Dawn Chapman, owner and operator of Lazy Daisy’s Café in Toronto, on Jan. 20, 2021, worries that 'without government assistance, we wouldn’t be able to keep the doors open.'Aaron Vincent Elkaim/The Globe and Mail
The Canadian Federation of Independent Business is warning that more than 239,000 businesses could vanish because of COVID-19 as the new wave of restrictions and lockdowns leave a growing number of entrepreneurs considering giving up.
New research from the small-business lobby group based on a survey of 4,129 of its members last week found that nearly 18 per cent were considering bankruptcy or shutting their business down for good. Extended across the country’s 1.1 million businesses – the vast majority of which are small or medium-sized – the federation said that 181,000 firms could be under threat, according to adjusted projections. That’s in addition to the 58,000 fewer active businesses that Statistics Canada found in September, 2020, compared with September, 2019, according to its most recent business closing estimates.
The CFIB said in July that it projected 158,000 small businesses could close. But the second pandemic winter has brought with it a new wave of restrictions across the country. In the worst-case scenario, the CFIB’s newest research found that 222,000 businesses could be at risk of shutting down. Combined with those that Statscan found are no longer active, as many as one-quarter of Canadian businesses could be under threat.
“The clock is ticking for many, many businesses,” CFIB national research director Simon Gaudreault said in an interview. “It is going to be a very significant challenge to get back to where we were before the pandemic started.”
Small businesses, especially those in food service and storefront retail, often operate with thin profit margins and depend on daily revenues to stay afloat. Many warned within days of the first round of lockdowns last March that they would struggle to survive.
Ottawa, as well as provincial and territorial governments, raced to offer them subsidies, but some programs were beleaguered with slow rollouts and poor uptake, such as the now-cancelled Canada Emergency Commercial Rent Assistance Program. The new CFIB research suggests a growing number of entrepreneurs live within a hair of permanently closing their business.
“My worry is that without government assistance, we wouldn’t be able to keep the doors open,” said Dawn Chapman, owner of Lazy Daisy’s Café in Toronto’s east end.
At the pandemic’s start, Ms. Chapman set up a website to sell goods she had on hand, such as flour and free-run eggs, while also offering food for pickup and delivery. She’s signed up for the federal wage and rent subsidies, but delivery service fees still cut into her revenues, even after Ontario moved to cap how much services such as UberEats and SkipTheDishes can charge.
“Our costs are so high, and there’s only so much you can charge for a BLT,” she said. “We’re right on the line of being able to survive. If that government support goes away, what next?”
Many businesses have already had to answer that question. In November, the owners of Barre Belle fitness studios had to permanently close eight of their nine locations in Calgary, Vancouver and Toronto after months of discussions with their landlords, lawyers and lenders.
“It’s been totally devastating,” co-owner Kristi Stuart said by phone from Calgary. The company had opened four new locations in 2019, leaving little savings to pay its bills when it was forced to close all of its studios temporarily in March, 2020. By June, she said, Barre Belle owed $450,000 to landlords, and its owners were soon forced to lay off nearly 130 staff.
“I went through the stages of grief closing down the studios,” Ms. Stuart said. “We had a great business, and then it was gone.” Although the company likely won’t file for insolvency – she said it has no assets left – Ms. Stuart now worries that she may face personal bankruptcy because of personal guarantees on the loans Barre Belle took to open its studios.
“I still find it very hard to believe this is where we are,” she said.
Earlier this week, Statscan said it had found that business insolvencies had actually fallen by one-third from usual levels during the early months of the pandemic – despite the historical trend of increased bankruptcies during economic crises.
But the agency warned that many businesses could be waiting for additional government aid before filing for insolvency. It also reported that two in five Canadian businesses said in the third quarter of 2020 that they couldn’t take on additional debt, suggesting that businesses’ financial positions could significantly worsen, prompting an increase in insolvencies soon.
The CFIB also said Thursday that the potential business closings could leave as many as 2.4 million Canadians’ jobs at risk – one-fifth of all private-sector employment – according to projections from its survey data.
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