Small businesses in Canada are running out of time to pay back government-backed pandemic-era loans, and failure to do so by the deadline could force nearly a quarter of a million to shut their doors for good, warns the Canadian Federation of Independent Business (CFIB).
Close to 250,000, or 19 per cent of small businesses, face closure if they can’t get an extension on paying back Canada Emergency Business Account (CEBA) loans, CFIB said in a new report released June 7. The repayment deadline is set for Dec. 31, and business owners who miss will lose out on having a portion of their debt forgiven. The price of missing the end-of-year limit is steep, with entrepreneurs facing an extra bill of up to $20,000 on top of what they already owe, while also facing a five-per-cent interest rate on their balance.
That added burden could have major implications for the sector because the vast majority, or 89 per cent, of small businesses took out CEBA loans during the pandemic to help them stay afloat, CFIB said. Of those, 68 per cent borrowed between $40,001 and $60,000, while 21 per cent took out $40,000 loans. Yet, months before the December deadline, only 10 per cent of business owners have been able to pay back what they owe.
CFIB estimates 43 per cent of businesses that took out the loans will miss the repayment deadline. Those with four employees or less are most likely to fail to pay on time, as are enterprises in the arts, recreation and information sectors, as well as in hospitality and social services.
But even those owners that do manage to repay their CEBA balance by the deadline say it will cause them hardship. Of the 47 per cent who plan to pay off their loans by Dec. 31, close to half say it will be a struggle. Another 59 per cent think having to come up with the cash will prevent them from getting their businesses back to pre-pandemic revenues — a feat that has proven difficult for many.
Indeed, half of small businesses still haven’t bounced back from COVID-19, with revenues stuck below their pre-pandemic normal. Many owners are also carrying elevated loads of debt, adding to their burden. For 40 per cent, those debt levels are considered “heavy” or “high,” and 28 per cent are unsure they’ll be able to pay it all back.
“The message from small businesses is loud and clear,” Dan Kelly, CFIB president said in a news release. “They need more time to repay their CEBA loan.”
Close to three quarters of small business owners want the CEBA deadline to be pushed back, with 30 per cent in favour of a one-year deferral, and 42 per cent hoping for a two-year deferral, the report said. Such a measure would provide some much needed relief, with 65 per cent of owners believing it would give them a fighting chance of surviving a tough economic climate.
As it is, the loan has become an added source of worry for small business owners now dealing with inflation, high interest rates and the threat of a recession, not to mention labour shortages.
“The CEBA loan, which once served as a pivotal economic lifeline during the nearly two years of COVID restrictions, is now a source of immense stress and anxiety for small businesses,” Corinne Pohlmann, senior vice president, National Affairs, at CFIB said.
Further, she said the impact of those closures could spread beyond individual owners and hit the broader economy. The timing couldn’t be worse, as many economists expect Canada to enter a mild recession in the latter half of the year.
The CFIB is calling on the federal government to push the deadline for repayment of the loans to 2025, or at least 2024. They would also like Ottawa to increase debt forgiveness to at least 50 per cent of the loans. Further, they are asking the government to create an appeal process for around 50,000 businesses that received the loans but have since been deemed ineligible.
“Ottawa must give (small businesses) more time,” Pohlmann said, “or we will see more ‘permanently closed’ signs in the coming months.”