The province’s economy is facing potential disaster if government and banks don’t do more to help a slew of shuttered small businesses facing mounting bills and zero cash flow caused by the COVID-19 shutdown, says a Nova Scotia economist.
“If I have a small business right now with ongoing costs that I cannot meet without a cash flow I’ve got very big problems and that’s a very dangerous situation,” said Melvin Cross, a Dalhousie University adjunct economics professor.
It’s especially dangerous given what small businesses mean to Nova Scotia’s economy. The province leads Atlantic Canada with the highest number of small businesses (ranging from 1 to 100 employees) at 28,874, according to the most recent federal government Key Small Business Statistics. The report shows that those businesses represent 98 percent of private-sector employment in the province.
Evidence also suggests that the vast majority of those businesses simply don’t have the cash flow to withstand a potentially months-long shutdown facing the province. A 2016 JP Morgan study showed that the average restaurant, retailer and manufacturer had 16, 19 and 30 days of cash on hand, respectively.
The majority of shuttered small businesses face urgent financial challenges to be met by the end of the month: rent, paying vendors and suppliers, and in some cases meeting payroll. Meanwhile, an unprecedented COVID-19 shutdown is impacting the Canadian economy on a level comparable to the outset of the Great Depression, said Cross.
“This could lead to a disaster,” said Cross. “One solution is to provide credit to those businesses that need it."
There needs to be a broader multi-government financial response plan that also includes the banks, said Cross. Businesses need funding to cover basic operating costs to get them through the shutdown, particularly for those that were on solid footing before the pandemic hit.
On Tuesday the federal government announced an $82-billion aid package to help Canadians weather the COVID-19 crisis. But the funding largely targets individuals, not businesses.
Between them, the provincial and federal governments have come up with a handful of programs for ailing businesses: a 10 per cent payroll subsidy and a guaranteed loan program but for many businesses these don't go nearly far enough. Other measures include extending the deadline for filing income tax returns and temporarily deferring payment of provincial loans.
The professor believes that government understands the gravity of the situation by moving quickly to put these supportive measures in place, "but they need to go further by making more money available to staunch some of the bleeding,” said Cross.
The banks should allow mortgage payments for both home and business properties to be deferred until after the shutdown. He said the federal government could play a role by being the “lender of last resort,” ultimately committing to provide any additional funding the banks might need.
Time is of the essence because the current situation is that things are plummeting very rapidly, well beyond a recession scenario, said Cross.
“Unless some of this lost output can be recovered or things begin to improve in the near future, we all in some way or another, are going to find that we just don’t have as much stuff compared to before this shutdown hit."
The province announced on Monday protection measures for residential tenants, barring landlords from evicting people at the end of this month. The premier stopped short of offering the same protection for business owners facing the same danger.
Patrick Sullivan, the Halifax Chamber of Commerce's president and CEO, said that the same security should be afforded to business owners, many of whom are facing the possibility of eviction at the end of the month.
But Sullivan is also asking for landlords to work with business owners to find solutions.
"I would like to think as the president of the chamber of commerce that landlords will recognize that this is a serious issue for small businesses and they will work with those small businesses to ensure that they can stay in that location and they can pay the rent as a business reopens."
If several businesses are forced to permanently close there's nothing in the queue to replace them, he said.
“We all should work together to ensure that this doesn’t happen,” said Sullivan.
Sullivan said businesses are now facing two urgent challenges: "The need for cash in their pockets so that they can, Number 1, pay their employees, and, Number 2, pay the bills that will come due very shortly."
He also said the $82-billion federal aid package doesn’t help small businesses enough.
“Does it need to be more? Yes, if it’s more than there will be fewer businesses that will need to close their doors.
“We talk about business but what we’re really talking about are people, we’re talking about employees, we’re talking about business owners. Those are the people who are going to be hurt if they have to close their doors.”
The chamber is lobbying on behalf of ailing businesses, recently launching the Nova Scotia Business Labour Coalition in partnership with Nova Scotia Federation of Labour as well as more than 60 organizations.
"The goal is to get vital information out there to people so they don’t have to close their doors," said Sullivan.