Feds extend deadline a second time for COVID loan repayment

Small businesses that received the emergency COVID loan have been given a second extension to their repayment deadline by the federal government.

On Thursday, Prime Minister Justin Trudeau announced a one-year extension for delinquent businesses to repay the Canada Emergency Business Account (CEBA) loan without interest.

"We know that some need a bit more runway," he said after government officials received frequent calls from businesses seeking additional time.

Many have yet to recover from the devastation wrought by the government's pandemic response, as only one in five (21%) businesses have fully repaid the loan as of May 31.

According to the Canadian Federation of Independent Business (CFIB), fewer than a fifth (18%) of its members who borrowed have repaid the loan to date. It estimated that 69% of members who applied for loans could not repay what they borrowed, reported Blacklock's Reporter.

The loans covered expenses, including patio expansions, personal protective equipment and other pandemic-related needs. It also topped off the wage and rent subsidy programs offered to businesses.

The feds created CEBA in 2020 to keep businesses afloat amid recurring COVID lockdowns. But high inflation as well as supply chain and hiring woes have left business finances in a ruinous state.

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.

"In general, loan recipients tended to be young businesses," said the report SME Profile: Recipients Of The Canada Emergency Business Account.

"There is near panic [for] half of Canada's small businesses about the looming deadline for CEBA loans," CFIB President Dan Kelly told the National Post in June.

"About 43% of small businesses are telling us they just don't have the money to repay their CEBA loans," he said, with some likely to take high-interest loans to avoid late penalties.

According to Blacklock's Reporter, 18% of applicants surveyed said they had already borrowed on lines of credit, took out second mortgages and ran up credit card balances to stay afloat. 

According to a Federation report published in June, "54% of businesses reported below-normal revenues, and 62% still carried unpaid debt taken on during the pandemic." 

Between April 2020 and June 2021, 898,271 businesses received $49.2 billion in taxpayer assistance.

A survey published earlier this year uncovered that nearly half of the licensed restaurants who accessed the loan operate at or below profitability levels, costing the food-service industry about $750 million annually. 

The latest available data estimated the average loan carrier is $158,000 in debt.

The federal government initially offered small businesses upwards of $40,000 interest-free with a quarter forgiven on repayment. Still, after the first extension in January 2022, the federal government expanded the loan terms to $60,000, with a third dismissed on repayment due December 31, 2023.

Borrowers may now claim the third forgiveness with repayment by March 28 — should they refinance by January 18. Otherwise, they renew their notes at 5%, payable December 31, 2026. 

"It is helpful that the government has given business owners an additional year to repay the full balance of the loan, but the plan misses the most central issue — the loss of the $20,000 forgivable portion," said Kelly in a statement. 

He added that losing access to the forgivable portion would jeopardize the future of up to 250,000 small businesses.

"The extension of the forgivable deadline by a few weeks will be of very little value to the thousands of small business owners who just don't have money to repay now," continued the Federation. 

Finance Minister Chrystia Freeland earlier said Cabinet knew borrowers were at risk. 

"Small business owners are resilient, and our government will continue to help them," she told reporters. "Their survival is key."

As of writing, the CEBA default rates are unknown. 

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