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Most of Ontario’s Small Businesses Will be Permanently Closed by the End of 2020

Updated: Oct 8

My name is Ryan Brooks. I am the CEO and co-founder of Ctrl V, the world's first virtual reality arcade, started in Waterloo, Ontario on June 1, 2016. If you are receiving this email, it means that you or someone you know has attended one of our Ontario arcades since that time. Regardless, on behalf of all Ctrl V locations, I'd like to start by apologizing in advance for the fact that a company like ours has to even send out an email of this nature.

We are not reaching out to sell you anything. We are seeking your help.

As you may already know, businesses around the world have taken a significant hit to their operations since the pandemic started. For Ontario businesses specifically though, the damage being done is significantly worse than most other regions in Canada. This is a result of a number of factors, all of which are beyond the control of the businesses being impacted.

1. The relief programs available are insufficient and not proportional to the damage being done.

The following programs were created in an attempt to support small businesses: CEBA (Canadian Emergency Business Account): this federally-led program is an emergency line of credit for up to $40,000 offered through the big banks. Provided the entire amount borrowed is repaid by December 31, 2022, up to 25% of the loan will forgiven (does not have to be repaid). There are two major issues with this program; it is a static amount, and it is a loan. The intent behind this program was to cover the expenses that businesses could not eliminate while being forced to be closed. However, as you could imagine, these expenses vary wildly from business to business, depending on where in Ontario you're located and whether or not you could still operate in some capacity. As a result, this static amount could last some businesses twice as long as other businesses, just based on rent alone. Additionally, the CEBA is a loan that requires repayment. The expenses being covered by the loan (rent, utilities, website, etc.) will never have the opportunity to generate revenue for the time period in which they occurred. Essentially, small businesses are still on the hook for the expenses incurred while they were not permitted to operate. As a result, we will be forced to make up for these expenses along with the typical expenses we incur moving forward. Most businesses operate with fairly small margins, and this additional cost to bear will force businesses to employ less people, lower wages or increase prices to compensate, all in a post-pandemic climate with reduced disposable income for consumers. CECRA (Canada Emergency Commercial Rent Assistance): this program was a joint effort between the federal and provincial governments in an effort to help businesses cover one of the largest ongoing expenses during mandatory shutdown; rent. This program is the least effective program available. The program was made available as an option to commercial landlords with a mortgage who have tenants in need of support. The government would cover 50% of gross rent and the landlord was required to "eat" 25% of the rent, leaving the other 25% for the tenant, for the months of April, May and June. When the program launched in late May, there was an obligation for the tenant to provide their annual revenue to the landlord for the application process. However, this requirement was reversed after only one week. By that time, many tenants had already disclosed sensitive financial information to their landlords. However, the primary issue is that this program can only be applied for by the landlord, and it is entirely voluntary. As a result, we saw that after three months of waiting, only 16,000 businesses had opted into the program in the first week - Canada-wide. That is only 1.3% of all businesses, even though as many as 40% were eligible. If each of those businesses had an average monthly rent of $10,000, that would amount to about $240 million dollars for April, May and June combined. For comparison, that is the amount of money invested into the program by the Ontario government alone. For Ontario, the federal government allocated an additional ~$660 million dollars. This means there was a considerable amount more allocated for the entire country, but it is simply inaccessible to the tenants who need it because it is up to their landlord's decision to participate. We would venture that most of the 16,000 businesses that opted into the program did it, not because it was a great program, but because there was nothing else available. To be fair, this program was as bad of a deal for landlords as it was for tenants. The landlords were forced to assume all liability, had to file a separate application per tenant per month, and had to absorb 25% of the rent for each of these tenants. Additionally, the CECRA program offered a static 50% coverage of gross rent provided at least a 70% drop in revenue. This means that for businesses who were able to continue to generate 30% of their normal revenue, they would receive 50% coverage of their rent. However, for businesses who have sustained 0% revenue since being forced to close, they also only receive 50% coverage. A significant number of industries have been forced to close with no way to generate revenue. Most of these businesses are continuing to incur rent payments, even if they were one of the 1% whose landlord opted into the program. How are they expected to make even the 25% payment if they aren't allowed to generate any revenue? CEWS (Canada Emergency Wage Subsidy): This program was rolled out by the federal government and will provide up to 75% of wages (up to a maximum of $847 per week). However, the program requires that this amount be paid out to staff first, in order to have that component reimbursed. This is definitely the most successful program released by any level of government to-date. The turnaround time for reimbursement is relatively quick and the relative amount of the program is actually helpful. This program is proving to be a great resource for the businesses who have already been able to reopen. Unfortunately, this program requires you to have staff to pay, and at the moment, most businesses that are still forced to be closed (entertainment, hospitality, recreation, etc.) cannot afford to bring back staff in any capacity.

2. The relief programs available took far too long to roll out. The federal and provincial governments were seemingly not prepared for the current situation. The word "unprecedented" has been thrown around quite liberally, but the reality is that we were not the first country to be hit by COVID-19. As a result, our governments have been consistently playing "catch up" with knee-jerk reactions in an effort to combat the reportedly "unforeseen" situation we are in. This has resulted in a collection of programs that have seen multiple revisions and to-date do not sufficiently support the groups for which they are intended. 3. The relief programs are not accessible to the individuals who need them. The CEBA loan program was only last week made available to businesses with net wages paid in 2019 being less than $20,000. This meant that any business owner who paid themselves from dividends or didn't pay themselves at all were ineligible for this program. Worse yet, as mentioned above, only landlords can opt into the CECRA program, despite numerous attempts to have the program changed. We completely understand that opening the program up to tenants would increase the potential for fraudulent claims, but there is no amount of documentation the government could request that would deter us (the tenant) from applying if it meant we could receive the relief available. We want to help mitigate the impact of this virus on our communities, but we simply can't afford to do this without sufficient relief available to cover at least the expenses we aren't able to eliminate. 4. The moratorium on evictions came too late. Despite numerous groups requesting a block on commercial evictions for months, Ontario only enacted this policy on June 17th, being retroactive until May 1st. Imagine you are a business who was evicted on May 1st. You've likely let your staff go, sold off equipment, canceled utilities and services and wrapped up a number of elements of the business. A month-and-a-half later, the government retroactively reverses the ability of your landlord to have evicted you in the first place. How are you supposed to start up again? The relationship with your landlord is likely damaged and the risk of being evicted again at the end of the moratorium is almost certain. The Ontario government should have enacted this moratorium on commercial evictions in April. It should have been the first priority once they forced businesses to close. At this point, the only purpose the moratorium is serving is to delay additional evictions until September 1st.

5. There is confusion between federal, provincial and municipal governments as to which businesses can operate. Throughout our numerous attempts to communicate with our elected officials, it has become evident that no level of government wants to take responsibility for the damage being caused by the imposed closures and makeshift policies. In May, we called the Essential Businesses Hotline on three separate occasions to identify where a business like Ctrl V falls within the reopening plan / emergency order legislation. In each call, we received a different suggestion of how we could be classified. In all three cases, we were informed it was a "grey area" (as we aren't explicitly defined), but that provided we could open with social distancing and in a limited capacity, we should be fine to open. As a result, we announced the opening of our Waterloo arcade on June 1st, 2020 with an intent to open on June 4th. The Region of Waterloo's by-law office received two anonymous complaints about our intent. They deployed a Tobacco Enforcement Officer to visit our facility, who informed us that we were not permitted to operate. His reasoning was that we were "not explicitly listed as allowed to reopen". We explained that there were a number of other businesses permitted to operate at that time with a similar operating model and informed him of the responses we received from the Essential Businesses Hotline. He replied with, "That hotline is giving us such a problem. They continue to dole out incorrect information. They are just Service Ontario employees and have no capacity to offer legal advice or to tell a business when they can or can't open." He then conveyed that this is a "tricky situation", as he could see the merits of how a business like ours would be able to offer a safe environment for customers. He then contemplated that "perhaps if only five people came at a time", maybe it would be okay. He explained that normally, his sole discretion would be sufficient to determine if a business can reopen, but in this instance, he would have to go to his supervisor, or perhaps his supervisor may even have to go to the public health office. He also explained that the by-law office has a separate hotline to call to speak with the provincial government, but that the response they always receive is, "We [the provincial government] have simply written the legislation - we will not assist with interpreting it." He stated, "They [the provincial government] don't want to take on the liability." The by-law officer then went on vacation. We continued the conversation via email with one of his peers, who explained they had discussed internally, and could not permit us to open. The reasoning? "Let's say I let you open. And, let's say that a customer comes in and gets the virus, and then goes to visit a long term care home, and kills 30 people. [The government] is going to call me to the stand and ask me, 'Why did you let them open?' I'm going to have a difficult time being able to justify that you are similar to a rod and gun club, you know?" And this leads to the next major issue.

6. There is no defined process in place for a business to be assessed / submitted for placement in the Provincial Reopening Plan. In spite of us suggesting and requesting this for months now, and numerous unreturned calls to the local Public Health Office, there is no submission process for a business omitted from the legislation to be assessed for viability of operation. For a number of businesses in the tourism and recreation industry, there are far too many options for us to be explicitly listed - we understand this is an unreasonable ask of the government to think of every possible type of business. However, there should have been some formal process created which allowed businesses like Ctrl V to submit themselves for evaluation and a visit from Public Health to determine where in the reopening plan we actually fit. The "broad brush" that has been used to paint all of Ontario does not adequately support the variety of businesses that exist. Many businesses like ours, even if normal operations would be too risky, should have been able to reopen in some capacity, with the guidance of our local public health office. Instead, we're at the mercy of repurposed by-law officers who are individually interpreting incomplete legislation and public health offices who have never visited our facility to evaluate any risks or work with us to minimize them. Again, we completely understand why businesses like ours need to be closed at various stages or in a reduced capacity. We want to help our communities mitigate the spread of this virus. We just aren't able to make that sacrifice and not receive sufficient relief to cover the costs of our compliance with this request.

7. There is effectively no regional reopening plan. Next to the lack of sufficient relief programs, the lack of a regional reopening plan from the outset will be the biggest contributor to the impending financial collapse of the Ontario economy by the end of 2020. Take Northwestern Ontario for example. As of July 7th, 2020, that region consisting of ~230,000 people has seen only 39 positive cases of the virus since mid-March. That is 0.016%. And yet, businesses in that region have been under the same state of emergency and arbitrary lock down requirements as Toronto and Windsor. Only in the middle of June did the government finally start to deploy some sort of regional response. However, it didn't permit any region to move to Stage 3, primarily we presume as the government still doesn't have a clear picture of what Stage 3 contains. There has been almost no indication of what businesses are a part of Stage 3, or under what restrictions they will need to operate. Keeping this information concealed or not having it prepared this far into the pandemic makes it impossible for landlords, businesses and their staff to adequately plan for the coming months.

As you may already know, businesses around the world have taken a significant hit to their operations since the pandemic started. For Ontario businesses specifically though, the damage being done is significantly worse than most other regions in Canada. This is a result of a number of factors, all of which are beyond the control of the businesses being impacted.

1. The relief programs available are insufficient and not proportional to the damage being done.

The following programs were created in an attempt to support small businesses: CEBA (Canadian Emergency Business Account): this federally-led program is an emergency line of credit for up to $40,000 offered through the big banks. Provided the entire amount borrowed is repaid by December 31, 2022, up to 25% of the loan will forgiven (does not have to be repaid). There are two major issues with this program; it is a static amount, and it is a loan. The intent behind this program was to cover the expenses that businesses could not eliminate while being forced to be closed. However, as you could imagine, these expenses vary wildly from business to business, depending on where in Ontario you're located and whether or not you could still operate in some capacity. As a result, this static amount could last some businesses twice as long as other businesses, just based on rent alone. Additionally, the CEBA is a loan that requires repayment. The expenses being covered by the loan (rent, utilities, website, etc.) will never have the opportunity to generate revenue for the time period in which they occurred. Essentially, small businesses are still on the hook for the expenses incurred while they were not permitted to operate. As a result, we will be forced to make up for these expenses along with the typical expenses we incur moving forward. Most businesses operate with fairly small margins, and this additional cost to bear will force businesses to employ less people, lower wages or increase prices to compensate, all in a post-pandemic climate with reduced disposable income for consumers. CECRA (Canada Emergency Commercial Rent Assistance): this program was a joint effort between the federal and provincial governments in an effort to help businesses cover one of the largest ongoing expenses during mandatory shutdown; rent. This program is the least effective program available. The program was made available as an option to commercial landlords with a mortgage who have tenants in need of support. The government would cover 50% of gross rent and the landlord was required to "eat" 25% of the rent, leaving the other 25% for the tenant, for the months of April, May and June. When the program launched in late May, there was an obligation for the tenant to provide their annual revenue to the landlord for the application process. However, this requirement was reversed after only one week. By that time, many tenants had already disclosed sensitive financial information to their landlords. However, the primary issue is that this program can only be applied for by the landlord, and it is entirely voluntary. As a result, we saw that after three months of waiting, only 16,000 businesses had opted into the program in the first week - Canada-wide. That is only 1.3% of all businesses, even though as many as 40% were eligible. If each of those businesses had an average monthly rent of $10,000, that would amount to about $240 million dollars for April, May and June combined. For comparison, that is the amount of money invested into the program by the Ontario government alone. For Ontario, the federal government allocated an additional ~$660 million dollars. This means there was a considerable amount more allocated for the entire country, but it is simply inaccessible to the tenants who need it because it is up to their landlord's decision to participate. We would venture that most of the 16,000 businesses that opted into the program did it, not because it was a great program, but because there was nothing else available. To be fair, this program was as bad of a deal for landlords as it was for tenants. The landlords were forced to assume all liability, had to file a separate application per tenant per month, and had to absorb 25% of the rent for each of these tenants. Additionally, the CECRA program offered a static 50% coverage of gross rent provided at least a 70% drop in revenue. This means that for businesses who were able to continue to generate 30% of their normal revenue, they would receive 50% coverage of their rent. However, for businesses who have sustained 0% revenue since being forced to close, they also only receive 50% coverage. A significant number of industries have been forced to close with no way to generate revenue. Most of these businesses are continuing to incur rent payments, even if they were one of the 1% whose landlord opted into the program. How are they expected to make even the 25% payment if they aren't allowed to generate any revenue? CEWS (Canada Emergency Wage Subsidy): This program was rolled out by the federal government and will provide up to 75% of wages (up to a maximum of $847 per week). However, the program requires that this amount be paid out to staff first, in order to have that component reimbursed. This is definitely the most successful program released by any level of government to-date. The turnaround time for reimbursement is relatively quick and the relative amount of the program is actually helpful. This program is proving to be a great resource for the businesses who have already been able to reopen. Unfortunately, this program requires you to have staff to pay, and at the moment, most businesses that are still forced to be closed (entertainment, hospitality, recreation, etc.) cannot afford to bring back staff in any capacity.

2. The relief programs available took far too long to roll out. The federal and provincial governments were seemingly not prepared for the current situation. The word "unprecedented" has been thrown around quite liberally, but the reality is that we were not the first country to be hit by COVID-19. As a result, our governments have been consistently playing "catch up" with knee-jerk reactions in an effort to combat the reportedly "unforeseen" situation we are in. This has resulted in a collection of programs that have seen multiple revisions and to-date do not sufficiently support the groups for which they are intended. 3. The relief programs are not accessible to the individuals who need them. The CEBA loan program was only last week made available to businesses with net wages paid in 2019 being less than $20,000. This meant that any business owner who paid themselves from dividends or didn't pay themselves at all were ineligible for this program. Worse yet, as mentioned above, only landlords can opt into the CECRA program, despite numerous attempts to have the program changed. We completely understand that opening the program up to tenants would increase the potential for fraudulent claims, but there is no amount of documentation the government could request that would deter us (the tenant) from applying if it meant we could receive the relief available. We want to help mitigate the impact of this virus on our communities, but we simply can't afford to do this without sufficient relief available to cover at least the expenses we aren't able to eliminate. 4. The moratorium on evictions came too late. Despite numerous groups requesting a block on commercial evictions for months, Ontario only enacted this policy on June 17th, being retroactive until May 1st. Imagine you are a business who was evicted on May 1st. You've likely let your staff go, sold off equipment, canceled utilities and services and wrapped up a number of elements of the business. A month-and-a-half later, the government retroactively reverses the ability of your landlord to have evicted you in the first place. How are you supposed to start up again? The relationship with your landlord is likely damaged and the risk of being evicted again at the end of the moratorium is almost certain. The Ontario government should have enacted this moratorium on commercial evictions in April. It should have been the first priority once they forced businesses to close. At this point, the only purpose the moratorium is serving is to delay additional evictions until September 1st. 5. There is confusion between federal, provincial and municipal governments as to which businesses can operate. Throughout our numerous attempts to communicate with our elected officials, it has become evident that no level of government wants to take responsibility for the damage being caused by the imposed closures and makeshift policies. In May, we called the Essential Businesses Hotline on three separate occasions to identify where a business like Ctrl V falls within the reopening plan / emergency order legislation. In each call, we received a different suggestion of how we could be classified. In all three cases, we were informed it was a "grey area" (as we aren't explicitly defined), but that provided we could open with social distancing and in a limited capacity, we should be fine to open. As a result, we announced the opening of our Waterloo arcade on June 1st, 2020 with an intent to open on June 4th. The Region of Waterloo's by-law office received two anonymous complaints about our intent. They deployed a Tobacco Enforcement Officer to visit our facility, who informed us that we were not permitted to operate. His reasoning was that we were "not explicitly listed as allowed to reopen". We explained that there were a number of other businesses permitted to operate at that time with a similar operating model and informed him of the responses we received from the Essential Businesses Hotline. He replied with, "That hotline is giving us such a problem. They continue to dole out incorrect information. They are just Service Ontario employees and have no capacity to offer legal advice or to tell a business when they can or can't open." He then conveyed that this is a "tricky situation", as he could see the merits of how a business like ours would be able to offer a safe environment for customers. He then contemplated that "perhaps if only five people came at a time", maybe it would be okay. He explained that normally, his sole discretion would be sufficient to determine if a business can reopen, but in this instance, he would have to go to his supervisor, or perhaps his supervisor may even have to go to the public health office. He also explained that the by-law office has a separate hotline to call to speak with the provincial government, but that the response they always receive is, "We [the provincial government] have simply written the legislation - we will not assist with interpreting it." He stated, "They [the provincial government] don't want to take on the liability." The by-law officer then went on vacation. We continued the conversation via email with one of his peers, who explained they had discussed internally, and could not permit us to open. The reasoning? "Let's say I let you open. And, let's say that a customer comes in and gets the virus, and then goes to visit a long term care home, and kills 30 people. [The government] is going to call me to the stand and ask me, 'Why did you let them open?' I'm going to have a difficult time being able to justify that you are similar to a rod and gun club, you know?" And this leads to the next major issue. 6. There is no defined process in place for a business to be assessed / submitted for placement in the Provincial Reopening Plan. In spite of us suggesting and requesting this for months now, and numerous unreturned calls to the local Public Health Office, there is no submission process for a business omitted from the legislation to be assessed for viability of operation. For a number of businesses in the tourism and recreation industry, there are far too many options for us to be explicitly listed - we understand this is an unreasonable ask of the government to think of every possible type of business. However, there should have been some formal process created which allowed businesses like Ctrl V to submit themselves for evaluation and a visit from Public Health to determine where in the reopening plan we actually fit. The "broad brush" that has been used to paint all of Ontario does not adequately support the variety of businesses that exist. Many businesses like ours, even if normal operations would be too risky, should have been able to reopen in some capacity, with the guidance of our local public health office. Instead, we're at the mercy of repurposed by-law officers who are individually interpreting incomplete legislation and public health offices who have never visited our facility to evaluate any risks or work with us to minimize them. Again, we completely understand why businesses like ours need to be closed at various stages or in a reduced capacity. We want to help our communities mitigate the spread of this virus. We just aren't able to make that sacrifice and not receive sufficient relief to cover the costs of our compliance with this request. 7. There is effectively no regional reopening plan. Next to the lack of sufficient relief programs, the lack of a regional reopening plan from the outset will be the biggest contributor to the impending financial collapse of the Ontario economy by the end of 2020. Take Northwestern Ontario for example. As of July 7th, 2020, that region consisting of ~230,000 people has seen only 39 positive cases of the virus since mid-March. That is 0.016%. And yet, businesses in that region have been under the same state of emergency and arbitrary lock down requirements as Toronto and Windsor. Only in the middle of June did the government finally start to deploy some sort of regional response. However, it didn't permit any region to move to Stage 3, primarily we presume as the government still doesn't have a clear picture of what Stage 3 contains. There has been almost no indication of what businesses are a part of Stage 3, or under what restrictions they will need to operate. Keeping this information concealed or not having it prepared this far into the pandemic makes it impossible for landlords, businesses and their staff to adequately plan for the coming months. 8. Communication from the Ontario provincial government has been scarce, at best. Yes, Premier Ford and a number of Ministers have been making a daily appearance where they make announcements and dodge questions from reporters. However, what we still don't have today, four months into this pandemic, is any sort of sense as to what is happening next. The government has not clearly identified or stuck to any concrete data milestones that would need to be hit in order for the next stage to be entered. They have routinely only given a few days notice before making another significant change to the Emergency Order. This has prevented businesses from being able to sufficiently plan their reopening, or give any confidence to landlords as to how long they're going to have to continue floating the cost of allowing their tenant to stay. There is very little concrete information for businesses to latch onto. A simple example of what we were looking for could have been: "Once a region has sustained a 14-day streak of less than 10 new cases per day, businesses in that region can move to Stage 3. Following that transition, if that region experiences seven (7) consecutive days of more than 10 new cases per day, that region would need to revert back to Stage 2." In light of anything of this sort, businesses, landlords and employees have needed to continue to react at the last minute and relay generic responses to the people that depend on them. And none of this even touches on the potential second wave. What will the trigger be for the government to shut everything down again? Will we reverse the stages? Will it happen regionally next time? The lack of making this information available indicates that the government either doesn't know, doesn't care if we know, or both. 9. Insurance companies have refused Business Interruption claims due to "Act of God", even though the pandemic is not the direct cause of the interruption to our business.

All businesses are required to pay for Commercial Insurance policies in order to operate. One of the clauses in many of these insurance policies is "Business Interruption", which allows claims in the event there is a significant and sustained interruption to typical operations. However, there is an exception which prevents claims if the interruption is a result of an "Act of God". Most insurance companies have classified this current interruption as a result of the virus, which would be an Act of God, and as such are refusing the claims being filed. However, any reasonable person can identify that the actual interruption is a result of the government-mandated shut down. The cancellation of birthday parties we experienced in early March was a result of the virus. The 100% drop in revenue for nearly four months is not.

If the relief programs put in place are not quickly modified, the long-term damages of small businesses being forced to close will have irreparable consequences to the Ontario and Canadian economy.

  • The CEBA loan must be entirely forgiven.

  • The CEBA loan amount must be proportional to the actual impact experienced by each business.

  • The CECRA program needs to be made available directly to the tenants, not the landlords.

  • The CECRA program needs to be made proportional to the actual impact experienced by a business. A static 50% is not sufficient for a business that has lost 100% of its revenue for four months.

We know that these programs are effectively being paid for out of tax-payer dollars. However, we are confident that the long term implications of causing our businesses to fail are going to be an order of magnitude higher than the cost to save them now. Failure to make the changes recommended above by August 31st, 2020 will inevitably result in the collapse of the Ontario economy, as hundreds of thousands of Ontario citizens lose their jobs and the innovative businesses like Ctrl V permanently disappear.


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