Looming interest rate hikes could deal another major blow to COVID-battered SMEs, biz group says

Interest rate hikes
Interest rate hikes

The spectre of interest rate hikes is one more hurdle facing cash-strapped small businesses that have already been forced to take on heavy debt loads during the COVID-19 crisis, a major lobby group representing Canadian SMEs says.

With the Bank of Canada strongly hinting it plans to raise its key overnight rate of 0.25 per cent – perhaps as soon as its next scheduled announcement on Wednesday – in an effort to combat soaring inflation, businesses that have relied on loans to survive during the pandemic are expected to start feeling the pinch even more, says the head of the Canadian Federation of Independent Business.

Dan Kelly told OBJ Monday his organization’s research shows the average Canadian small business owner has taken on an extra $170,000 worth of debt over the last two years as pandemic-related restrictions and shutdowns have decimated many retailers and other enterprises.

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Kelly said that while much of that extra debt load is in the form of interest-free Canadian Emergency Business Account loans that must be repaid by the end of 2023, potential rate hikes still pack a wallop for retailers, restaurants and other mainstreet enterprises in other ways.

Consumers facing higher repayment costs for mortgages, cars and other merchandise could soon be forced to tighten their belts, meaning they’ll have less disposable income to spend at neighbourhood stores, bars and restaurants, he explained.

Inflation at 30-year high 

With the annual rate of inflation hitting a 30-year high of 5.1 per cent last month, it was already getting tougher for shoppers to justify spending money on dinners out and other non-essential purchases – a situation that will only grow worse if interest rates rise, Kelly added.

“Even if sales were back closer to normal, inflation is taking a huge bite out of almost every single business line,” he said. “Business owners right now are looking to find ways of reducing their costs.”

Kelly said his organization is urging its members to trim expenses wherever they can in an effort to stay afloat. He’s also urging governments to forgive debt that small businesses have taken on through programs such as CEBA.

“The more governments can do to lift some of the debt that businesses have inherited, the more of them that will be able to survive,” Kelly said.

“The more governments can do to lift some of the debt that businesses have inherited, the more of them that will be able to survive.”

Meanwhile, he said Ontario businesses are greeting the end of the province’s vaccine certificate system on Tuesday with a mix of “worry that we’ve seen this movie before” and “nervous optimism that we finally are putting the worst of the restrictions behind us.”

Kelly said that while he’s pleased to see governments easing public health measures, he believes it could be some time before many Canadians who’ve had the jab feel comfortable mingling with unvaccinated shoppers and diners.

“I don’t think anybody’s taking for granted the challenge that we have in restoring consumer confidence,” he said. “Because even with restrictions lifting, there are still thousands and thousands of people that will opt to stay at home.”

Kelly estimated about “one in a hundred” Ontario businesses will likely maintain proof-of-vaccine requirements even after they are no longer legally required to do so.

“There’s no question even some that will eliminate it will be worried about losing some customers that will feel nervous about being in a restaurant or a movie theatre with unvaccinated people,” he added. “I think there’s been a fear factor that’s been created.”

Kelly said governments need to consider extending relief programs for hard-hit businesses, and his organization is calling on public health officials to “shift their messaging” to a “live-with-COVID strategy” in a bid to help restore consumer confidence.

Businesses “need to get back to normal sales super fast if they’re going to have a hope of trying to survive the year,” he said.

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