Thousands of Restaurants at Risk of Closing as Date Looms for Paying Back Pandemic Loans

Patrons dine on a patio on King Street in Toronto on Sept. 28, 2021. Analysts say many restaurants are now in danger of going under as the CEBA loan repayment deadline looms. (The Canadian Press/Evan Buhler)

Thousands of restaurants across the country are at risk of closure with the Jan. 18 deadline to pay back pandemic-era loans just around the corner.

Restaurants Canada CEO Kelly Higginson said paying back even part of the Canada Emergency Business Account (CEBA) loans backed by the federal government is difficult if not impossible for many restaurant owners who simply don’t have up to $40,000 to reimburse Ottawa.

“They came out of the pandemic with heavy debt,” Ms. Higginson told The Toronto Star in a Jan. 9 article. “And then it’s been heavy headwinds ever since. The cost of doing business is through the roof.

A recent Restaurant Canada survey found that one in five restaurants with a CEBA loan said they'll likely be forced to shut down at least one location.

That means up to 4,000 restaurants with association membership could be at risk of shutting their doors, Ms. Higginson said.

The government guaranteed up to $60,000 in loans to eligible small businesses as part of its CEBA program back in 2020. Businesses that qualified received the money interest-free through their banks will have one-third of the loan forgiven if the remaining two-thirds is paid on time. Businesses that qualified for the full $60,000 loan must now pay $40,000 back by the Jan. 18 deadline.

Businesses that are unable to meet the Jan. 18 will be allowed an extra two months to refinance the loan, but will lose the one-third loan forgiveness. They will have to pay back the full amount by Dec. 31, 2026.

The original repayment cutoff was Dec. 31, 2022. The deadline has since been extended twice to give businesses a chance to scrape the necessary money together. Despite requests by agencies like Restaurant Canada to extend the grace period again, the government has said it is done waiting.

The government’s decision to maintain the deadline leaves “thousands of restaurants across the country, with limited options to avoid bankruptcy and recover from the ongoing financial challenges that arose during the pandemic,” Restaurant Canada said in a press release.

A spokeswoman for Finance Minister Chrystia Freeland said the federal government has been accommodating.

“The bottom line is that, if you are a small business and do not currently have the funds to repay your CEBA loan, you now have three years to repay it in full,” press secretary Katherine Cuplinskas wrote in an email. “The additional flexibility that we announced is significant support for small businesses who might still be struggling to make ends meet.”

Ms. Cuplinskas said roughly one-fifth of businesses have paid off their loans thus far.

‘Not Asking for a Hand-Out’

Restaurant Canada has said it is “disappointed” in the government’s response, saying that the food service sector was hit particularly hard by the pandemic lockdowns, forcing many to go into significant debt.

“We are not asking for a hand-out; we are asking for more time,” the agency said, noting that “the foodservice industry operates on traditionally low profit margins, rendering it further vulnerable to external pressures.”

A Restaurants Canada report last October revealed more than half of Canadian restaurant owners are either operating at a loss or are barely breaking even. Thirty-four percent of restaurants were in the red as of March of last year compared to seven percent prior to the COVID-19 pandemic, while 17 percent are only just breaking even compared with five percent four years ago, the report found. Only 12 percent of restaurant owners enjoy a double-digit profit margin.

“Your favourite mom and pop restaurant and local gathering place is at risk,” Ms. Higginson said in a press release. “If what the industry is telling us comes to fruition, Canadian communities will lose something very special, simply because of an arbitrary deadline.”

Record-high inflation and the rising cost of food are heavily impacting the bottom line of restaurants country-wide, causing owners to raise menu prices at record rates, the report said. The cost of food in particular is forcing menu prices to increase, and restaurants’ own costs are rising even more, forcing owners to walk a fine line of trying to recoup costs while not angering customers.

Canada food service industry analyst Vince Sgabellone predicted in the October report that the rising menu prices would cause many consumers to make adjustments to their spending at restaurants.

“Lower income consumers will feel the pricing pressures more, and thus will adjust their foodservice spending sooner and more drastically,” Mr. Sgabellone said in the report. “Others will moderate their restaurant spending by downsizing their meals, cutting back on extras, or searching for a deal. This will create downward pressure on average eater checks, even as menu prices rise.”

His prediction aligns with the results of a recent food spending survey from the Agri-Food Analytics Lab at Dalhousie University.

The lab’s end-of-year report found that one of the chief ways families will cut back on food spending in 2024 is by eating out less often. A total of 38.3 percent of Canadians say they are planning to eat out less often in the coming year while an additional 12.2 percent say they will not eat out at all.

The report indicated that of those who do intend to go out to eat, 39.4 percent will choose budget-friendly restaurants while 24.2 percent will not order side dishes or alcohol to keep the bill lower. Another 13.7 percent will split meals to reduce costs.