In those first dark, uncertain weeks of the COVID-19 pandemic, the federal government announced a raft of financial programs to support businesses and workers.
One that proved effective was the Canada Emergency Business Account, which gave loans of $40,000 to eligible businesses, followed by an optional top-up of $20,000. CEBA opened for applications on April 9, 2020, and provided much needed liquidity to businesses struggling to pay their expenses in the first months of lockdown. In total, $49-billion were extended to nearly 900,000 businesses, most of which were small or medium-sized.
Those loans are now coming due. Ottawa should adjust the repayment deadline in a reasonable way, to help businesses that are still struggling, while encouraging those who can repay to do so.
The first key repayment deadline is Dec. 31. Businesses that repay before then will have $10,000 of their CEBA loans forgiven if they received $40,000, or $20,000 forgiven if they took out the full $60,000. As of March 31, about a fifth of loan recipients had repaid.
As of Jan. 1, 2024, none of the loan will be forgiven. As well, interest begins to accrue at a 5-per-cent annual rate. The full loan is due Dec. 31, 2025; after that, businesses that haven’t paid will be sent to the Canada Revenue Agency for collections.
Businesses agreed to all this when they took out the loan. It’s time for them to pay it back, right?
Not so fast. When most businesses received the CEBA loan in 2020, they were in a state of total financial uncertainty, if not distress. They grasped for the lifeline that Ottawa threw them. Yes, they agreed to a repayment deadline, but in that dark spring of 2020, it might as well have been a million years away. They had no idea most of Canada would endure a series of lockdowns and re-openings all the way into early 2022.
Plus, the lockdowns, while an important public-health measure, were a decision by governments that imposed huge costs on these businesses. So the government should bear some responsibility to repair the damage.
A coalition of nearly every local business group in the country recently wrote to Finance Minister Chrystia Freeland to ask the deadline be extended, as Ottawa has done once before. The letter argues many businesses are still dealing with higher costs and need the relief.
With a recession still possible, demanding billions of dollars from struggling businesses right now would be a sort of bizarre reverse-stimulus program.
At the same time, Ottawa can’t extend the deadline forever. And frankly, not all businesses are struggling. Some took out the loan as a backup plan – cash if they needed it – and have kept the funds in a savings account for the past three years. Those businesses need to be given a push to repay the loan sooner than later.
So what should Ottawa do? Increasing the forgivable portion of the loan is off the table, as it would not be fair to businesses that have already repaid.
But a compromise on the deadline should be possible.
One option could be to move the deadline for just some industries. A federal study from March showed businesses in sectors most affected by lockdowns – such as food services, tourism and retail – were far more likely to apply for CEBA than sectors that weren’t much affected, such as information technology. Ottawa developed some industry-specific aid programs, and could take that approach with CEBA, too.
Another is to phase the repayment deadlines. The all-or-nothing approach of the Dec. 31 deadline – pay by then or else owe an additional $10,000 or $20,000 – creates the perverse situation where businesses with the most cash get the most benefit. And for those that can’t repay immediately, alternative lenders are popping up to take advantage of arbitrage.
The federal government could follow a path similar to the one proposed by Restaurants Canada and have forgiveness phase out over time. For example, $10,000 could be forgiven up to Jan. 1, $9,000 forgiven by July 1, and so on. This would provide incentive to recipients who can pay back the loan now to do so, while still providing some benefit to businesses that need more time.
Ottawa created CEBA with a goal of keeping businesses open. It should keep this goal in mind and help businesses who need it as the repayment deadline nears.