Fears of bankruptcy as small businesses stare down federal CEBA loan deadline

Small businesses and consumers are starting the new year with shaky confidence in the economy, according to a new Bank of Canada survey.

Long-standing financial challenges for small businesses are compounded by a looming deadline: on Jan. 18, the bill to pay back billions of dollars in emergency pandemic loans from the federal government is due.

The central bank’s fourth-quarter outlook reveals economic pessimism and uncertainty. About 60 per cent of consumers and 38 per cent of businesses surveyed believe a recession will hit Canada in 2024.

"While many Canadians are experiencing rising levels of financial stress, this stress is higher among those who typically live paycheque to paycheque,” the Bank of Canada said.

Independent business owners are among those feeling the squeeze. Some 900,000 retailers and merchants took advantage of the Canada Emergency Bank Account (CEBA) program that was introduced during the pandemic to help businesses weather the financial storm caused by COVID-19 lockdowns.

Under the program, businesses could apply for up to $60,000 in interest-free loans. In total, the federal government loaned out $49 billion in CEBA funds.

It has also extended the deadline twice.

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Initially, the pandemic loans were due on December 31, 2022, but the repayment date was pushed back until the end of 2023 because of the surge of the Omicron variant, which led to another round of pandemic restrictions.

Last September, Finance Minister Chrystia Freeland announced another extension of 18 more days. That grace period comes to an end on Thursday.

Under CEBA, any merchant that repays the bulk of the bill by the deadline will have up to $20,000 forgiven. Businesses that can’t make the payments will have until 2026 to repay the amount, but a 5 per cent interest applies over the next three years.

On Tuesday, NDP Leader Jagmeet Singh asked the government to extend the initial deadline.

“From the hard years of the pandemic to the current cost-of-living crisis, small businesses have been through a lot and, right now, they need someone to have their backs,” Singh said in a press release.

Katherine Cuplinskas, spokesperson for Finance Minister Chrystia Freeland, said that the program is flexible enough to help businesses struggling to make ends meet.

“The bottom line is that, if you are a small business owner and do not currently have the funds to repay your CEBA loan, you now have three years to repay it in full,” Cuplinskas said in an email statement to CTV News.

So far, more than half of CEBA funds have already been repaid. Still, thousands of merchants face bankruptcy, according to the Canadian Federation of Independent Business (CFIB).

CFIB President Dan Kelly says the federal government should extend the deadline again.

“Canada has had the longest lockdown of any country in the entire world, and as a result, businesses have mountains of debt — not just in CEBA loans,” said Kelly.

“They’re not back to recovery,” he added.

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Ottawa restaurateur Rod Castro says the federal bill is due at the most challenging time of year.

In January, fewer customers are walking through the doors of his two restaurants, 10 Fourteen and Pubblico Eatery.

Paying back CEBA will cut deeply into the financial boost his restaurants gained during the holiday rush.

"We're not asking for a handout … we are asking for time,” said Castro, who's considering taking out another type of loan at a higher interest rate to repay his CEBA commitments.

"We're playing Tetris. That's the best way to put it. (We're) trying to figure out what is our best option,” he said.

Not everyone qualifies for additional loans. Jackie Morphy, who owns All Eco, an organic goods retailer, says her bank won’t help her repay her federal debt.

"My bank specifically has this stance — if you're not in a position to repay the CEBA loan, you're not a strong candidate to repay one of their loans,” said Morphy. She says she’s now considering shuttering her Ottawa store.

In Regina, the editor of Prairie Dog Magazine, an independent publication, is trying to keep from defaulting on his CEBA loans by crowdfunding the $60,000 he owes.

Stephen Whitworth said he applied for the CEBA loan when the publication lost advertising revenue due to the cascading impact of pandemic restrictions.

“Most of our local advertising was decimated; restaurants couldn’t afford to advertise or couldn’t even be open. Venues, that had concerts, had to shutter their doors,” Whitworth explained.

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Whitworth says he would appreciate an extension of the deadline, adding he's not getting on the “government bashing bandwagon.”

“There is a ton of pressure on the government coming from the political opposition to slash spending and collect money,” said Whitworth. “The government of Canada should be concerned about keeping its books in order.”

-- Published with files from The Canadian Press and CTV writers Katelyn Wilson and Caitlin Brezinski