Given the current global COVID-19 crisis, Canadian businesses of all scales have been significantly affected. From vast store shutdowns, to shifting all possible operations to work from home, to extensive layoffs, businesses nationwide are dealing with the consequences of this disease now more than ever. While larger corporations are finding it easier to keep afloat, smaller independent businesses specifically start-ups are struggling to make ends meet. A large portion of funding for these firms is typically generated from start-up company grants.
The Canadian Venture Capital and Private Equity Association (CVCA) has addressed the same issue in an open letter to Canada’s Minister of Small Business, Mary Ng asking for increased support for the national start-up community. The organization, spanning over 2,090 individual and member organizations, shed light on the requirements of start-ups with high growth potentials and the innovation sector of Canada in general. They recommended that officials could provide additional support for this hard-hit cluster of businesses. The organization regularly works to bring its community members together to enable partnerships and increase knowledge sharing proving to be a resource for Canada on private capital investments.
Within this letter, three main potential pathways for additional support were listed. It was suggested that those firms subject to a Scientific Research & Experimental Development tax credit or any CRA funded innovation grants, be paid out their claimed amount as a liquid refund in addition to SR&ED reviews being passed on altogether, speeding approval process. Potentially required audits could then be completed at a later date once the economy is operational close to regular standards. By by-passing audits and reviews, the CRA could offer SR&ED funding based on the firms’ prior year filling at no additional cost to the CRA. This action can then in effect offer immediate liquidity for businesses and start-ups who require it the most to keep their staff on their payroll, keep operational and avoid increased unemployment in the country. Included in this call to action, CVCA also requested an improvement in the wage subsidy currently offered to Canadians after Prime Minister Trudeau announced it to be increased to 75% on March 27, 2020.
As a second step, CVCA suggested that the Business Development Bank of Canada (BDC) increase their contribution of injecting liquidity into the Canadian economy. In addition to the BDC’s current role in the government’s emergency loan program, they are being called upon for additional capital for investors and funds stating that those reliant on foreign investors have also been drastically impacted as the foreign investors have retreated given current circumstances.
CVCA suggests that BDC award matching convertible note loans with no payment obligations for up to 36 months after which the note can be converted to equity at BDC’s discretion. They also requested for BDC to temporarily ease the criteria for qualifications of lending measures to allow for start-ups who wouldn’t typically qualify, to also have access to liquidity in these tough times.
The CVCA urged the idea that current measures assume pre-existing relationships with financial institutions which are relationships most start-ups lack undermining their need for assistance. The letter pushes the government to take more inclusive actions that increase liquidity for all types of businesses and firms within our nation given how critical of a role private equity and venture capital have within the regular Canadian economy. All assistance measures should take into account the need to also address this now missing element amidst the COVID-19 crisis.