Businesses facing ‘tipping point’ for federal pandemic loan repayment cut-off

Edmonton business owners are doubling down on holiday sales, negotiating fresh bank loans, and even using personal resources to repay a government-backed pandemic loan.

The Canada Emergency Business Account (CEBA) was launched in April 2020. Small- and medium-sized firms received interest-free loans from $40,000 to $60,000.

Business owners who borrowed $40,000 or less can receive $10,000 forgiven, while those who borrowed $60,000 can get $20,000.

Only if the remaining loan is repaid or business owners can verify they’ve applied to refinance by Jan. 18, 2024. Otherwise, the total payment becomes a three-year loan at 5% interest.

Peter Keith, co-owner of Meuwly’s catering and charcuterie market, told CBC News he’s striving to maximize revenue flow this month to repay CEBA.

“We all kind of have an internal number that we know that’s how much cash needs to be in the bank Dec. 31 just to get through January, let alone to repay a $40,000 loan,” said he.

Keith wants to avoid refinancing and paying interest, so the store is marketing event ticket presales and gift card bonus credit in addition to regular sales.

Nearly 900,000 Canadian firms received CEBA loans worth over $48 billion from Ottawa. Alberta distributed $6.8 billion to 125,015 firms, third in the nation after Ontario and Quebec.

Keith feels his business strategy will work for Meuwly’s next year, but he thinks many small businesses are struggling to make the numbers work.

“People are kind of at the end of their rope to keep going, keep pushing, keep scraping together those last few dollars,” he said.

“For a lot of small business owners, this probably will be the tipping point that they decide not to keep pushing, not to keep going, and they’ll go for bankruptcy instead.”

Since early 2023, Edmonton firm Givens LLP accountant Jessica Harquail has been discussing CEBA loan alternatives with her clients.

Business owners have options and should seek guidance, she said.

For many small businesses still recovering from the pandemic, “The $40,000 is almost crippling,” she added.

If they can’t discover another option, some must plan a “exit strategy”

One in five Alberta small companies at risk
According to Alberta senior policy researcher Andrew Sennyah of the Canadian Federation of Independent Business, 90% of Alberta businesses received CEBA funding and have yet to repay.

Premiers of every Canadian province and territory endorse CFIB’s request to prolong the deadline.

Between years of COVID-19, inflation, and affordability issues keeping some customers away, Sennyah said many firms can’t clear their CEBA debt now.

One in five Alberta small businesses may close, according to CFIB.

“Those are not promising numbers by any stretch of the imagination,” she remarked.

“Businesses are frantic.”

The “additional flexibility” granted for CEBA is crucial, according to Chrystia Freeland’s spokesperson Katherine Cuplinskas.

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

East Edmonton’s Cheryl Schneider owns No More Excuses Fitness. Government health regulations shuttered or limited gyms and fitness studios for two years.

She wanted industry-specific payback requirements instead of universal ones.

“With the economy as it is, asking a firm to pay it back is difficult, and we’re one of those businesses that requires tremendous sacrifice in hard times. Food on the table or a gym—what loses?”

She’s acquiring a new loan to meet the 2024 deadline, something she’s never had to do in over a decade of business.

“We’re just getting back on our feet, and it’s going to take a couple of years.”

Otto Food and Drink closed due to COVID-19 regulations, however Ed Donszelmann informed CBC News that CEBA money saved it.

With the forgiveness window closing, he hasn’t seen a recovery that will leave his business with $40,000 cash by year’s end.

“The restaurant can’t afford to pay it back, so it will come out of my own pocket,” stated.

“We’re lucky it’s possible. I can’t fathom what some smaller firms are going through.”