Canada’s banks are likely to get tens of millions of dollars for managing the government’s loan program designed to get money in the hands of small businesses.
The government launched the Canada Emergency Business Account (CEBA) program on April 9, allowing businesses to apply for up to $40,000 in interest-free, government backed loans through their banks. If businesses manage to pay 75 per cent of the loan back by Dec. 31, 2022, the remaining 25 per cent of the loan will be forgiven.
Businesses also had to have a payroll of between $20,000 and $1.5 million to qualify for the program.
All of Canada’s major banks have programs up and running to help customers apply for the program and to date $15.3 billion has been extended to businesses across the country.
Under the previously undisclosed terms of the arrangement with banks, the financial institutions will get 0.4 per cent of any outstanding balances in the program per year. If for example, the $15.3 billion that has been paid was still outstanding at the end of the first year, banks would receive just over $60 million.
The program was part of a host of support efforts for small businesses, which has also included the wage subsidy program and an initiative for rent relief that was announced last week.
Anna Arneson, a spokesperson for the ministry of finance, said the fee is intended to cover the banks’ cost administering the program including keeping clients updated on their balances.
They are not going to pay it early because they are going into a slow economy and they’re going to need that cash flow
"The fee is intended to reflect the cost of service of the financial institutions providing the loan, for the duration of the loan’s lifetime, in a manner similar to how a financial institution would treat loans that it underwrote," she said in an email. "It is not intended to include a profit margin for the financial institutions."
She said the government is also doing an independent review of the program and if the costs to the bank are lower than initially estimated their fee can be reduced.
NDP MP Gord Johns said Canada’s banks could have taken on this program without charging the government, recognizing that it would help many of their customers to get money in their pockets.
"It would have been a generous offer if they said we are going to administer it, this is something we can do,” he said. “The big banks haven’t come to the table and they need to."
Johns said most businesses will need the cash over the next few years and won’t rush to repay the loan allowing banks to gather these fees for several years.
“They are not going to pay it early because they are going into a slow economy and they’re going to need that cash flow.”
He said he has been disappointed banks have only made small reductions to interest rates and he has heard from many constituents who feel the banks could be doing a lot more to help.
"I am getting calls from small businesses that aren’t able to defer mortgages for more than a month, that aren’t able to access lines of credit."
He said the government should have taken a tougher stance with banks to get more support to individual Canadians.
"The government had to have a more difficult and harder conversation with the big banks."
The Conservatives have also criticized the program for excluding family-run businesses by requiring that people applying have a payroll, noting many family-run businesses pay family members with dividends.
Mathieu Labrèche, a spokesperson for the Canadian Bankers Association, said the government worked with banks to ensure the money could get out the door to businesses quickly. He said banks have worked very quickly and are only covering their costs with the program.
"Canada’s financial institutions will continue to support the program on a cost recovery basis throughout," he said.
Labrèche said the government has asked for the banks’ help with a number of programs, including the wage subsidy and they have done so eagerly.
"Having banks deliver these programs costs far less and is more efficient than having the government do so on its own," he said.
Labrèche also pointed to similar programs in the United States that are costing a lot more. The American Small Business Administration is backing larger loans to businesses there, but banks in the U.S. are receiving larger fees.
For loans of less than $350,000 U.S. banks can charge a fee of five per cent on the loan, that percentage does decline when the loans become larger, but even with loans of more than $2 million banks charge a one per cent fee.
(Published by National Post, April 27, 2020)
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