Some small businesses say they may have to refinance their government-backed pandemic loans at higher interest rates if Ottawa doesn’t extend the deadline to access the forgivable portion of the loans.
The Canada Emergency Business Account (CEBA) was introduced at the height of the pandemic to help small businesses that were forced to close or limit operations due to public health measures. The program offered interest-free loans backed by the federal government.
A business could apply for up to $60,000 through the program and would be forgiven up to $20,000 if the remaining balance was repaid by a certain deadline.
The government recently granted a small extension on that deadline, moving it from December of this year to January 18, 2024. Many companies have asked for the deadline to be pushed back a full year.
Den Thomson, who runs a small business in Alberta, said he won’t be able to repay his CEBA loan in time to qualify for the $20,000 forgiveness unless he takes out another loan to cover the $40,000 portion. He said he expects the loan to have an interest rate higher than the five percent of his CEBA loan.
“It seems like the government was there for us at the beginning, but now they just turned their backs on us,” Thomson said of the decision not to grant a longer extension.
The government argued that the 18-day extension would offer small businesses more “flexibility.”
It seems that the government is becoming a usurer.– Den Thomson, small business owner
“The additional flexibility we announced last week is significant support for small businesses that may still be struggling to make ends meet,” a spokesperson for Finance Minister Chrystia Freeland said in a news release.
Thomson, owner of The Busy Backyard Beave, a barbecue maintenance company in Sherwood Park, Alta. – would not you agree.
“It seems that the government is becoming a usurer,” he said. “There are many companies that cannot do it.”
Dan Kelly, president and CEO of the Canadian Federation of Independent Business (CFIB), said Thomson is not alone.
Nearly 900,000 businesses were approved for the program, which distributed just over $49 billion in loans. About a fifth had paid off their loans in full by the end of June.
According to a recent survey, 16 percent of CFIB member businesses said they would seek an additional loan from their financial institution to meet the forgiveness deadline. Another 9 percent said they were considering using home equity to help pay CEBA on time.
The government is giving businesses looking to refinance their CEBA loans until March 28 to qualify for the forgivable portion. This is intended to give companies additional time to reach an agreement with their bank, a government source told Breaking: on background.
Kelly said it amounts to the government pressuring companies to take on more debt.
“It’s essentially like telling a consumer who is struggling to pay their Visa bill to simply apply for a MasterCard to solve their problems,” he said.
“I can imagine what it would have been like if that was the advice for families struggling to pay household bills.”
Refinancing could pay off in the long run, expert says
Most financial institutions offer CEBA refinancing options, said financial expert Garron Helman. He launched a website outlining the options companies face, including a list of institutions that offer refinancing.
While companies will likely face higher interest rates if they choose to cover CEBA with new loans, Helman said, they will likely pay less in the long run. He said interest payments on a new $40,000 loan would be well below the $60,000 principle of a CEBA loan.
“It’s still a big plus. So it still makes a lot of sense to take out another loan so you can take advantage of the government forgiveness,” he said.
Helman said companies considering refinancing should approach their major financial institutions before looking elsewhere.
“They are not there to try to create new business as a result of their CEBA offerings. They just want to serve their customers as best as possible,” he said.
But Kelly said he’s concerned that some businesses won’t be able to qualify for new loans because higher costs and a sluggish economy have slowed their post-pandemic recovery.
“They may not have the credit at this stage because their business has not recovered enough to be able to move forward.” [get a loan],” he said.
Thomson said its business has not returned to pre-pandemic levels and is being hit by rising costs.
He said he used to buy rubber gloves for his employees for about $10 for a package of 100 pairs. She said he now pays her about $40 for 25 pairs.
“All of these costs have gone up over the last three or four years and now they’re basically throwing us to the wolves,” he said.
Nathan Hynes, owner of the Sand and Pearl Oyster Bar in Prince Edward County, Ont., said persistent high inflation has raised his costs and reduced his income.
“Everything is working except businesses because people no longer have the money to go out as much,” he said. “It’s a perfect storm.”
Hynes said taking out another loan is his “only option” to meet the forgiveness deadline.
Kelly said the government should consider pushing back the forgiveness deadline even further to give businesses more time to recover.
“Eighteen days won’t do any good. I haven’t met any business owners who feel like that will do them any good,” he said.
Hynes said the government should go even further and completely write off outstanding loans and offer tax credits to those who have repaid theirs. He refuted the claim that CEBA was a lifeline for businesses that were forced to close during the height of the pandemic.
“It was a cheap band-aid and now they are ripping it off at the worst possible time,” he said.