Community News
To demand CEBA loans during a period of economic crisis is absolutely ridiculous
BY SIMONE J. SMITH
Global supply chains were disrupted, reduced consumer spending, and closures led to financial strain for many businesses. Businesses had to adapt quickly to remote work, which presented challenges in terms of technology, communication, and employee well-being. Some industries, such as hospitality and entertainment, couldn’t easily transition to remote work, leading to layoffs and closures.
As many of us know, the pandemic changed the world in more ways than one, and the sector that has been dramatically affected is the business sector. The level of government support varied across provinces in Canada, impacting how well businesses could weather the economic challenges. Some received financial aid and support programs, while others faced bureaucratic hurdles, or insufficient assistance.
We are now witnessing firsthand the struggles of business owners who have borrowed funds through the Canada Emergency Business Account (CEBA) to keep their businesses afloat amidst the economic turmoil caused by the pandemic. These hardworking individuals contribute significantly to our economy, yet they find themselves unable to repay these loans due to continued financial hardship. With deadlines approaching for business owners to repay a federal government-backed pandemic loan, some Canadian businesses are questioning their ability to stay open.
The CEBA was designed as a lifeline for small businesses during the pandemic. The CEBA program offered interest-free loans of up to $60,000 to small businesses and not-for-profits. CEBA loans were available from more than 220 financial institutions across the country.
For eligible CEBA loan holders in good standing, repaying the balance of the loan on, or before January 18th, 2024, will result in loan forgiveness of up to 33% (up to $20,000). As of October 26th, 2020, eligibility for CEBA expanded by removing the previous March 1st, 2020, condition for having an active business chequing/operating account. With this removal, eligible businesses were able to apply after opening a business chequing/operating account with their primary financial institution.
As of December 4th, 2020, the maximum CEBA loan amount was increased to $60,000. CEBA loan holders who had received the $40,000 CEBA loan were able to apply for the CEBA expansion, which offered eligible businesses an additional $20,000 of financing.
However, with over 800,000 approved applications and nearly $35 billion disbursed as of January 2021 according to data from Export Development Canada (EDC), it has become clear that many businesses are still struggling and may not be able to repay these loans. Nearly 900,000 businesses were approved for the program, which distributed just over $49 billion in loans. About a fifth had paid their loans in full by the end of June.
We must remember that behind every business there is a person, or family whose livelihood depends on its success. The inability to repay these loans can lead not only to financial ruin, but also immense personal stress and anxiety.
According to a recent survey, 16% of CFIB member businesses said they would be seeking an additional loan from their financial institution to meet the forgiveness deadline. Another nine percent said they were considering using home equity to help pay off CEBA on time.
Businesses are now calling upon our government representatives and relevant authorities for compassion and understanding in this matter. They are asking them to consider loan forgiveness for CEBA borrowers who continue facing financial difficulties despite their best efforts.
According to the Government of Canada website, as of September 14th, 2023, the repayment deadline for eligible CEBA loan holders to qualify for partial loan forgiveness was extended to January 18th, 2024. If paid back on or before January 18th, 2024, up to $20,000 of the outstanding balance will be forgiven. After that, the loan will incur a 5% annual interest rate on the full amount borrowed.
Additionally, CEBA loan holders that submit a refinancing loan application to the financial institution that provided their CEBA loan by January 18th, 2024, but require a grace period in order to finalize the payout of their CEBA loan can still qualify for partial loan forgiveness if the outstanding principal of their CEBA loan, other than the amount of potential debt forgiveness, plus any applicable interest is repaid by March 28th, 2024.
What these businesses want our government to take into consideration is the fact that the conditions that have occurred after the pandemic are far worse than the pandemic itself. So, for them, to call the loan in during a period of economic crisis is absolutely ridiculous. Some are calling it an insult, a slap in the face and completely unrealistic.
What are your thoughts; should our government be a little more lenient when it comes to these businesses paying back these loans so soon?
A. Sesirou
December 4, 2023 at 11:37 am
“What these businesses urge our government to consider is that the aftermath of the pandemic has presented conditions even more challenging than the pandemic itself. Therefore, insisting on loan repayment during an economic crisis is perceived as absurd by many. Some view it as an affront, a disrespectful gesture, and wholly impractical.”
If taxpayers are shouldering more than half of the loan burden, what about those businesses that managed to repay? Are they entitled to a refund? There were no assurances that the economy would fully recover post-pandemic. Would these businesses approach financial institutions like CIBC and BMO with this attitude? The likely course of action would involve negotiating smaller monthly payments over an extended period.
It’s crucial to bear in mind our collective grievances about high taxes and the desire for more services. The funds in question originate from tax revenues that sustain the government, supporting various services. With loans exceeding $49 billion, if only one-fifth was repaid, approximately $39.2 billion remains unpaid. Should the government simply write off this substantial amount?