CEBA loan repayment deadline approaching, may threaten some businesses but not economy overall

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For most of 2023, the small-business community has dreaded a major deadline for repaying the emergency loans that Ottawa doled out during the COVID-19 recession. Now, with that date looming, a new report from the Canadian Chamber of Commerce suggests that the repayments remain a threat to many businesses – but no longer the threat to the broader economy that was once feared.

In its analysis of data from Statistics Canada’s fourth-quarter survey on business conditions, the lobby group reported that only 28 per cent of borrowers under the Canadian Emergency Business Account program have repaid their loans. About half of all Canadian businesses took advantage of CEBA, which allowed companies to borrow up to $60,000 interest-free, and have one-third of the loan forgiven, provided they pay it back in full by Jan. 18.

With that date just five weeks away, the implication is that a large segment of Canadian business could lose out on the $20,000 of loan forgiveness. They also face paying interest of five per cent annually on the debt, with another deadline of the end of 2026 to repay it.

Even then, the survey found, more than one-third of the companies that haven’t yet repaid are not sure that they’ll be able to pay back the money over the next three years. The survey showed that 15 per cent of the outstanding borrowers are certain that they won’t have the money to pay Ottawa back. (Another 19 per cent said they didn’t know.)

For those companies, that is, obviously, not good news. Having lurched through a pandemic-fuelled recession, a complicated recovery, spikes in inflation and interest rates, and, now, a slowdown that may again slip into recession, some businesses have never regained solid footing. For them, the COVID-19 debt hangover is an existential one.

Small-business lobby groups have been using survey results on CEBA-related questions for months now to argue for extensions of repayment deadlines. The government responded in September by extending the near-term deadline for interest-free and partial-forgiveness benefits by a mere 18 days – to Jan. 18 from the original Dec. 31 – but adding a full year to the final repayment deadline. For some businesses, that may not be enough.

NDP MP Don Davies has proposed a private member’s motion to ask the government to further extend the interest-free and partial-forgiveness deadline, to Dec. 31, 2024. The Office of the Parliamentary Budget Officer estimated last month that such an extension would cost the federal government nearly $1-billion. With the House due to break for Christmas at the end of this week, and not return until late January, the motion is unlikely to be debated before the Jan. 18 deadline – and it’s non-binding on the government in any case.

Regardless, Mr. Davies sees his motion as a means to keep the issue in front of the Liberal government.

“I want them to get that there is still a significant number of businesses that have not recovered from the pandemic,” he said in an interview. “I’m hearing from a number of companies, they’re not there yet.”

But in the bigger scheme of things – the scheme where policy makers must worry about the economic impact of, say, a wave of business insolvencies – that number is not that large. Doing the arithmetic, the CEBA borrowers who are quite sure they won’t be able to repay in three years’ time represent less than 6 per cent of Canadian businesses.

And while small-business lobbyists and NDP legislators have focused much of their efforts on getting the deadline extended for the interest-free and partial-forgiveness aspects of the program, it’s not that onerous for companies that fail to meet that date to handle the CEBA terms beyond that.

Let’s remember that they still got a loan that was interest-free for more than three years. It’s only after Jan. 18 that the government will charge interest. And even then, at 5 per cent, the rate is a bargain compared with prevailing business loans. (According to Bank of Canada statistics, business lending rates have averaged about 7 per cent over the fall.) Sure, they’ll miss out on the $20,000 of, essentially, free money by not meeting the CEBA deadline, but the overall terms for securing $60,000 in credit have been very attractive.

“We’re not discounting that some businesses continue to face hardship, while struggling to return to pre-pandemic levels,” said Matthew Holmes, the Chamber of Commerce’s senior vice-president of policy and government relations, in a news release. “But the data is not telling us that this program needs to be extended indefinitely.”

The fact is, the CEBA program has done its job. It carried businesses over a health crisis that imposed shutdowns on many of them, and through a recovery in which a return to normal has been elusive – but has, largely, been reached. Throughout the bulk of the recovery, business bankruptcy rates were actually below historical norms. Ottawa distributed $49-billion in loans to help keep the business sector above water, and, demonstrably, it worked.

The minority of small businesses that remain under pressure are a reminder that there are still challenges ahead for the sector. But the economic threat that CEBA was designed to address has past. Whatever the questions that face policy makers and business leaders now, extending the CEBA is not the answer.

Editor’s note: A previous version of this article incorrectly attributed data on repayment intentions to the Canadian Chamber of Commerce. The data came from Statistics Canada’s Canadian Survey on Business Conditions, and were contained in a Canadian Chamber of Commerce report. This version is updated.