Businesses may have to ‘pull the plug’ after CEBA deadline comes and goes, small biz advocate says

CEBA small business

Time is ticking for small businesses to pay back CEBA pandemic loans — and advocates say the outcome for some could be devastating.

Nearly 900,000 organizations applied for and received a Canada Emergency Business Account loan during the COVID-19 pandemic. A total of $49.2 billion was disbursed through the program, which offered up to $60,000 in interest-free loans to help businesses and non-profits survive pandemic-related shutdowns and slowdowns. Up to one-third of the loan can be forgiven if businesses pay back the outstanding amount by Jan. 18, 2024.

With that deadline only days away, community and small business advocate Michael Wood says many Ottawa businesses are facing “incredibly challenging” times.

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“Some businesses had to take CEBA money just to keep the lights on,” explained Wood. “They weren’t making any money during the pandemic.”

Businesses that miss the deadline would lose out on the forgivable portion of the loan and see their debt converted to a three-year loan with interest of five per cent annually. Businesses were also offered the chance to refinance their loans with a financial institution. Those that did were given until March 28, 2024, to get that in order and be eligible for the forgivable portion of the loan.

But from barbers and bridal shops to restaurants and retailers, Wood said he’s hearing outcry as businesses struggle to meet the January deadline. With increasing costs and economic pressures, he says many businesses just aren’t seeing the growth needed to make the repayment.

“If we say, for example, that pre-pandemic a business made $500,000 gross revenue, you need a 12-per-cent increase to pay the $60,000 loan that was used to cover the bare essentials. 

“So the problem is that, in order to keep recovering, you had to make more than that, but most aren’t,” he continued. “Nobody’s really seeing a big bump in sales. This is where people are struggling.”

“I’m hearing business owners tell me, ‘I just don’t have the money.’”

The Canadian Federation of Independent Business (CFIB), along with business groups such as the Ottawa Coalition of Business Improvement Areas (OCOBIA) and Restaurants Canada have spent months advocating for an extension to the repayment deadline. But CFIB president and CEO Dan Kelly told OBJ Tuesday he’s not expecting a change of heart from the federal government, which extended the deadline previously.

“With the deadline approaching, I’ve been communicating with businesses that there will sadly not be a last-minute reprieve here; it looks locked and loaded,” he said. “It looks like (Jan.) 18th will come and go without any change.”

Looking ahead at the challenges that will face business owners, Kelly said there are several “categories” that businesses fit into. The first category consists of businesses that received the loans without meeting the criteria. Of the approximately 90,000 businesses that received CEBA loans, Kelly says about 50,000 were deemed ineligible “years after they spent” the money. These businesses were required to repay the loans in December. 

Of the eligible businesses that received CEBA loans, Kelly said about one-third have either repaid their loans or have set aside money to meet the deadline and qualify for the forgivable portion.

Another third of businesses are looking to borrow money to repay the loans, Kelly said, which will extend their repayment deadline until March 28, 2024.

But the last third, the one Kelly said he is “most worried about,” are businesses that he says will “likely miss the deadline altogether.”

These business owners have been unable to borrow money, Kelly said, and on Jan. 19 will see their debt turn from $40,000 to $60,000, “in most cases.”

“For that group, the government has an extended repayment plan for three years at lower interest … So it doesn’t have to be paid in February, but I worry it will still not be enough for businesses,” he explained. “That’s the part that’s worrisome because we’re expecting at least a couple hundred thousand businesses across Canada to miss it.”

Businesses already have a lot of rising costs on their plates, Kelly noted, that make repayment even more difficult.

For example, as of Jan. 1, employers faced an increase to their payroll budgets due to employment insurance (EI) hikes and adding a second earnings limit to Canada Pension Plan (CPP), the CFIB said.

This year, total employer contributions for CPP and EI alone could amount to $5,524 per employee, according to CFIB.

In addition, many consumers are also cash-strapped and unable to support small businesses. At a time when business owners need their neighbours to shop local, Wood said Ottawa is stuck in a “catch-22.”

“Everybody is kind of at a loss of how to support. It’s important to continue to support people, and remember that (business owners) are people in our community,” explained Wood. “But between inflation, cost of living … There are rising costs of rent, food, utilities, all of these compounding issues, so how can people go out to that local restaurant or bar, like I used to when I was young?

“I’m trying to figure out myself how they survive moving forward and I just don’t have an answer.”

One business in Carp has taken to social media with a crowdfunding campaign. In a Facebook post, the Gambit Music Academy said the struggle of the pandemic “is not nearly over for most of us” and is offering gift certificates for music lessons in exchange for donations.

Given the circumstances, Wood said he understands that many small business owners “feel the government didn’t do things properly.” 

“These were truly unprecedented times and, in the government’s defence, it was their first time going through this. If this our 15th pandemic, we’d be saying, ‘Figure this out better,’” he explained. “But this is recovery for the first time. Everybody played ball to keep everyone safe and now we need (the government) to play ball with us to keep the doors open.”

Kelly said CFIB is continuing to lobby for extensions, increased leniency with ineligible loan-holders, reviews of administrative issues, and added resources for struggling businesses. Kelly said he’s also worried about businesses that have difficulty proving that they have applied for a loan.

“Banks and the government have not provided great information back to businesses over the last few weeks, so lots of businesses have to show they applied for a bank loan and I suspect many will be questioned,” he explained. “That’s going to be one of the struggles. Each business will have to come up with their own plan, there’s no one size fits all, but certainly the government could make it easier.”

There are many businesses, both within Ottawa and across the country, that “if given more time, would live to see another day,” Kelly said. 

“There’s not going to be a ‘hail Mary’ here for us to achieve, so it’s very sad,” said Kelly. “I think the government will regret not extending the deadline and giving businesses more time.”

So far, business owners are considering everything from layoffs and price increases to closing their doors for good, he continued. 

“It’s so sad and we’re expecting some really turbulent economic times across Canada over the next number of months.

“I don’t think there will be an immediate collapse in the spring, but I do believe that hundreds of thousands of businesses will have to slowly pull the plug,” Kelly continued. “It’s very sad that an additional $20,000 could (mean) failure for countless businesses.”

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