Investment

Business owners are worried about paying off debt to Covid

As the clock strikes 2022, so does the deadline for those businesses to repay federal pandemic loans under favorable financial conditions. And with that, concerns from small businesses have grown about how to pay off emergency loans.

Then, two weeks before Christmas, a small gift: Finance Minister Chrystia Freeland said, as part of her economic and budget update, the deadline would be extended.

Now, the CFIB team calls have changed: How long do I have to pay, and what are the rules?

“And we don’t have an answer to that yet,” CFIB president Dan Kelly said.

“It’s very clear to me that this is an absolutely last minute addition to the autumn economic update given no details.”

Since its launch, the Canada Emergency Business Account has provided loans worth $ 48.4 billion to nearly 886,000 companies, the largest share of which, at nearly 41%, is in Ontario.

The government quickly provided the money so that companies could use it for various expenses, such as rent, hydro and payroll.

When the government first created the CEBA program at the start of the pandemic, it set a repayment deadline of December 31, 2022, for anyone who wanted to take advantage of zero interest and be forgiven part of the loan.

Kelly said the deadline makes sense when it looks like the country will undergo a lockdown to slow the spread of Covid-19 and come out in a few weeks or months.

But he said public health restrictions affecting businesses and non-profits have reached as far as the pandemic, affecting their bottom lines. As the restrictions eased, the Omicron variant injected yet another uncertainty about what might come.

“In fact, we urge the government to double down and increase their support to small and medium -sized companies,” Kelly said. “Depending on where things go, we may need a bigger CEBA loan to help businesses get through.”

CFIB is pushing the federal government to extend the payment deadline to December 2024 to help more recipients take advantage of interest -free and forgiveness options.

The recommendation is based on a survey of CFIB members who suggested they could take two years to earn again.

Kelly said he thinks nearly half of small businesses may be in a position to start repaying their CEBA loan over 2022. Half could take longer for companies in the retail, hospitality, tourism and service sectors. .

“We need details on when these loans should be repaid so businesses can start planning,” Kelly said.

The topline data on the Canadian economy entering the new year, however, is more positive.

The labor market by the end of the summer recovered all the losses from the start of the pandemic last year and the unemployment rate in November was within 0.3 percentage points of the pre-pandemic level recorded in February 2020.

The economy also grew to a point where Statistics Canada estimated that total economic activity was 0.5% lower than pre-pandemic levels in October. The November reading came a day before Christmas Eve.

But underneath there is some doubt.

A Statistics Canada report last month found that 15.1% of businesses are expected to face “major challenges” in paying government assistance over the next 12 months.

The quarterly report on business conditions found that most businesses with debt concerns are in high -contact service industries such as housing, food services, arts and entertainment that have not yet fully recovered from economic collapse last year.

Missing the payment deadline does not mean that the government will force a company to pay funds, regardless of their financial situation. Instead, a recipient will lose the ability to forgive part of the debt, and will begin to face an annual interest rate of 5%.

CEBA loans are not the only loans that small businesses carry. Kelly said surveys of his members suggest they added, on average, $ 170,000 to debt through the pandemic.

Some of these are unpaid rent, or unpaid charges to suppliers. Some of these are on credit cards that expose owners to higher interest rates.

Taken together, this is why Kelly said he is watching what will happen throughout 2022. Kelly said some business owners can look at their books and just hand over their keys if they don’t have any. they find their way back to profitability.