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 who manage to repay their CEBA balance by saying the deadline will cause them hardships. 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 thinks 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 elements they’ll be able to pay it all back.
“The message from small businesses is loud and clear,” Dan Kelly, CFIB president said in a news release. “They need more time to repay their CEBA loan.”
Close to three quarters of small business owners want the CEBA deadline to be pushed back, with 30 per cent in favor of a one-year deferral, and 42 per cent hoping for a two-year deferral, the report said. Such a measure would provide some much needed relief, with 65 per cent of owners believing it would give them a fighting chance of surviving a tough economic climate.
As it is, the loan has become an added source of worry for small business owners now dealing with inflation, high interest rates and the threat of a recession, not to mention labor shortages.
“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,” Corinne Pohlmann, senior vice president, National Affairs, at CFIB said.
Further, he said the impact of those closures could spread beyond individual owners and hit the broader economy. The timing couldn’t be worse, as many economists expect Canada to enter a mild recession in the latter half of the year.
The CFIB is calling on the federal government to push the deadline for repayment of the loans to 2025, or at least 2024. They would also like Ottawa to increase debt forgiveness to at least 50 per cent of the loans. Further, they are asking the government to create an appeal process for around 50,000 businesses that received loans but have since been deemed ineligible.
“Ottawa must give (small businesses) more time,” Pohlmann said, “or we will see more ‘permanently closed’ signs in the coming months.”
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Wildfire smoke from Quebec is spilling down across Canada and into the United States, causing hazy skies and spurring air quality warnings from Ottawa, to Montreal, to Toronto and even New York City, which received the title of the most polluted major city in the world on the night of June 6.
Canada is on track to see its worst-ever wildfire season in recorded history if the rate of land burned continues at the same pace.
The country is experiencing an unprecedented amount of fire activity for this early in the season, scorching approximately 3.3 million hectares (8.2 million acres) — almost double the area of Lake Ontario — so far this year, according to Canadian government officials. That’s 13 times more than the average in the past decade for the same period.
Some 413 active fires are burning across the country, from British Columbia to Nova Scotia, prompting 26,000 Canadians to evacuate their homes. The most out-of-control blazes are raging in Quebec. Officials blame climate change for increasing the frequency and intensity of wildfires.
The federal government is projecting the potential for higher-than-normal fire activity across most of the country through to August. Warm and dry conditions will increase the risk in June, particularly for the area stretching from BC to western Quebec. —Bloomberg
- The Bank of Canada announced its latest interest rate decision this morning. One out of five economists surveyed by Bloomberg expect the central bank to raise rates by 25 basis points to 4.75 per cent, but other think policymakers will wait until next month to hike. Either way, Canadians might want to prepare themselves for interest rates to go up again. “The conditions to pause, which were laid out earlier this year, have now been violated,” said fixed-income strategists from the Canadian Imperial Bank of Commerce. The Financial Post will have full coverage of the rate announcement, starting when the decision drops at 10 am
- The Greater Vancouver Board of Trade hosts Victor Montagliani, FIFA vice-president and Concacaf president, for a discussion about the economic opportunities related to the World Cup and the impact of the games on the BC region
- Today’s data: Canadian merchandise trade balance, labor productivity; US goods and services trade balance
- Earnings: Dollarama Inc., Transcontinental Inc.
The rise of the variable-rate, fixed-payment mortgage
More rate hikes spell trouble for struggling Canadians
School may be out soon, but investing veteran Peter Hodson has a few lessons left for us. From chasing hot investment trends to analyzing too many things, here are a handful of popular mistakes to correct before sitting back with our Mai Tais.
Today’s Posthaste was written by Victoria Wells (@vwells80), with additional reporting from Financial Post staff, The Canadian Press, Thomson Reuters and Bloomberg.
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