Businesses fear they’ll have to borrow more to repay government-backed pandemic loans

Some small businesses say they might have to refinance their government-backed pandemic loans at higher interest rates if Ottawa doesn’t extend the deadline for accessing the forgivable portion of the loans.

The Canada Emergency Business Account (CEBA) was introduced at the height of the pandemic to help out small businesses forced to close or limit their operations due to public health measures. The program offered interest-free loans backed by the federal government.

A business could apply for up to $60,000 through the program and up to $20,000 would be forgiven if the remaining balance was repaid by a certain deadline.

The government recently granted a small extension on that deadline — moving it from December of this year to Jan. 18, 2024. Many businesses have called for the deadline to be delayed by a full year.

Den Thomson, who runs a small business in Alberta, said he won’t be able to repay his CEBA loan in time to qualify for the $20,000 forgiveness unless he takes out another loan to cover the $40,000 portion. He said he expects that loan will come at an interest rate higher than the five per cent on his CEBA loan.

“It just feels like the government was all there for us at the beginning, but now they just turned their backs,” Thomson said of the decision not to grant a longer extension.

The government argued the 18-day extension would offer small businesses more “flexibility.”

It sounds like the government is turning into a loan shark– Den Thomson, small business owner

“The additional flexibility that we announced last week is significant support for small businesses who might still be struggling to make ends meet,” a spokesperson for Finance Minister Chrystia Freeland said in a media statement.

Thomson — who owns The Busy Backyard Beave, a barbecue maintenance business in Sherwood Park, Alta. — disagrees.

“It sounds like the government is turning into a loan shark,” he said. “There’s a lot of businesses that can’t do it.”

Dan Kelly, president and CEO of the Canadian Federation of Independent Business (CFIB), said Thomson isn’t alone.

Nearly 900,000 businesses were approved for the program, which distributed just over $49 billion in loans. About a fifth had paid their loans in full by the end of June.

According to a recent survey, 16 per cent of CFIB member businesses said they would be seeking an additional loan from their financial institution to meet the forgiveness deadline. Another 9 per cent said they were considering using home equity to help pay off CEBA on time.

The government is giving businesses looking to refinance their CEBA loans until March 28 to qualify for the forgivable portion. That’s meant to give businesses extra time to work something out with their bank, a government source told CBC News on background.

Kelly said it amounts to the government pushing businesses to take on more debt.

“It’s essentially like telling a consumer that is struggling to pay their Visa bill to just go out and apply for a MasterCard to solve their problems,” he said.

“I can imagine how that would have gone over if that was the advice for families that were struggling to repay their household bills.”

Refinancing could pay off in long run, expert says

Most financial institutions are offering CEBA refinancing options, said financial expert Garron Helman. He launched a website that outlines the options facing businesses, including a list of institutions offering refinancing.

While businesses likely will face higher interest rates if they chose to cover CEBA with new loans, Helman said, they’ll likely pay less over the long run. He said the interest payments on a new $40,000 loan would fall well short of the $60,000 principle of a CEBA loan.

“It’s still a huge advantage. So it still makes a lot of sense to take another loan to be able to take advantage of the government forgiveness,” he said.

Helman said businesses considering refinancing should approach their primary financial institutions before looking elsewhere.

“They’re not there to try to create new business as a result of their CEBA offerings. They want to just service their clients as well as possible,” he said.

But Kelly said he worries that some businesses won’t be able to qualify for new loans because higher costs and a sluggish economy have held back their post-pandemic recovery.

“They may not have the credit at this stage because their business hasn’t recovered far enough in order for them to [get a loan],” he said.

Thomson said his business hasn’t returned to pre-pandemic levels and he is being hit with rising costs. 

He said he used to purchase rubber gloves for his employees for about $10 for a pack of 100 pairs. He said he pays about $40 for 25 pairs now.

“All these costs have gone up over the past three to four years and now they’re throwing us basically out to the wolves,” he said.

Nathan Hynes, owner of the Sand and Pearl Oyster Bar in Prince Edward County, Ont., said persistent high inflation has driven up his costs while driving down his income.

“Everything’s up except for business because people don’t have any money to go out as much anymore,” he said. “It’s a perfect storm.”

Hynes said taking out another loan is his “only option” to meet the forgiveness deadline. 

Kelly said the government should consider delaying the forgiveness deadline even further to give businesses more time to recover.

“Eighteen days is going to do absolutely nothing. I’ve not met a single business owner that feels like that will be helpful to them,” he said.

Hynes said the government should go even further by writing off the outstanding loans entirely and offering tax credits to those who have paid theirs off. He refuted the claim that CEBA was a lifeline for businesses forced to close during the height of the pandemic.

“It was a cheap Band-Aid and now it’s being ripped off at the worst possible time,” he said.