Program for the availability of credit for the most affected sectors (HASCAP): new financial support program for the most affected sectors | Blake, Cassels & Graydon LLP

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On January 26, 2021, the federal government announced the launch of the Highly Affected Sectors Credit Availability Program (HASCAP), a new program to provide secured loans at low interest rates between C $ 25,000 and C $ 1 million per entity. legal up to a maximum of C $ 6.25 million for legal entities related to Canadian businesses that have been severely affected by COVID-19, including those in the hospitality industry.

Although HASCAP was created to provide support to the travel, tourism, hospitality and arts and culture sectors in particular, it is not limited to certain sectors and is available to businesses in all sectors. that meet the HASCAP eligibility criteria.

HASCAP is now available to business owners at participating financial institutions. Interested companies should contact their primary lender for more information and to apply. Businesses cannot apply to more than one financial institution. The deadline for submitting HASCAP applications is June 30, 2021.

HASCAP DETAILS

  • Eligibility criteria: Eligibility will be determined by the financial institution to which the interested business is applying, based on eligibility criteria established by the Government of Canada, including that the business must be a Canadian business that was financially stable and viable and did not have an impaired loan as of March 1, 2020 (i.e. before COVID-19) and must be able to demonstrate loss of income of at least 50 percent for at least 3 months during the eight month period preceding the date of the HASCAP loan application.

  • Demonstration of financial stability and viability before the pandemic: To apply for a loan between CA $ 25,000 and CA $ 100,000, it is sufficient that the borrower (collectively with related entities, if applicable) meets the probability of default requirement (as described in section 6.8.7) of Chapter 6 – Credit Risk – Internal Ratings Based Approach of OSFI’s Guideline on Capital Adequacy Requirements) by March 1, 2020 (collectively with related entities, if applicable) must be demonstrated to have generated a minimum of CA $ 500,000 in gross income during the 12-month period ending on the date of the borrower’s most recent annual financial statements (collectively with related entities, if applicable) before March 1, 2020. To apply for a loan between CA $ 250,001 and CA $ 1,000,000, the borrower (collectively with related entities, if applicable) must meet the minimum debt service requirement. rage ratio of 1.10x (including HASCAP loan) from the summer most recent financial ats of the borrower (collectively with related entities, if applicable) before March 1, 2020 and of the borrower (collectively with related entities, if applicable)) must achieve the minimum S&P rating of CCC + before March 1, 2020.

  • Demonstrate sufficient loss of income: If the business concerned is eligible for the Canada Emergency Rent Grant (SCRU) and / or the Canada Emergency Wage Subsidy (CCWS) and is not already enrolled in these programs, it will need to apply to the applicable programs before the company can apply for the HASCAP. and proof of registration with ESRB or CEWS will help the company demonstrate sufficient loss of income for HASCAP purposes. If the interested company is not eligible for the ESRB or SSUC, he will be required to provide financial statements that reflect at least three months of monthly loss of income from one year to the next of at least 50 percent per month during the eight months preceding the request for ready. The three months of lost income do not need to be consecutive.

  • Equipment loan conditions: The loan is fully repayable without any discount. Additional loan terms include an interest rate of 4%, a repayment term of up to 10 years, and a deferral of principal payment of up to 12 months at the start of the loan. The Business Development Bank of Canada (BDC) will provide a guarantee for 100 percent of the value of the new term loan and no personal guarantee will be required.

  • Use of loan proceeds: Businesses can use the loan proceeds to continue or resume operations. This includes the monthly payments normally scheduled (i.e. balloon free) and principal and interest payments not yet due on the company’s existing debt, as well as lease, equipment or lease payments. supplier financing in the normal course of business. However, the loan proceeds cannot be used to refinance or repay existing commercial debt. In addition, the loan proceeds cannot be used for dividends unless the dividends are used as income for shareholders (up to a maximum of C $ 200,000 in distributions which are paid in lieu of salary. to shareholders and in accordance with historical practices).

IMPACT

Although eligibility for HASCAP is not limited to certain sectors, it has been designed with certain sectors in mind, including the hospitality sector, which has been particularly affected by COVID-19. Allowing HASCAP applicants to demonstrate loss of income for three non-consecutive months in the last eight months prior to the date of the HASCAP loan application takes into account the seasonality of hospitality businesses and offers applicants greater flexibility in establishing the required revenue loss. In addition, HASCAP takes into account the existence of hotel chains owned by related parties by anticipating that a maximum of CAD 6.25 million may be available for related legal entities.

There will ultimately still be some businesses affected by COVID-19 that will not be able to take advantage of HASCAP. In particular, businesses that started operating during the pandemic are unable to meet current criteria for lost revenue to qualify for HASCAP. Businesses that are not eligible for HASCAP may consider other federally funded programs, including the Regional Relief and Recovery Fund (RRRF) and the Business Credit Availability Program (BCAP). Additionally, as part of the 2021 Ontario Budget, the Ontario provincial government recently announced it will create a C $ 100 million Small Business Tourism and Hospitality Support Grant, providing eligible hospitality-related businesses that are not eligible for the Ontario Small Business Program. Support Grant (with at least a 20% drop in revenue and less than 100 employees) one-time payments of between C $ 10,000 and C $ 20,000 in 2021. The Ontario government also created the Ontario tourism revival, spending C $ 100 million to help “historically successful” businesses, including tourism operators and attractions, with reopening spending such as marketing and restructuring.

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