Nearly 20% of Canadian Small Businesses Risk Closing if COVID Loan Deadline Not Extended: Industry Group

Businesses have not fully recovered from pandemic

A storefront on Roncesvalles Avenue displays a "for lease" sign as part of a protest against the Ontario government's pandemic lockdown rules, in Toronto on Nov. 24, 2020. The Canadian Press/Jody White

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

The Canadian Federation of Independent Business (CFIB) issued a statement on June 7 stating that small businesses that cannot meet Ottawa’s Dec. 31 deadline to repay the Canada Emergency Business Account (CEBA) loan could be forced out of business.

The CEBA program provided interest-free loans of up to $60,000 to small businesses and not-for-profits. According to small business statistics for 2022 from Innovation, Science and Economic Development Canada, there were some 1.19 million small businesses—those with 1 to 99 paid employees—in Canada as of December 2021.

The CFIB says missing the deadline will see businesses lose the forgivable portion of the CEBA loan—up to 33 percent—which will add up to $20,000 more to their debt and require them to face 5 percent interest on the full balance.

Businesses have not 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 repay their CEBA loan. With only half of small businesses back to normal sales, most businesses—particularly in the arts, recreation, hospitality and the service sectors—will need extra runway,” said Dan Kelly, CFIB president.

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

‘Future a Risk’

A CFIB report dated June 7, Back in Business? Spring Update on Small Business Debt and CEBA, indicates that only 10 percent of CEBA recipients have fully repaid their loans to day. A large portion, 78 percent, have not yet made any payments at all.

Of the 9 in 10 small businesses that obtained 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 the current repayment deadline. Most likely to miss that deadline are those in the arts, recreation, and information sectors (62 percent), hospitality sector (61 percent), and social services sector (46 percent).

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

“Most business owners want to repay the loan on time in order to secure the forgivable portion, but many of them still can’t guarantee they can do it. Our analysis suggests that most small firms expect to struggle in the process, putting their business’ future at risk,” 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 and thousands of businesses.”

Petition

CFIB has called on Ottawa to extend the CEBA loan repayment deadline 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 implement an appeal process for CEBA loan recipients that are now considered ineligible.

The group has launched a petition and says it received over 3,500 new signatures just in May, bringing the total to over 23,000 small business owners asking for an extension to the loan repayment deadline.

“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. Ottawa must 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 just for affected businesses, but also for their employees and the wider economy.”