CLA COVID-19 Survey: Canadian Businesses Struggling to Gain Access to The Financing They Need to Keep Their Doors Open

CLA COVID-19 Survey: Canadian Businesses Struggling to Gain Access to The Financing They Need to Keep Their Doors Open

Written by Priyanka Correia
Fact-checked by Caitlin Wood
Last Updated May 29, 2020

Many Canadian businesses are financially struggling due to the COVID-19 pandemic. According to a survey conducted by the Canadian Lenders Association (CLA), 80% to 100% of sales had fallen for 50% of the merchants surveyed. With sales so low, many have been experiencing cash flow problems; in fact, CLA reported that one-third of the businesses surveyed expected to run out of cash in less than a month. Subsequently, many businesses have had to fire their staff, for example, 49% of merchants surveyed by the CLA have or plan to lay off their entire staff. Others have had to close down, some temporarily and some permanently. 


Government Assistance Isn’t Enough

With sales down and cash-flow constricted, many have flocked to apply for government aid, such as the CEBA, BCAP, and CEWS. Though the government aid has provided financial relief for some businesses, the CLA reported that many did not get the same relief because they failed to meet the qualification requirements.

  • 85% of businesses failed to meet approval criteria for BCAP
  • 37% of CLA funded merchants were unable to claim the $40,000 CEBA loan

Moreover, those who did meet the qualifications for the CEBA loan, 50% of the businesses surveyed reported that it “would be insufficient to cover expenses and enable them to survive the present COVID-19 crisis”. As a result, businesses have been turning to banks and other forms of funding to help their cash-flow problems so that they may keep their doors open. 

Funding Options To Boost Liquidity

Sale of Assets 

You can quickly increase cash flow by selling assets that you can work without or at a lower capacity. This can include selling some of your equipment, machinery, vehicles, or even your receivables through invoice factoring. The cash you make from selling your assets can then be used to pay off any pressing expenses such as current liabilities, short-term debts, etc. It is important to keep in mind that selling any long-term assets to boost your cash flow is a short-term solution and could impact your future ability to meet demands and thus revenue. 

Sales of Equity

The sale of equity refers to the selling of common shares. Instead of selling off assets, you can increase your company’s cash-flow through the sale of common shares. You can sell your equity to private investors or through a public listing, but it can be expensive. Moreover, the legal, audit, and disclosure terms are quite strict and can be very demanding. The major change involved in selling your equity is that there would be a shift in ownership where the buyers will become shareholders. It may not be ideal for all businesses, but if it makes sense for you, it can raise a large amount of capital that you can use to reinvest in your business, pay off debt or increase cash-flow. 

Borrowing From Alternative Lenders

Given that many merchants are unable to acquire the funding they need from banks due to their credit history, alternative lenders are the bridge for that gap. Unlike banks, alternative lenders have lower requirements and simpler application processes making it easier and faster to get the money you need to keep your doors open. In fact, they are good alternatives to banks for the following reasons:

  • Quick Approvals – Unlike banks, alternative lenders require as little as your company bank statements to make a decision regarding your application. Their simple application and low requirements, lead to quick approvals and funding times. 
  • Flexibility – Alternative lenders have more control over what kind of financial options they provide you, making it possible for them to personalize the terms and conditions according to your needs. 

Moreover, rather than selling your assets and losing production capabilities, you can use your assets as collateral to increase your borrowing power. This can provide you with immediate cash-flow without disrupting your ability to provide your products and/or services. 

Defensive Tactics To Help Liquidity

Once you get the financing you need, it is important to keep costs low in order to maintain the flow of your cash. With COVID-19 still in our midst, sales are unlikely to be the same as before, but with the proper funding and cost-restructuring, you could make it through. 

  • Minimize Outflows – Cutting out all expenses that are not directly linked to the production or ability to operate your business. This can include bonuses, labour cuts, pay cuts, marketing cuts, etc. 
  • Prioritize Payments – Organize your payments so that non-negotiable bills and loans secured by assets get paid first. If you have contracts with your suppliers, use your relationship with them to see if you can delay payments for a few months. 

Looking Forward

Businesses are essential to the growth and prosperity of the economy, so it is likely that the government will come up with additional programs to help small businesses in Canada who are financially struggling due to COVID-19. Moreover, there are other sources to consider like the CLA, who has sent in a joint proposal with Kilgour Williams Capital (KWC) to the federal government to develop a new small business emergency funding Program. According to the CLA, this program will help “Main Street small businesses with affordable capital sufficient to sustain them through restarting their operations, rebuilding their business, and growing through the recovery”. 

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Priyanka Correia is a Marketing Coordinator and personal finance expert at Loans Canada. Priyanka completed her Bachelor's degree in Marketing at Concordia University and has published work that has been mentioned in various news media. She is passionate about money management and educating Canadian consumers about how to take control of their financial lives.

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