Canadian businesses that relied on COVID pandemic loans to get by will soon have to repay the government — a feat that may leave many strapped for cash and force closures.
Successful applicants have at most six months before they must repay loans of upwards of $60,000, according to the Canadian Federation of Independent Business (CFIB).
The federal government launched the Canada Emergency Business Account (CEBA) in 2020 to counter the economic impacts of recurring COVID lockdowns.
Specifically, the loans helped cover expenses including patio expansions, personal protective equipment or other pandemic-related needs. This topped off the wage and rent subsidy programs also offered to businesses.
More than 220 financial institutions processed interest-free loans, leaving taxpayers liable for late payments.
CFIB President Dan Kelly said many businesses who accessed the loan feel the debt of that loan is weighing them down.
"There is near panic on the part of [nearly] half of Canada's small businesses about the looming deadline approaching for CEBA loans," he told the National Post.
"About 43% of small businesses are telling us they just don't have the money to repay their CEBA loans, and they're gonna have to take some pretty drastic action if they are required to repay them by the end of this year."
With loan repayment due on December 31, 2023, those who repay on time will receive loan forgiveness on a third of the amount they borrowed. Those who pay late will owe the total amount plus 5% interest on their remaining balance by the end of 2025.
Kelly advised companies to take advantage of the debt forgiveness, but the looming deadline may force many to consider 'fairly desperate options' to avoid late penalties.
"Some of them are looking at borrowing money to repay their loan, if they don't have it, and so there are all sorts of companies out there right now offering crazy, high-interest loans," he said.
As of January 26, 2022, the federal government gave $49.2 billion in CEBA loans to 898,271 businesses. Owing to the economic devastation wrought by the COVID pandemic and its corresponding lockdowns, the feds extended the loan program from $40,000 to $60,000. They also gave businesses another year to repay their loans and receive forgiveness.
According to a federal order paper question, Parliament identified over 50,000 businesses deemed ineligible for receiving the loan despite already receiving it from government coffers. They collectively owed over $2 billion and had to repay their loans immediately.
The National Post inquired about up-to-date numbers with the finance department but has yet to receive those figures at the time of writing.
Finance spokesperson Martin Bégin expects many businesses to wait until the last minute before repaying. "We will have a clearer indication of a business's ability to repay closer to the deadline," he said.
According to the CFIB, four in five businesses have yet to repay any portion of their loan. Kelly expects as many as 250,000 companies in Canada may close their doors over the issue.
"If the business goes down, Ottawa won't get even the $40,000 back. We could cut off our nose to spite our face," he said.
"I do believe that there are some serious risks to Ottawa getting its money back if this doesn't happen if they're not patient, continued Kelly." He recommended Ottawa extend the repayment deadline by at least another year.
Last August, the CFIB president confirmed many small businesses would have a 'rough recovery' ahead of them that will worsen if governments raise taxes.
According to the Canadian Taxpayers Federation (CTF), Canadians will see 'significant tax changes' in 2023. Their "New Year's Tax Changes" report outlined higher CPP and EI premiums by hundreds of dollars, $445 more in carbon taxes — a second carbon tax — and a 6.3% tax increase on booze.
A survey published earlier this year uncovered that nearly half of the licensed restaurants operate at or below profitability levels, costing the food-service industry about $750 million annually.
Starting April 1, the higher alcohol excise tax would cost the average casual dining restaurant an extra $30,000 annually on booze.
While the government loans and subsidies helped many businesses stay open, most companies are still not back to their pre-pandemic sales levels with the programs closed, according to a recent CFIB report.
Only 10% of Canada's small businesses would choose to file for bankruptcy if they could not keep their doors open. Nearly half (46%) of companies at risk of closure would decide to end their operations rather than go that route.
At the time, "54% of businesses reported below-normal revenues, and 62% still carried unpaid debt taken on during the pandemic." The latest available data estimated the average loan carrier is $158,000 in debt.