Looming CEBA repayment deadline may take toll on economy, analysts say

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The $49-billion in emergency loans that the federal government lent to nearly 900,000 businesses in the early weeks of the COVID-19 pandemic are finally coming due, almost four years later.

The first major repayment deadline for the Canada Emergency Business Account program is on Thursday. It is a major landmark for CEBA and one of the final steps in Ottawa’s winding down of pandemic spending. But it will also be a key measure of how small businesses are faring right now, and some analysts are concerned that difficulties paying all the loans back could further restrain an already stalled economy.

The economic impact of CEBA was already felt in the early months of the pandemic. Business leaders and economists credit the loans with helping small businesses ride out the waves of public-health restrictions that followed and stave off bankruptcies, which plunged to a record low.

“The program was essential and it saved a very large number of businesses,” said Perrin Beatty, president of the Canadian Chamber of Commerce.

Jennifer Mondoux, owner of Ottawa-based executive-search firm MondouxRollins Partners Inc., said her work ground to a halt in the spring of 2020, as hiring fell down companies’ priority lists. Her firm took out a CEBA loan to get through those difficult months.

“I thought, that’s a pretty good deal,” she said of the program. As the economy picked up, she said she made a plan to pay off the loan, which she did last month.

Unlike other major pandemic programs, such as the wage subsidy, CEBA loans were always meant to be paid back – and that question of repayment has long hung over the program. Ottawa twice pushed back the repayment deadline under pressure from all manner of large and small business groups, who said calling the loans too early could imperil enterprises that were still recovering.

The concern has been particularly acute in industries most affected by the pandemic. Restaurants Canada, the association representing the country’s foodservice industry, has continued to call for further extensions and warns a third of eateries are still operating at a loss and don’t have the funds to repay CEBA.

“Your favourite mom and pop restaurant and local gathering place is at risk,” president Kelly Higginson said in a statement.

But so far, Ottawa has stood firm on the latest deadlines. Businesses have until Thursday to repay their loans to have them partially forgiven: $10,000 forgiven for loans of $40,000, or $20,000 for loans of $60,000. Businesses that are currently negotiating refinancing with their banks can take a little longer, up to March 28. After those dates, the loans are due in full and will begin accruing interest at a 5-per-cent annual rate. Everything must be repaid by Dec. 31, 2026.

Sean Arani, founder of Arani, a manufacturer of electrical supplies in Montreal, said his company took out a CEBA loan to help with unexpected expenses in the pandemic. He said he recently refinanced the loan with his bank and will begin paying it back monthly.

He said CEBA was designed to help businesses like his deal with a one-time shock, and the deadline can’t be extended forever: “It’s been long enough, and generous enough.”

About a quarter of CEBA loans had been paid back by the end of 2023, according to Statistics Canada data that shows $37.5-billion of credit was still outstanding as of Dec. 31. A recent Statscan survey projected that 76 per cent of CEBA loans would be paid back in full by the end of 2026.

If that number holds true, it would mean billions of dollars of debt for those small businesses and lost revenue for the federal government, which is underwriting the CEBA program.

Randall Bartlett, senior director of Canadian economics at the Desjardins Group, said that’s why he’s watching CEBA repayment as a key economic indicator.

“We think it is going to weigh on the economy and exacerbate any sort of weakness that we see in the next year,” he said, though he does not think it is going to be “catastrophic.”

As the repayment deadline passes, outstanding CEBA accounts will be transitioned from financial institutions to the Canada Revenue Agency.

Dan Kelly, president of the Canadian Federation of Independent Business, said he hopes this transition will be a good thing. He agrees that CEBA was a lifeline for small businesses, but he said the program has been plagued by administrative problems since its inception.

CEBA was the first major support program for businesses and launched in April, 2020. The federal government assigned Export Development Canada, a Crown corporation normally tasked with helping companies work abroad, to run the program in partnership with banks and credit unions. But EDC lacked capacity or expertise to run a program of this scale, and it outsourced most of the administration to Accenture Inc., a global consulting firm.

Mr. Kelly said that, at one point, EDC was asking small businesses to come to the CFIB with their questions about CEBA, which he considered inappropriate. Accenture later set up a call centre that received 2,000 calls a day from businesses at its peak.

EDC chief executive officer Mairead Lavery even pleaded with the federal finance department in early 2023 not to further extend the CEBA repayment deadline because doing so would be too administratively complex for the Crown corporation, according to a letter obtained under access-to-information law.

Mr. Kelly said he hopes that once the CRA takes over the CEBA accounts, they will be able to fix administrative problems, such as the estimated 40,000 businesses who have to pay back their loans in full because of clerical errors on their files.

Still, he said, the program ultimately did its job helping businesses at a critical time – and a huge number of entrepreneurs benefited from it.

“When you look at the sheer size of it, nearly every business with paid staff in the country took it.”