August 28th, 2023
Small Businesses Need More Time to Recoup
Small businesses are the engine that drives Canada’s economy. As of December 2021, there were 1.21 million employer businesses in Canada, and of those, the vast majority (1.19 million, or 98 percent) were small businesses. They employ two-thirds of the labour force across the country and contribute over one-third of our GDP.
When the Covid-19 pandemic hit, a significant number of small businesses were forced to change the way they interacted with their customers, and many were hit particularly hard, especially those in the tourism and food service industries. For those businesses, Canada Emergency Business Account (CEBA) loans were a lifeline that would allow them to get through the worst public health emergency in our lifetime and bounce back when things returned to normal. The vast majority of small businesses, 90 percent, took CEBA loans. CEBA allowed eligible businesses to take loans of $40,000, followed by an optional top-up of $20,000 if they required additional assistance. Businesses can be forgiven up to $10,000 if they took the $40,000 loan, or $20,000 if they took the additional top-up, providing that they repay prior to December 31st, 2023. While businesses are starting to recover, this will have a serious impact on many who are still trying to get back to normal, particularly those who are relying on that portion of their loans to be forgiven. If they are unable to pay in full those businesses most affected will have a larger debt load to pay back, with a five percent interest rate for payments starting on January 1st, 2024, with the full amount due by end of year 2025.
The Canadian Chamber of Commerce, along with thousands of small business owners and 280 industry associations, are calling on the Federal government to provide an extension for small businesses to repay their CEBA loans. Many businesses are still operating at a loss following the pandemic and are still trying to recoup.
A recent Canadian Federation of Independent Business (CFIB) data survey indicates that only 10 percent of businesses that took on a CEBA loan have repaid them in full so far. Further, 47 percent of those businesses surveyed indicate that their debt load is currently manageable and believe they can pay back their CEBA loans by the end of the year. Those in the worst financial situations are, understandably, businesses in the tourism & hospitality and arts & recreation sectors. While 44 percent of small businesses reported returning to normal revenues, and nine percent reported above normal revenues, 47 percent were still making less revenue than prior to the pandemic. Eight in ten have not started repaying their CEBA loans back yet, and four in ten risk missing the current repayment deadline. Of those businesses least likely to be able to repay their CEBA loans are micro businesses with four or less employees.
The CEBA repayment schedule, as it is currently being enforced, puts 250,000 small businesses at risk. Those businesses relied on these loans to get through the worst of the COVID-19 pandemic and are recovering slower than anticipated, made worse by the inflationary pressures that are affecting all of us. Based on the data from the CFIB, of those businesses that do not think they cannot repay their CEBA loan by the current deadline, 22 percent would prefer a one-year extension and 71 percent would prefer a two-year extension. An extension of one-to-two years would greatly benefit small businesses who are still struggling to recover from the pandemic.
An extension to the CEBA deadline would be particularly helpful for food service operators and restaurants and those in the tourism industry. Half of Canadian food service businesses are currently operating at a loss or just breaking even, compared to 12 percent pre-pandemic, according to Restaurants Canada. The Tourism Industry Association of Canada indicates that 45 percent of Canada's tourism businesses are likely or somewhat likely to close within three years because of mounting debt loads, much of which they were required to take on during the pandemic to stay afloat in the first place.
A simple one- or two-year extension to CEBA repayments would have a minimal effect on government coffers but would give small businesses the best chance possible to recover from the pandemic.