Down Debt

Business on the rise amid COVID-19 debt repayment concerns


The team of 40 workers from the Canadian Federation of Independent Business that receives calls from members of the association has heard a lot about loans.

Federal loans, in particular.

As the time passed until 2022, the deadline for these companies to repay federal pandemic loans on favorable financial terms as well. And with that, small businesses got worried about how to repay emergency loans.

Then, two weeks before Christmas, a little giveaway: Finance Minister Chrystia Freeland said in her economic and budget update that the deadline would be extended.

Now the calls to the CFIB team have changed: How long do I have to pay back and what are the rules?

“And we don’t have an answer to that yet,” said CFIB President Dan Kelly.

“It’s very clear to me that this was a last minute addition to the Fall Economic Update as there are no details.”

Since its inception, the Canada Emergency Account for Businesses has provided loans worth C $ 48.4 billion to nearly 886,000 businesses, the majority of which, almost 41%, are located in Ontario.

The government provided the money quickly so that businesses could use it for various expenses, such as rent, electricity, and payroll.

When the government first created the CEBA program at the start of the pandemic, it set a repayment deadline of December 31, 2022, for anyone who wanted to take advantage of zero interest and get a portion of the loan canceled.

Kelly said the deadline made sense when it looked like the country would enter a lockdown to slow the spread of COVID-19 and come out in a matter of weeks or months.

But he said public health restrictions affecting businesses and nonprofits have continued as long as the pandemic has affected their bottom line. As restrictions eased, the Omicron variant has injected new uncertainty as to what could happen.

“In fact, we are urging the government to double and increase its support for small and medium-sized businesses,” Kelly said. “Depending on where things are going, we may need an even bigger CEBA loan to help businesses get by.”

The CFIB had pushed the federal government to extend the repayment deadline to December 2024 to help more beneficiaries take advantage of the interest-free and cashback options.

The recommendation was based on a survey of CFIB members that suggested it would take them two more years to become profitable again.

Kelly said he believes about half of small businesses may be able to start paying off their CEBA loans during 2022. The other half may take longer for businesses in the retail industries. , hotels, tourism and services.

“We need details on when these loans are due so businesses can start planning,” Kelly said.

The baseline data for the Canadian economy heading into the new year, however, is largely positive.

The labor market at the end of the summer recouped all the losses since the start of the pandemic last year and the unemployment rate in November was within 0.3 percentage point of the pre-pandemic level recorded in February 2020.

The economy has also grown to such an extent that Statistics Canada estimated total economic activity to be 0.5% below pre-pandemic levels in October. The November reading lands a day before Christmas Eve.

But underneath lies a doubt.

A Statistics Canada report released last month found that 15.1 percent of businesses expected to have “major challenges” repaying government assistance in the next 12 months.

The Quarterly Economic Report found that most of the companies with debt concerns were in high-contact service industries such as accommodation, food services, arts and recreation, which did not still fully rebounded after the economic downturn of last year.

Failure to meet the repayment deadline does not mean that the government will force a business to repay funds, regardless of their financial situation. Instead, a recipient would lose the ability to have part of the loan canceled and begin to face an annual interest rate of five percent.

CEBA loans aren’t the only small business debts. Kelly said surveys of its members suggest they added, on average, $ 170,000 in debt during the pandemic.

These are partly unpaid rents or unpaid invoices to suppliers. Part of it is credit cards which expose homeowners to higher interest rates.

Together, that’s why Kelly said he is monitoring what will happen during 2022. Kelly said some business owners can look at their books and just hand over their keys if they don’t see a path to the door. profitability.

This report by The Canadian Press was first published on December 19, 2021.