Small businesses in Canada are running out of time to pay back government-backed pandemic-era loans, and failure to do so by the deadline could force nearly a quarter of a million to shut their doors for good, warns the Canadian Federation of Independent Business (CFIB).
Close to 250,000, or 19 per cent of small businesses, face closure if they can’t get an extension on paying back Canada Emergency Business Account (CEBA) loans, CFIB said in a new report released June 7. The repayment deadline is set for Dec. 31, and business owners who miss will lose out on having a portion of their debt forgiven. The price of missing the end-of-year limit is steep, amounting to an extra bill of up to $20,000, plus an interest rate of five per cent on their balance.
That added burden could have major implications for the sector because the vast majority, or 89 per cent, of small businesses took out CEBA loans during the pandemic to help them stay afloat, CFIB said. Of those, 68 per cent borrowed between $40,001 and $60,000, while 21 per cent took out $40,000 loans. Yet, months before the December deadline, only 10 per cent of business owners have been able to pay back what they owe.
CFIB estimates 43 per cent of businesses that took out the loans will miss the repayment deadline. Those with four employees or less are most likely to fail to pay on time, as are enterprises in the arts, recreation and information sectors, as well as in hospitality and social services.
But even those owners that do manage to repay their CEBA balance by the deadline say it will cause them hardship. Of the 47 per cent who plan to pay off their loans by Dec. 31, close to half say it will be a struggle. Another 59 per cent think having to come up with the cash will prevent them from getting their businesses back to pre-pandemic revenues — a feat that has proven difficult for many.
Indeed, half of small businesses still haven’t bounced back from COVID-19, with revenues stuck below their pre-pandemic normal. Many owners are also carrying elevated loads of debt, adding to their burden. For 40 per cent, those debt levels are considered “heavy” or “high,” and 28 per cent are unsure they’ll be able to pay it all back.