for the three month period of April to July, assuming the tenant (small business) realized losses of 70 percent or more on revenues and pays less than $50,000 monthly in rental expenses.
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While the loan is in fact issued out to property landlords and not small businesses themselves, the loan will only be forgivable if landlords waive at least 75 percent of rental expenses for their tenant businesses (the tenant would still be obligated to come up with the remaining balance). This can be done through one of two ways: the landlord can provide a refund of 75 percent or more on the tenant’s rent for the given period, or the two parties can agree on a credit amount beforehand. Essentially, if you’re a small business that pays $20,000 in rent per month, you’re landlord is eligible for 50 percent of this income as a forgivable loan, so they would receive $10,000 per month from CECRA. In accordance to the loan requirements, as the business owner/tenant your rent bill would be reduced by 75 percent to only $5,000 per month for the time period. In total, the landlord would only be receiving $15,000 as opposed to the regular $20,000 – therefore; landlords would have to forego a portion of their monthly property income as a trade-off for the reliability of payments. In many cases, a small price to pay for the security of a steady income stream.
Due to the global pandemic, as a landlord you need to face the very real possibility that your business tenants may no longer be able to afford the regular rent instalments. If your goal is to prevent them from closing down and moving out, you should take advantage of the opportunities CECRA provides. At the end of the day, you must realize that your tenant’s business success is vital to the long term profitability of your property. If you neglect this financial aid and allow your tenant to evict, you’ll be looking at zero rental income as opposed to partially reduced rental income – but your property debts will remain the same. Furthermore, it might not be worth your hassle to try and acquire new tenants during the pandemic, since you’ll likely be short on bidders for the time being. Considering the market in its current state, lowering your rent asking price might be the only way to attract potential tenants. In other words, you may as well sign up for CECRA and benefit your current small business tenant. It will provide your tenants with short term sustainability, and will put them in a better position to make a full recovery once the crisis is dealt with.
The CHMC will be opening up a 24/7 online portal on May 25 that will initialize the application process. Please be aware of a traffic volume spike on this day, as the webpage will likely be flooded with requests and may become temporarily unavailable. To combat this issue, the first few days of public availability will have certain restrictions. Monday registration will be offered to landlords who have up to ten tenants located in Quebec, Alberta, British Columbia, and the Atlantic provinces. Similarly, Tuesday registration will apply to landlords who have up to ten tenants located in Ontario, Saskatchewan, Manitoba, and the Territories. The following Wednesday and Thursday registration will be open to any other landlords within these provinces or territories. Come the Friday, registration is open to all landlords nationwide. Do not worry about the exact timing of your application; to qualify for the forgivable loan you have until August 31.
In order to secure eligibility for the financial aid program, both the owner of the property and the business tenant must adhere to the rules of the loan. The first piece of information required from both parties is to deliver proof of current status, which can be declared via attestation forms. In simple terms, the tenant will describe their situation in detail, making sure it complies with the program’s terms, and the property owner will confirm its accuracy. Once attestations from both parties have been submitted, they will enter into a legally-bound conditional agreement that states the CECRA regulations. Whether you’re the tenant or the landlord, you’ll also be required to provide any personal information regarding your business and identity to prove status, including your banking statements.
From the perspective of the landlord, all you really need to apply is the ownership of a commercial rental property that is currently filled by at least one small business tenant, and strict compliance with CECRA terms and conditions. However, you are unable to apply for this financial aid if your property is in any way partly owned by the municipality, province, or federal government. Some other minor rules and exceptions apply to landlords, but most importantly you’re eligible for CECRA regardless of your property’s financing condition – whether or not you owe a mortgage on it shouldn’t affect the application process.
From the perspective of the tenant, your small business must have been officially registered in Canada before March 1st, 2020. Any businesses established past this date are ineligible for CECRA. Regardless of whether you own a profit or non-profit business, your finances must consist of: $50,000 or less on regular monthly rent expenses, $20 million or less in yearly pre-tax revenue, and a current deficit of 70 percent or more on revenue from COVID-19 influenced operations. To show evidence of losses, revenue decline can also be averaged from the previous months January, February, and March of the year 2020.
In times of great uncertainty it’s generally a good idea to minimize risk wherever possible. The safety net provided by CECRA for tenants and landlords alike can be viewed as a temporary financial band aid. While it may not fix any underlying issues within a businesses’ revenue model, it will at least buy them some time to potentially wait out the issues caused by the pandemic. Ultimately, the only real factor that determines the success of these small businesses is a swift economic recovery, and the associated rise in consumer spending confidence and demand. The bottom line is, if you feel like your property income/business is in jeopardy, and you’re eligible for the benefit, give CECRA your consideration.
If you’re interested on learning about how you can save more efficiently during this pandemic, be sure to check out our articles on High Interest Savings Accounts, Guaranteed Investment Certificates, and Canadian Credit Cards. We also offer currency exchange in Vaudreuil-Dorion where you can get the best foreign money exchange rates.
If you’re a landlord, any financial aid provided through CECRA will be completely forgiven at the end of 2020. Keep in mind that in order to qualify for full interest-free loan forgiveness you must abide by CECRA’s rules and regulations during the entire payment period. This means providing a detailed and accurate attestation from both yourself and your tenants, and sticking to the mutually agreed upon Rent Reduction Agreement. In the case of a financial emergency such as bankruptcy or necessary organization restructuring, the loan will need to be repaid.
As a property owner, you essentially have two options to allocate the funds from CECRA. You may choose to reimburse your tenants for 75 percent or more on their rental expenses during the period, or pay any upkeep costs on the property related to maintenance, utilities, and insurance. Note that if you choose the second option, the maintenance must directly support your small business tenant.
Seeing as it is a part of the federal government’s plan to lessen the economic impact of COVID-19, it’ll likely be subject to periodic reassessment. If situations do not improve after June ends, there is a very real possibility of the CECRA program being extended.
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