Last Thursday, Canadian small businesses that received government loans during the pandemic hit a repayment deadline.
A casual observer could be forgiven for thinking this deadline presented a significant — even existential — hardship for businesses. Certainly, that is what media and industry statements would have you believe.
Winnipeg small business owner faces uncertain future as CEBA repayment deadline looms, reads one Global News article headline.
Savings, fundraisers, additional loans help Sask. small businesses meet CEBA forgiveness deadline, reads another in the Regina Leader-Post.
Scramble continues for B.C. small businesses to repay federal CEBA loans, is the title of an article in Business in Vancouver.
‘D-day’ for northern Ontario small businesses who used government loans to survive COVID, tops an article in CBC News.
You get the idea.
Yet, if you look at the terms of Ottawa’s loan program, known as CEBA, it is clear that small businesses have in fact received generous treatment.
The Canada Emergency Business Account program, which was launched in April 2020, offered small businesses and not-for-profits interest-free loans. Initially, the most a business could receive was $40,000, but the government increased that limit to $60,000 in December 2020. Nearly 900,000 businesses were ultimately approved for CEBA loans that totalled $49.2 billion in value, according to the government’s website.
These loans were not only interest-free, but also eligible for partial forgiveness. Loans repaid before the Jan. 18, 2024 deadline received loan forgiveness of between 25 and 33 per cent. For example, a business that received the maximum loan of $60,000 was entitled to pocket one-third, or $20,000, for simply repaying the other two-thirds.Â
What’s more, this fall, Ottawa gave businesses more time to meet this forgiveness deadline, extending the initial due date of Sept. 14, 2023 to Jan. 18, 2024.
The government has estimated that three-quarters of businesses paid off their CEBA loan in full by January. Of those businesses that repaid, one-third repaid by taking out another loan, according to the Canadian Federation of Independent Business, a business advocacy organization. If three-quarters of borrowers received the minimum forgiveness of 25 per cent, that represents a $9-billion subsidy to businesses.
The remaining one-quarter of businesses, potentially as many as 225,000, have not repaid the loan. It is this final group of businesses that are now portrayed as being up against the wall, fighting for their survival.
But here too CEBA’s terms make this difficult to believe.
The Jan. 18 CEBA deadline is not a date by which these borrowers are required to repay the loan balance. It is simply the date past which they are a) no longer eligible for partial loan forgiveness, and b) required to start paying interest. Paying interest is what, under any normal commercial arrangement, would have been required of them all along.
And even here, these businesses are not subject to standard commercial terms. The interest rate on CEBA loans is five per cent. No business today could obtain a five per cent loan in the market, since five per cent is the central bank’s overnight rate. To make money, commercial banks necessarily set their rates above this rate.
A business that finds itself in this circumstance would thus now have to pay, at most, a mere $3,000 in interest charges in a year. That’s $250 a month.
An additional $250 in monthly expenses is unlikely to drive waves of businesses into default. If some businesses do meet that fate, they likely ought to be shut down. Yes, it can be unfortunate to see businesses fail, but not every business has a successful business model.
What these facts reveal is that Ottawa has been generous toward small businesses. And not without reason. The pandemic was an extraordinary circumstance that made it challenging for many businesses to continue as a going concern.
But the pandemic is well behind us. It is not Ottawa’s job to keep all businesses afloat, particularly when doing so means transferring them taxpayers’ own hard-earned money.
Before reading this article, I had heard about the fact that if paid back before a certain date, possibly the businesses could keep 20,000 dollars. I thought that was a pretty good deal.
Now, knowing that it has essentially turned in to an “official” loan with a 5 per cent interest rate, how much better could it get for these businesses ?
Once again, greed rears its ugly head, and theses folks want everything for nothing.
The generation that fought and died for this country are probably “rolloing over in their graves” at the state things are in. Many who made it back, had to build a life with their own bare hands and did what had to be done. They were a tough breed and this breed will never be back to teach some lessons to greedy folk.