Crisis for Canadian Small Businesses Looming as CEBA loans come due

Canadian pandemic CEBA loans coming due are causing a crisis for small businesses

How pandemic Canadian Emergency Business Account (CEBA) loans coming due are a ticking time bomb.

by Mario Toneguzzi, Connect4Commerce contributor
Originally published September 12, and updated on September 21, 2023

Times have been tough for small businesses across Canada in the last few years and, for many struggling to stay alive, it’s going to get more difficult in the next few months. Many face the challenging deadline of January 18, 2024 to repay the Canada Emergency Business Account (CEBA) federal government loan which they took out during the pandemic to keep them in business.

On September 14, 2023, in an announcement, the government extended the deadline to repay the loan and receive the loan forgiveness, to January 18, 2024 from December 31, 2023. If the CEBA loan is not repaid by then, small business owners will lose the up to $20,000 forgivable portion and begin paying interest on a much larger loan balance. In addition, if the loan in not repaid by the deadline, the full amount will be converted to a three year term loan (extending the payment period by one year) with interest at 5% payable each month. All the outstanding principle is now due by December 31, 2026.

The number of small businesses in Canada at risk of closing their doors is staggering, warns the Canadian Federation of Independent Business (CFIB). The national organization says that nearly 250,000 small businesses will be placed in a tough position if the deadline is not extended – 19 per cent of all small businesses in Canada.

“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,” says Dan Kelly, the CFIB’s President.

Before the announcement, the CFIB warned “Financial institutions still have time to delay repayment processes if the government extends the CEBA deadline, but that window is closing. Ottawa needs to act now.” Included in the announcement was an extension for financial institutions to make their decisions when the refinancing application is made before the March deadline.

Given the challenges of the past few years, many small businesses may not be credit worthy and will have a hard time refinancing the loan through a bank in order to recieve the loan forgiveness.

Also, many small business owners are also discovering that in the fine print of the CEBA loan many of them unknowingly provided a personal guarantee on the loan, meaning even if the business closes its doors the owner is responsible personally for the debt.

That’s raising fears that this could lead not only to more business closures in the country but also to more personal bankruptcies.

During the summer, a joint letter was sent to Canada’s Deputy Prime Minister and Minister of Finance Chrystia Freeland, calling for more time to repay CEBA loans while keeping the forgivable portion. More than 250 business associations, representing thousands of businesses, from coast to coast and across all sectors signed on.

The CFIB was pushing the federal government to extend the repayment deadline for the CEBA loan to the end of December 2025 or at least 2024. While they got the final repayment deadline extended to the end of 2026, the loan forgiveness deadline was not significantly extended.

“Small businesses provide significant value to their local communities. Two-thirds — or 66 cents — of every dollar spent at a small business is reinvested locally, while only 11 cents spent at a multinational retailer stay local. Small businesses are an ecosystem: when you’re supporting one, you’re supporting many,” says Corinne Pohlmann, Executive Vice-President at the CFIB.

“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.”

A recent CFIB report entitled Back in Business? Spring Update on Small Business and CEBA found:

  • Of the nine in 10 small businesses who used CEBA, three quarters accessed loans between $40,001 and $60,000, while one quarter received loans of up to $40,000;
  • Only 10 per cent of CEBA users have repaid their loans;
  • 43 per cent of CEBA users risk missing the current repayment deadline by the end of 2023. Small businesses in the arts, recreation, and information (62 per cent), hospitality (61 per cent) and social services sectors (46 per cent) are most likely to miss the current CEBA deadline;
  • The smallest businesses with 0-4 employees are the most likely to miss the repayment deadline (49 per cent); and
  • Even among the 47 per cent of small business owners who indicate they will meet the 2023 deadline, half say they will struggle to do so, and two-thirds would like to see an extension of the repayment deadline.

“Small businesses have to deal with high interest rates, inflation and shortages of labour. Most recently, many were hit by the supply chain disruptions caused by the strike at BC ports. They’re suffering one blow after another. How much more do they need to endure before Ottawa realizes it needs to extend the CEBA loan repayment deadline to provide some reprieve?” says Christina Santini, Director of National Affairs at the CFIB.

Connect4Commerce welcomes Mario Toneguzzi as a regular contributer to our Canadian Small Business News Blog. Mario is a veteran of the media industry for more than 40 years and named in 2021 a Top Ten Business Journalist in the world and the only Canadian to be named.

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