2020 has been a one-of-a-kind year. A defining 2020 moment for me was starting a new job on the first day of the lockdown— March 16, 2020. As I entered an empty office, little did I know that remote work would become the norm for months to come. Even as the Canadian economy gradually started to open in mid-May, it became clear that businesses might never be the same again; or, at least, not until a vaccine is found. 

There are over a million small and medium-sized businesses in Canada, employing more than 85 percent of the workforce and contributing to over half of the country’s GDP. These businesses bring character to neighbourhoods and are the lifeblood of our main streets. An entire sector of the economy suffers when small businesses close: cash flow is lower, debt is higher, and unemployment goes up, creating a large drag that will slow down any eventual recovery. 

What will the impact of COVID-19 on small (1–99 employees) and medium-sized (100–499 employees) enterprises (SMEs) look like?

Impact of COVID-19 on SMEs

Many small and medium-sized businesses operate on a tightly controlled cash flow, and the reduced availability of credit can exacerbate problems. Businesses that depend on a few major customers for the bulk of their revenue are likely to see a negative impact on their top-line growth if any of those customers are unable to survive the crisis, setting off a chain reaction of closure. As budget cuts become imperative, one of the first steps many small and medium-sized businesses take is to lay off new or redundant staff, putting the pressure of running an entire business on a limited number of people, sometimes alongside pay cuts. As many small businesses depend heavily on foot traffic and operate on thin margins, they are especially vulnerable to the ripple effects of a widespread shutdown.

The Canadian Federation of Independent Business (CFIB) Business Barometer, which is based on a 12-month forward expectation for business performance, fell to 30.8 index points in March 2020—the lowest in its history, including the 1990 and 2008 recessions. With an ease in restrictions, small business confidence has been on a steady rise, with the September reading for the Business Barometer index stood at 59.2 points. (An index level closer to 65 is an indicator that the economy is growing at its potential.)

While the rise in the index level is positive, it is important to note that many business owners have much lower expectations of what good performance means 12 months out. Shorter-term outlooks are still weak; at 39.7, the index’s equivalent measure based on a three-month horizon remains well short of historical norms. 

How well has the government responded?

The federal government has taken some decisive and significant actions to support businesses in these unprecedented times. While more than two-thirds of the small businesses found the Canada Emergency Business Account (CEBA) and Canada Emergency Wage Subsidy (CEWS) programs to be very/somewhat helpful, the Canada Emergency Commercial Rent Assistance (CECRA) program has created frustrations among small businesses, as there is no pathway for tenants to get direct support if landlords don’t participate. 

Landlords are eligible to apply for CECRA if their tenants pay less than C$50,000 a month in rent, generate less than C$20 million in gross annual revenue, and have experienced at least a 70 percent drop in pre–COVID-19 revenues. Rent is almost always the biggest monthly bill for SMEs, and while tenants are powerless to apply, many landlords are averse to applying because they wish to avoid the significant paperwork involved in the process. Those willing to apply are required to absorb a quarter of the rent to participate. Only 16 percent of eligible small businesses were approved for CECRA by the end of July 2020. 

While the announcement of a new rent relief program, as well as extension and expansion of the CEBA loan program and the wage subsidy for small businesses, is welcome news, it does little to assuage the fears of 80 percent of small businesses who are concerned that a second wave would introduce new rounds of closures or restrictions on their business activities. Despite CEBA’s success, firms without business bank accounts still do not have access to the program, and those without payroll struggle due to the restrictive conditions and giant administrative delays. In early October, the Ontario government once again ordered the COVID-19 hotspots of Toronto, Peel Region and Ottawa to close theatres, gyms, and indoor dining at restaurants to reduce the spread of the virus for a period of 28 days. 

A way forward

Battered by months of closures, more than 70 percent of entrepreneurs are still not making their normal levels of sales. The CFIB estimates that one in seven small businesses, or about 158,000, are at risk of closing due to COVID-19. That is in addition to the ones that have already closed. 

Given that consumer spending is the key to the survival of these businesses during these challenging times, CFIB introduced the #SmallBusinessEveryDay challenge to remind consumers that small actions—like buying a cupcake or a cup of coffee, finding a local business, or recommending a business to others on social media—can make a big difference for small business survival. The Ontario Chamber of Commerce has also chosen to highlight #DifferenceMakers, businesses who have successfully pivoted their operations and found creative ways of supporting their communities during these tough times. 

The pandemic has produced some significant changes in consumer behaviour that are here to stay. People are reducing the overall number of shopping trips, making more sustainable choices, and shifting to online platforms versus in-person trips to stores. Limits on capacity within retail stores, restaurants, and theatres mean businesses must find alternative ways to keep their operations going. The key survival tactic for these SMEs is to accelerate their adaptation strategy in the face of changes in consumer behaviour and focus on sustainable solutions that will help them stay in business, with an emphasis on building a strong e-commerce presence and platform.

Finally, there has to be a level playing field at a minimum between the SMEs and the big box retailers. Giant retailers such as Walmart, Costco, and Amazon continued to thrive during the pandemic, and at the expense of small retailers. In many cases, shopping at a big box retailer was a farther option versus accessing a store in the neighbourhood, essentially requiring people to break their “social bubbles.” 

If we do not want to lose the individuality and the local flavours that small independent businesses bring with themselves, efforts must be made by the government, public, and the businesses themselves to ensure their survival and steady recovery. SMEs have proved their resilience time and again; all they need is a little support to find opportunities in challenges and provide the silver lining in the proverbial dark cloud of the pandemic.