Trudeau Aid Saddles Companies With Debt, May Slow Recovery: RBC
Trudeau Aid Saddles Companies With Debt, May Slow Recovery: RBC
(Bloomberg) -- Canada’s policy response to the coronavirus pandemic is smaller and relies more on loans than the U.S. plan, factors that could slow down a business recovery, according to Royal Bank of Canada’s economics department.
Total economic support during the pandemic equals about 10.2% of Canada’s GDP versus 12.7% south of the border, RBC said in a note published Wednesday. Canada’s measures lean more heavily toward repayable loans and short-term tax deferrals instead of direct spending and grants.
That may be less helpful for small firms already laden with debt, according to RBC economist Colin Guldimann.
“Businesses in Canada are more indebted than ever, so solutions that help firms without adding to their debt loads will give more lift as we overcome the virus lockdowns,” Guldimann wrote. “Rather than seek security in loans, the government could look to take equity positions or design grant programs with the potential for upside.”
The Trudeau government’s programs for business include loans and loan guarantees, wage subsidies, help with commercial rent payments and deferred tax payments.
The government outlined on Wednesday the terms of a lending program for companies with revenue of C$300 million ($215 million) or more. Public companies that participate in that one will be asked to grant warrants, allowing the government to potentially gain upside in a recovery.
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