CEBA Loan Relief for Small Businesses

During the initial moments of the global pandemic every business owner had the same question:  what do we do?

Commerce ground to a halt, consumer behaviour changed swifty overnight, and entire industries shuttered. Businesses quickly ran down savings and early estimates pegged permanent Canadian business closures between 30 – 50% within months without intervention – taking with them almost 1 million jobs.

The Canadian government responded to this challenge with the Canadian Business Emergency Account (CEBA). Years on, however, many businesses are still struggling as the unexpected increase in product costs & inflation have made loan & other expenses difficult to manage against still reduced sales.  74% of businesses have not been able to repay their CEBA loans, and that number is even higher for women, black, and immigrant owned businesses.

Disproportionate Impact on Women and Marginalized Business Owners

Women and business owners from marginalized communities were disproportionately impacted by the COVID-19 pandemic, resulting in greater economic hardships and setbacks to them and their businesses. This puts them at greater risk of defaulting on their CEBA loans if an effective extension is not granted. In one broad sweep, we risk dismantling the diversity in business that we have fought so hard to create in Canada.

To put this into perspective, women business owners are over-represented in the top 5 sectors that applied for CEBA loans: Accommodation and Food services, Tourism, Other Services, and Retail Trade. These are the same sectors that were already hit hardest and faced the most closures during the height of the pandemic shut downs, and these women-led businesses are taking more than 3 times as long to recover. 

The outlook for Black business owners is similarly concerning. At the onset of the pandemic, the Black Business and Professionals Association found that 98% of Black-owned businesses said that they cannot take on more debt, compared to 56% of Canadian businesses as a whole. Many accepted the CEBA loan because of interest-free terms, but will now be faced with the crushing prospect of accruing interest rates. 

These businesses are not financially healthy enough to repay a substantial portion of their loan by December 31, 2023. This implies:

• They will not qualify for the CEBA Expansion forgiveness. Their full outstanding balance will need to be repaid by December 31, 2025, which can increase the amount owed by as much as $20,000; and,
• 5% interest begins accruing on all outstanding loan balances.

Some Canadian lending institutions have already begun offering “CEBA loan loans”. These loans let businesses borrow from the private sector to pay off a significant portion of their CEBA loan and qualify for loan forgiveness. But many businesses might not qualify for these “CEBA loan loans”, especially new businesses with short financial histories and those with non-traditional cash flow patterns such as highly seasonal businesses.

Other business owners will require strong knowledge of debt products and good negotiation skills to negotiate for favourable terms with their financial institutions. Once again, women and marginalized entrepreneurs are disproportionately faced with these challenges. This risks placing greater hardship on their business or personal finances, especially if they resort to securing a loan with their personal assets.

A Risk to Economic Diversity in Canada

Women, immigrant, and Black-owned businesses are at greater risk of defaulting on their CEBA loans if an effective extension is not granted. In one broad sweep, we risk dismantling the diversity in business that many have fought so hard to create in Canada. 

The federal government put forward an economic recovery plan to “build back better“, recognizing the need for an inclusive economic recovery. According to their own plan, they recognized that “inequality makes our economy less resilient”.  

The Federal government has created feminist-centered, and diversity-focused platforms and is concerned with economic reconciliation and social opportunity for marginalized populations. However, in failing to extend the CEBA repayment and forgiveness periods, they risk undoing the progress that their previous efforts have yielded. 

Recommendations to address equity challenges

We are recommending two measures to ensure the greatest number of businesses can continue to recover and grow, while working towards loan repayment:

1. Extend the repayment deadline and the 0% interest period to December 31, 2030. Interest fees on top of hefty unforgiven loan amounts will put these businesses in a precarious financial position. 
   Instead, what businesses need right now is to invest their spare cash flow in growth areas like marketing, product development, and employee performance. A loan extension and interest waiver will ensure the cash flow needed to build resilient businesses, invest in productivity, and boost revenue that can be put towards the loan principal in due time.
2. Increase CEBA loan forgiveness rates to 50% for regular and expansion loans, and incentivize faster principal repayments by implementing a decreasing annual forgiveness rate between 2023 to 2030. Offering greater forgiveness to businesses that pay back their principal sooner is a win-win scenario that puts more money into local economies more quickly while creating greater financial stability for small businesses.

This federal government has acted swiftly and effectively to support small businesses before. We urge you to do the same thing now.  The Canadian government must remain flexible with CEBA loan repayment terms in order to support a vital part of our country’s economy. 

Summary

If there is no change to the CEBA interest, forgiveness and repayment terms, many underrepresented small businesses will find it harder (or impossible) to keep their business afloat and repay the loan. By not taking action, the Government will be responsible for increased default rates and even more business closures for these businesses. Government inaction will lead to major job losses from women and minority entrepreneurs and their workers, many of whom are already on low daily wages in retail and hospitality sectors. 

Our recommendations prevent the shift of marginalized people into more precarious positions: unemployed and on publicly-funded EI.

The decisions the Canadian Government makes in the next six months will determine whether the CEBA Loan program is considered a success or a failure. It is in the public and taxpayer interest to enable businesses to repay the billions of dollars in outstanding CEBA loans. We ask that the Government take action now to ensure the success of both the CEBA Loan program and Canada’s Small Business community.

Signed,
Better Way Alliance
Canadian Women’s Chamber of Commerce 
Black Business Professionals Association
London Chamber of Commerce