OTTAWA – A $50-billion pandemic loan program is becoming a ticking time bomb for the government and Canadian businesses with six months left before the money is supposed to be repaid.

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The government launched the Canada Emergency Business Account during the early months of the pandemic, offering businesses loans up to $60,000. While the loans were processed through regular banks and financial institutions, the federal government backed them leaving the liability on the government’s coffers.

The interest-free loans were designed to help businesses with expenses like patio expansions, personal protective equipment or other pandemic-related needs. They came on top of the wage and rent subsidy programs that offered more specific support to businesses.

If businesses repay the loans by the end of this year, they can receive loan forgiveness on up to a third of the amount they borrowed, but if they don’t they must repay the full amount and will face five-per-cent interest on their remaining balance.

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There is near panic on the part of close to half of Canada’s small businesses about the looming deadline that is approaching for CEBA loans.

Dan Kelly, president and CEO of the Canadian Federation of Independent Business

Dan Kelly, president and CEO of the Canadian Federation of Independent Business, said the debt is weighing on business owners as the deadline looms.

“There is near panic on the part of close to half of Canada’s small businesses about the looming deadline that is approaching for CEBA loans,” he said.

The CFIB does regular surveys of its members and Kelly said many of them believe repaying on time is going to be a major challenge.

“About 43 per cent of small businesses are telling us they just don’t have the money to repay their CEBA loans and they’re gonna have to take some pretty drastic action if they are required to repay them by the end of this year.”

He said companies don’t want to miss out on the forgiveness, leaving them to consider some fairly desperate options.

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“Some of them are looking at borrowing money in order to repay their loan, if they don’t have it, and so there are all sorts of companies out there right now offering crazy, high-interest loans,” he said.

The government gave out just under $50 billion in CEBA loans to nearly 900,000 individual businesses. The program began as a loan of up to $40,000, but was extended to $60,000 as the pandemic dragged on. The government has already given businesses another year to repay their loans and receive forgiveness.

An order paper question submitted in the House of Commons earlier this year, identified more than 50,000 businesses, owing just over $2 billion, who have already been deemed ineligible and ordered to pay back their loans immediately.

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The National Post asked the finance department for updated numbers on how many businesses have paid back the loans, how many the government forecast could default and how much is still outstanding, but they provided none of those figures.

With no interest on the loans, Martin Bégin, a spokesperson for the finance department, said they expect many businesses will wait until the end of the year before repaying.

“We will have a more clear indication of a business’s ability to repay closer to the deadline. It’s expected many businesses, even those that are in a position to repay now, will only do so closer to Dec. 31, 2023.”

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Businesses that miss this year’s deadline will lose the debt forgiveness and will begin paying five-per-cent interest for two years, before the full loan becomes due at the end of 2025.

Bégin said the government intends to take a cautious approach to collections, as it has with the wage subsidy and Canada Emergency Response Benefit overpayments.

“This approach emphasizes fairness and empathy, and the CRA will work with the businesses to help them resolve their debts based on their ability to pay,” he said.

While the government could not provide numbers, financial statements from Export Development Canada, which housed the program, priced the cost to the government at $13.1 billion, estimating that is how much of the initial $50 billion would be forgiven.

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“The full potential impact of the COVID‐19 pandemic on the assumptions such as credit quality and probability of default used to measure the allowance for credit losses is unknown as it will depend on future developments that are uncertain,” the financial statements said.

In the CFIB’s surveys, nine out of 10 businesses said they had taken some CEBA money and 78 per cent said they had not made any payments on their loan so far.

Kelly said they expect as many as 250,000 businesses in Canada could risk closing their doors over the issue. He is encouraging Ottawa to extend the repayment deadline by at least another year.

“If the business goes down Ottawa won’t get even the $40,000 back, so we could end up cutting off our nose to spite our face,” he said. “I do believe that there are some serious risks to Ottawa getting its money back, if this doesn’t happen, if they’re not patient.”