Sun. Mar 3rd, 2024

According to a survey by the Canadian Federation of Independent Business (CFIB), nearly 180,000 businesses had to borrow money to repay the Canadian Emergency Business Account (CEBA) which expired on January 18.

SMEs take on debt to repay COVID loans

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In 2023, the number of business bankruptcies jumped by 41.4%. (Archive photo)

  • Vincent Rességuier (View profile)Vincent Rességuier

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In total, 900,000 Canadian businesses have taken out a COVID loan. Preliminary data from CFIB's member survey shows that 84 per cent have repaid amounts owed, between $40,000 and $60,000. But of this number, 24% had to borrow money to achieve this.

A figure which could be revised upwards since the survey, which will be published in the coming days, finds 6% of respondents in the process of refinancing.

Furthermore, 8% of businesses say they have approached financial institutions, but failed to qualify, while 60% of respondents repaid their COVID loan by drawing on their capital.

The government offers borrowers the opportunity to repay the full loan amount within three years, with an interest rate of 5%, but they will not be able to benefit from the subsidy that is included in the loan and which is ;raises to an amount varying from $10,000 to $20,000 depending on the case. Companies therefore have every interest in finding another solution in order not to lose this lump sum.

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Jasmin Guénette, vice-president of national affairs at the Canadian Federation of Independent Business (CFIB)

The CFIB ensures that more and more SMEs have their accounts in the red. This is obviously a very worrying situation because if companies have gone to see their banking institution, they have to pay quite high interest, deplores the vice-president of national affairs, Jasmin Guénette.

We hear about 8%, 10% or 12% interest rates from major financial institutions, but if it's a third party they can be higher, he specifies.

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A situation that is all the more worrying given that the general debt level is already high. Still according to the CFIB, 60% of SMEs still have an average debt, linked to the pandemic, which exceeds $100,000.

The economic context makes the task even more difficult for the most fragile companies. In the expenses column, they have to deal with rising costs of rent, energy, transportation or increased salaries, among others. On the revenue side, consumers are spending less and this particularly penalizes restaurateurs and hoteliers, many of whom have taken out COVID loans.

< p class="Text-sc-2357a233-1 imohSo">It becomes difficult to be profitable when all budget items are on the rise, the debt level is very high and revenues are not there.

A quote from Jasmin Guénette, vice-president president of national affairs, CFIB

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According to the CFIB, 250,000 businesses are at risk of bankruptcy due to Ottawa's refusal to postpone the repayment date CEBA loans.

In 2023, the number of business bankruptcies jumped by 41.4%. This is the largest increase in 36 years since the Office of the Superintendent of Bankruptcy (OSB) has been keeping statistics. And 2024 starts on the same basis, according to the licensed insolvency trustee, André Bolduc, president of the Canadian Association of Insolvency and Reorganization Professionals.

Members of his association note that many companies use their services because they can no longer afford their debts. In the best case scenario, it is possible to consider debt restructuring options. For the others, it's the sale of the inventory or, worse, bankruptcy, says Jasmin Guénette.

It's certain that there were a lot of calls in 2023 and, this year, we will probably have the same volume, if not an increase.

A quote from André Bolduc, licensed insolvency trustee

According to Jasmin Guénette, the main short-term solution would be to reduce the tax burden on SMEs. He is thinking, for example, of a reduction in contributions to pension plans or employer contributions to employment insurance. Another option would be to increase the deduction threshold for small businesses. He would also like there to be no increase in the carbon tax on April 1.

The next budgets, whether at the federal level or provincially, are therefore impatiently awaited. They are traditionally filed during the month of March. In the meantime, Mr. Guénette will monitor the morale of his troops. According to the survey, the level of confidence among entrepreneurs is at its lowest, close to that of the 2008-2009 recession, he concludes.

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