Nearly 20% of Canadian small businesses risk closure if COVID loan deadline is not extended: Industry Group

A quarter of a million small businesses in Canada, about 19 percent of all small businesses in the country, may have to close next year if the government does not extend a deadline for repaying COVID loans, according to an industry group.

The Canadian Federation of Independent Business (CFIB) has one rack on June 7 stating that small businesses cannot meet those of Ottawa Deadline December 31 to repay the Canada Emergency Business Account (CEBA) loan could go bankrupt.

The CEBA program provided interest-free loans of up to $60,000 to small businesses and nonprofits. According to small business statistics for 2022 from Innovation, science and economic development Canadathere were about 1.19 million small businesses– those with 1 to 99 paid employees – in Canada as of December 2021.

The CFIB says that missing the deadline will cause companies to lose the forgivable portion of the CEBA loan—up to 33 percent—which will add up to $20,000 more in their debt and require them to pay 5 percent interest on the entire balance.

Companies have not yet fully recovered from the measures imposed during the pandemic, according to the CFIB.

“The message from small businesses is loud and clear: they need more time to pay back their CEBA loan. With only half of small businesses returning to normal sales, most businesses – particularly those in the arts, recreation, hospitality and services sectors – need additional runways,” said Dan Kelly, president of CFIB.

He said Ottawa has a limited window to allow financial institutions to delay repayment processes. That window is closing. Ottawa must act now,” Kelly said.

‘Future a risk’

A June 7 CFIB report Comeback? Spring Update on Small Business Debt and CEBA, indicates that only 10 percent of CEBA recipients have fully repaid their loans to date. A large proportion, 78 percent, have not yet paid at all.

Of the 9 in 10 small businesses that received a CEBA loan, three-quarters received between $40,001 and $60,000, and 25 percent received loans of up to $40,000.

The report suggests that 43 percent of CEBA loan recipients are at risk of missing current repayment terms. Most likely to miss that deadline are those in the arts, recreation and information sector (62 percent), hospitality (61 percent) and social services (46 percent).

Small businesses with four or fewer employees (49 percent) are most at risk of missing the repayment deadline. Even of the 47 percent of small businesses that say they will meet the 2023 deadline, half say they will struggle to make the payment, and two-thirds would prefer an extension of the repayment deadline.

“Most entrepreneurs want to repay the loan on time to secure the forgiving part, but many of them still cannot guarantee that they can do it. Our analysis suggests that most small businesses expect to struggle in the process, jeopardizing the future of their business,” said Simon Gaudreault, chief economist and vice president of research at CFIB.

“The closer we get to the end of this year, the more uncertainty a CEBA status quo will create for thousands upon thousands of companies.”

petition

CFIB has called on Ottawa to extend the CEBA loan repayment term to the end of December 2025, or at least to the end of 2024, and to consider additional debt forgiveness. The industry group has also asked the federal government to introduce an appeals process for recipients of CEBA loans now deemed ineligible.

The group has launched a petition and says it received more than 3,500 new signatures in May, bringing the total to more than 23,000 small business owners requesting extensions of loan repayment terms.

“The CEBA loan, which once served as a critical economic lifeline during the nearly two years of COVID restrictions, is now a source of immense stress and anxiety for small businesses. Ottawa needs to give them more time or we will see more ‘permanently closed’ signs in the coming months,” said Corinne Pohlmann, senior vice president of national affairs at CFIB.

“If nothing changes, the consequences will be serious not only for the affected companies, but also for their employees and the economy in general.”