The federal government’s new low-interest loan program to help companies hit hardest by the pandemic is being hailed as both a positive step and a bit of a burden by a tourism industry that has been crying out for significant relief for months.
“I don’t want to slam it right out of the gate, because it does help with some cash flow and liquidity measures,” said John Wilson, president of the Wilson’s Group of companies, who noted, however, that the loan program still means adding to a company’s debtload. “Once again, it’s debt.”
The new program, dubbed the Highly Affected Sectors Credit Availability Program, will be administered by the Business Development Bank of Canada through major financial institutions. Starting Feb. 1, it will offer loans of $25,000 to $1 million for single businesses, and up to $6.25 million for chains, at an interest rate of four per cent for terms as long as 10 years.
Those taking advantage of the program will be able to pay interest only for the first year.
To qualify, companies will have to show a revenue drop of at least 50 per cent year over year.
Wilson said there are several problems with the program, including the fact that details have yet to trickle down to the commercial bankers that Victoria companies use.
He would also have preferred a scaled approach, where companies that are hardest hit — transportation companies such as his have seen revenue drop by about 95 per cent from 2019 — get their money first to ensure they can keep operating.
But his biggest beef is that it remains unclear if the loans can be used to cover large capital expenditures such as the monthly payments for a fleet of buses.
“For us, a lot of our cashflow is making payments on these pricey pieces of equipment sitting in the yard,” he said, adding because they are barely operating, they have little in the way of payroll costs and have subsidies for rent and wages already.
According to information released Tuesday, the loans can be used for rent, utilities and help with payroll, among other operating costs, but cannot be used to pay or refinance existing loans.
“Every passing day, Rome is burning and people are trying to decide whether or not to carry on with their business, and meanwhile, the banks are saying they don’t have any details of the program,” Wilson said. “This needs to be rolled out better to get to the bankers on the ground who can actually help the businesses in trouble.”
While millions of dollars has been handed out in relief funding, many cornerstone tourism businesses such as transportation companies, hotels and large attractions have fallen through the cracks.
In many cases, they do not qualify for measures that targeted small- and medium-sized businesses, or couldn’t afford to take on more debt.
The industry has warned that tourism will be forever changed and will have trouble recovering if these large companies, such as Wilson’s Transportation, Butchart Gardens, major hotels and whale-watching companies, are forced to downsize or close.
Wilson said without real help, his company will have no choice but to consider more permanent service interruptions and perhaps cancellations.
Paul Nursey, chief executive at Destination Greater Victoria, said while he’s happy to see the industry recognized as “one of the hardest-hit sectors,” he’s not sure the new program will be enough to save some firms, given the length and severity of travel restrictions.
“Gaps remain and larger players cannot sustain themselves indefinitely with these levels. It is also a loan, so will impact balance sheets negatively,” he said.
The impact has already been felt across the country, Nursey said, pointing to a Statistics Canada report that the number of active businesses in the country fell 6.2 per cent between October 2019 and October 2020.
The drop included a 10 per cent decrease in the number of active accommodation and food-services companies and a 14 per cent drop in transportation.
Nursey said the province has been in discussion with the tourism industry to find “ways to provide liquidity measures to cornerstone tourism businesses and businesses of all sizes.”
“We are hopeful that these discussions will continue ahead of the April 2021 provincial budget and new tools will be brought to bear,” he said.