Business loan

Government’s new pandemic business loan scheme gets mixed reviews

The federal government’s new loan program to help businesses survive COVID-19 is getting mixed reviews, even from businesses desperate for help.

The Highly Affected Sector Credit Access Program, or HASCAPlaunched on Monday, offers loans between $25,000 and $1 million to eligible businesses.

Business owners, advocacy groups and experts all welcome the help, but many stakeholders question whether taking on more debt is a viable solution.

“A lot of these companies just can’t take on more debt. And even those that can probably shouldn’t,” said Eric Morse, professor of entrepreneurship at Western University’s Ivey Business School in London, Ont. .

“My worry is that what’s happening at a high level is that we’re pushing what will be a slew of bankruptcies or insolvencies just down the road.”

HASCAP was created in particular to support the travel, tourism, hospitality, arts and culture sector hard hit by the coronavirus pandemic.

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To be eligible, companies must demonstrate that their revenues have fallen by at least 50% for at least three months out of the previous eight.

The program is also primarily aimed at companies that have already qualified and are receiving CEWSthe government wage subsidy program, or ESRBrent subsidy.

Government guaranteed loans can be repaid over 10 years; the interest rate is four percent.

How Business Owners Say HASCAP Could Be Better

Brenda O’Reilly, who owns four restaurants in St. John’s, says her business is based on tourism. With sales down 65%, she applies for the new HACCP loan. (Mark Cumby/CBC)

Brenda O’Reilly owns four restaurants in St. John’s, including a well-known Irish pub named after her and a popular brewpub and event space called Yellow Belly.

Like many businesses in Newfoundland, his is based on tourism. But with that traffic gone and capacity limits for local customers, sales fell by more than 65%.

“We went through all of our reserves from previous years,” O’Reilly said. “We… rob Peter to pay Paul.”

She is grateful the new program exists and says she applied because she had no choice.

O’Reilly thinks HASCAP loans should be interest-free, just like the Canada Emergency Business Account (CEBA) ready is initially, given that it is unclear how the pandemic will unfold over the next year or more.

“I’m really concerned about what’s going to happen,” said O’Reilly, who had to cut 150 jobs at his four locations.

“I can only imagine how devastating it is for others who have been forced to close for an extended period, in some of Canada’s major cities.”

O’Reilly is part of the newly formed group Restaurant Renaissance Task Force, that the industry association Restaurants Canada launched to ensure that HASCAP and other government assistance programs meet the needs of the struggling sector.

The Canadian Federation of Independent Business, an advocacy group, is also appeal to the government make a portion of new loans repayable, as is also the case with the CEBA program.

Valuable help for hoteliers, but worried workers

Reetu Gupta, president and chief executive of the Easton Hotel Group, has seen occupancy levels fall to 6% at her company’s properties since the start of the pandemic.

Gupta’s business has about 20 hotels in Ontario and Quebec. She too is considering applying for HASCAP.

“It will just honestly help us pay our bills, pay the salaries that aren’t covered by the subsidy, keep our doors open and keep the jobs going,” she said.

Gupta says she has only closed one hotel since the pandemic began. But due to the layoffs, it is reduced to a skeleton staff at every location.

Reetu Gupta, president and chief executive of Easton Hotel Group, says occupancy levels have fallen by up to 6%, so she plans to apply for the government’s new HASCAP loan scheme. (Submitted by Reetu Gupta)

With the slow rollout of vaccines and the arrival of coronavirus variants in Canada, Gupta says there’s no sign of when the hospitality industry will rebound.

However, she does not look to Ottawa for grants or interest-free loans.

“I don’t believe anything is free. Everything has a cost,” she said. “I don’t want our country to be in a bigger deficit than it is now.”

Alana Baker, spokesperson for the Hotel Association of Canada, says the HASCAP program has come at a good time for the industry.

Many hotel owners have told the association they won’t make it through the end of February without more help, she said.

“We’ve been asking the government to put in place a bespoke loan program for months now, since last spring,” Baker said. “It couldn’t have happened at a more critical time.”

Hotel workers demonstrate outside the Hyatt Regency in Vancouver in October 2020. The workers were demonstrating to ensure that government assistance to the hospitality industry includes protecting their jobs. (Submitted by Michelle Travis)

Members of Unite Here Canada, the union for hotel workers, are also worried about a brighter future far away.

The union produced a report entitled Demystifying Canadian Hospitality Bailouts: Who Benefits, Big Banks or Workers? who found problems with the HASCAP program.

Michelle Travis, spokesperson for Unite Here Local 40 in Vancouver, says HASCAP will simply funnel the money through wealthy people, corporations and hotel-owning developers. She fears that these funds will end up in Canada’s largest banks, which hold mortgages on the properties.

Travis says the hospitality industry should use the CEWS wage subsidy program to keep workers employed, and that HASCAP assistance should include conditions “to ensure workers they’ve laid off have a path back to their jobs”.

“Who works in the industry?” Travis said. “These are the very workers the government has said are particularly concerned – a majority of women, many immigrants, many racialized workers.”

Wide Variety of Highly Affected Businesses

Frederic Dimanche, director of the Ted Rogers School of Hospitality and Tourism Management at Ryerson University, says the HASCAP program could be a lifeline for businesses that have survived the pandemic so far.

Frederic Dimanche, director of Ryerson University’s Ted Rogers School of Hospitality and Tourism Management, says it’s important to consider all small businesses that could benefit from the new HASCAP program, not just restaurants and hotels. (Submitted by Fred Sunday)

He also says it’s important for people to remember that restaurants and hotels aren’t the only ones who need help.

“You have to think about all the small operators that have attractions, small museums, small cultural venues, live entertainment venues, bars to concert halls and theaters and all that sort of thing should benefit from this measure .”

Looking ahead, Sunday said, “we know there will continue to be restrictions on people and on travel, so the question is whether or not these loans will be enough to keep these businesses alive.” .

Back in St John’s, O’Reilly is determined to stay afloat.

His O’Reilly pub is due to celebrate its 25th anniversary in 2022.

Before the pandemic, she borrowed money to open new restaurants and build a hotel by renovating a historic courthouse and church.

She won’t let COVID-19 shake her faith in tourism.

“I believed in it before. And I believe in it even more now.”