Canadian Finance Minister Chrystia Freeland said that roughly a fifth of the 900,000 small businesses that took out interest-free loans to survive the government’s civil rights abuses during the Wuhan coronavirus pandemic have not repaid the loans yet.
The Canadian Federation of Independent Businesses (CFIB) painted an even grimmer picture, estimating that 25 percent of borrowers have missed the January deadline.
Bankruptcies in Canada began surging as pandemic funding dried up in 2023, so the possibility that more than 200,000 small businesses might not repay their emergency loans is a bad omen for 2024.
CFIB and the Canadian Finance Ministry assured Reuters on Thursday that massive small business collapse was not in the cards, even for the companies that missed their pandemic loan repayment deadline. The optimistic view holds that those borrowers will sign up for long-term repayment programs that will charge them five percent interest over the next two years, but there are signs the slumping Canadian economy might finish off some tottering business models:
“We do anticipate … a rise in insolvencies over the next six months or so,” Stephen Tapp, chief economist at the Chamber of Commerce, said in an interview.
The Conference Board of Canada (CBC), an independent think tank, forecasts that consumer spending in 2024 on a per capita basis is expected to slump further from what was already seen last year.
CBC estimates first quarter corporate profits to nearly half to C$104.5 billion from a year ago, and the rest of the year will also be weaker than 2023 with companies hit by higher costs and drop in sales.
BNN Bloomberg warned in mid-January that many troubled Canadian small businesses would throw in the towel instead of piling up interest on balances they could not pay before the January 18 deadline for settling pandemic emergency loans. The deadline has already been pushed back several times because business groups said it was too difficult to meet.
Not only do the late payers have to pay five percent interest on the extended repayment plan, but they also lost $20,000 in loan forgiveness offered by the government for prompt repayment of their Canada Emergency Business Account (CEBA) loans.
Some small business owners told BNN they could not see the logic of remaining in business with lower customer traffic and tighter profit margins, facing an obligation they might be able to repay for loans they only needed in the first place because the government shut them down during the Wuhan coronavirus pandemic.
Another problem facing struggling Canadian small businesses is that if they do not repay their CEBA loans, commercial banks will consider them poor risks and refuse to loan them more money. This could make it difficult for troubled enterprises to survive for another year if the CEBA deadline is pushed back to 2025, as many have requested.
The Vancouver Sun spoke to more owners who said the CEBA loans intended to help them through the pandemic lockdowns might be what shuts them down now that the pandemic is over, inflation and costs are rising, and business is down.
“Some restaurants will probably fold — we don’t know how many — because they just don’t have the cash. This is the worst time to ask businesses, in January, to pay back a little, whether it’s a restaurant or retailer,” said B.C. Restaurant and Foodservices Association CEO Ian Tostenson.
Tostenson pointed out that restaurants in Canada usually count on revenues from a busy December holiday season to carry them through the lean early months of the year, so allocating those funds to pay off CEBA loans would set them up for financial disaster, especially since the 2023 holiday season was characterized by frugal customers and disappointing revenue.
Industry group Restaurants Canada estimated that more than half of Canadian restaurants are currently breaking even or running at a loss, which is why they unsuccessfully pleaded with the government to postpone pandemic loan repayment for another year. The total price tag of the loan program was more than $49 billion, so the Canadian government said the extended payment plan with additional interest was the only way it could delay repayment any longer.
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