The January 18 deadline to repay loans from Canada’s Emergency Business Account (CEBA) program is “going to strangle loads of businesses,” said Dan Kelly, the president of the Canadian Federation of Independent Business (CFIB).
In 2020, Ottawa launched CEBA, which granted struggling businesses loans of up to $60,000 CAD to help them stay afloat, particularly through the unpredictability of government-enforced lockdowns. The federal government said if borrowers repaid by a certain date, up to $20,000 CAD of the loan would be forgiven.
“This is literally the straw that will break the backs of thousands and thousands of businesses.”Dan Kelly, CFIB president
However, a number of Canadian businesses are still in bad financial health as they deal with worsening macroeconomic conditions, rising costs, and debt carried over from the pandemic, said Kelly.
“The banks will not lend them more at this particular point in time because their balance sheets are not in order,” Kelly said. “This is literally the straw that will break the backs of thousands and thousands of businesses.”
He added that between one-fifth to one-third of companies will not be in a financial position to make the loan forgiveness deadline.
Both Kelly and David Gens, CEO of Vancouver-based FinTech lender Merchant Growth, said it’s unlikely that Ottawa will extend the deadline for partial loan forgiveness given the date is soon approaching.
“We just got to be realistic at this point,” said Gens. “The people who have been most proactive in trying to meet this obligation are effectively going to be punished if [Ottawa moves] it again.”
“The additional flexibility that we announced is significant support for small businesses who might still be struggling to make ends meet,” finance ministry spokesperson Katherine Cuplinskas said in an emailed statement.
BetaKit requested responses from Finance Minister Chrystia Freeland but did not receive them by time of publication. Cuplinskas said by phone that in recognition of businesses who aren’t able to make the January deadline, Ottawa gave businesses an additional two months to seek refinancing options.
In September, the federal government pushed back that deadline to January 18 and gave borrowers looking to refinance an extended deadline until March 28.
Nearly 900,000 firms took out CEBA loans during the pandemic, with the government doling out more than $49 billion CAD under the program. Businesses that can’t make the January deadline this year still have until December 31, 2026 to repay but the five-percent interest rate will begin accruing after the 18th.
So far, about 28 percent of businesses that took the CEBA loan have repaid it back to the government, and a majority of outstanding loan holders (66 percent) said they would be able to pay it back by the end of 2026, according to the Canadian Chamber of Commerce.
Fifteen percent of active borrowers said they will not have the liquidity or access to credit to repay their loans in two years, while 19 percent said their situation is unknown, the Chamber’s data showed.
“The people who have been most proactive in trying to meet this obligation are effectively going to be punished if [Ottawa moves] it again.”David Gens, Merchant Growth
Other domestic FinTech lenders, such as Swoop Funding, OnDeck, and Levr.ai, are promoting CEBA options alongside Merchant Growth. Major banks, which the government tapped initially to dole out CEBA loans, are also offering refinancing options to their clients.
Merchant Growth announced at the beginning of December that it received a forward flow facility of $300 million CAD from Fortress Investment Group, based in New York City, to use as part of its plans to help companies refinance their CEBA loans.
The issue with using “alternative lenders,” said Kelly, is Ottawa stipulates that borrowers need to apply for refinancing with their original institution before the deadline to have part of their debt forgiven, though they are not required to accept those initial terms.
“Plus, unfortunately, many of these alternative financing vehicles have incredibly high rates of interest,” he said, adding that CFIB ran the numbers.
“If your interest rate is over 20 percent, you’re better off actually foregoing the $20,000 forgivable portion and simply just accepting the three year repayment plan at five-percent interest.”
Gens said Merchant Growth is encouraging CEBA borrowers to choose the options that are best for them, including trying to secure refinancing from the big banks.
“We are here if you can’t go to [your bank],” Gens said.