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Opinion: Small business pandemic loans must be repaid in full, even if companies risk going under

A person walks in Kensington Market in Toronto on April 15, 2020. New Democrats and a business group are calling on the federal government to extend the deadline for small businesses to repay loans they received from a pandemic support program.Nathan Denette/The Canadian Press

Gus Carlson is a U.S.-based columnist for The Globe and Mail.

Just as there’s no crying in baseball, no “I” in team and no place like home, there is no such thing as a free lunch.

Like so many sensibilities tested by the pandemic, however, this basic tenet of free-market economics – and point on the moral compass that guides the conduct of most reasonable people – is under fire, and unjustifiably so.

Consider the pushback by a coalition of businesses on the repayment of pandemic-era interest-free loans of either $40,000 or $60,000 from the Canada Emergency Business Account (CEBA). Ottawa says businesses that repay their obligations by Dec. 31 will have either $10,000 or $20,000 forgiven. After that, there will be no forgiveness and interest will accrue at the rate of 5 per cent.

Many lenders would say that’s a pretty good deal – maybe not a free lunch but a nicely discounted one. But it isn’t sweet enough for some business owners, who are asking Ottawa to extend the interest-free provision or even forgive a greater portion of these loans. This is needed especially, some businesses say, because the enterprises that stepped up to the CEBA trough are more likely to be owned by women and marginalized groups.

To be sure, the dilemma is something of a Gordian knot. Balancing the needs of the few with those of the many is never an easy task. And with some businesses that took CEBA loans facing extinction if the repayment terms aren’t eased, it’s a matter of the many picking their poison for the government – prop up the program or face a heavier unemployment burden.

Extending CEBA deadline would help marginalized businesses, groups say

For some, the moral dilemma on the part of Ottawa is real. One small-business owner told The Globe and Mail last week that she was wrestling with the decision of whether to repay her loan or invest in her company to take advantage of improving market conditions. Unlike some businesses, she at least seems to have a choice – even if there is only one

Small business groups push for extension to repay outstanding CEBA loans

A hand painted sign about the Canada Emergency Business Account is seen in the front window of Frances Watson, a store on Queen St. West, on April 15, 2020.Fred Lum/the Globe and Mail

Small-business groups are asking the federal government to further extend the deadline for repaying Canada Emergency Business Account loans when the budget is tabled later this month, as few of the loans have been paid back.

Ottawa announced the creation of the CEBA program on April 9, 2020, and sent more than $49-billion to almost 900,000 businesses. It was the first and most widely used pandemic support program for businesses.

The original repayment deadline for the interest-free, partially forgivable loans was Dec. 31, 2022; after that, businesses would start paying interest and forfeit the forgivable portion of the loans. Last year, citing the challenges posed by the Omicron variant, Ottawa extended the deadline by 12 months.

But almost three years after the program began, most of the loans are still outstanding. Export Development Canada, the Crown corporation that oversees CEBA, told The Globe and Mail that just 13 per cent, representing $5.7-billion, were repaid as of the end of November, 2022. EDC first provided these figures to CBC.

The reason: Many of those businesses are still struggling with debt incurred during the pandemic, business groups say.

Olivier Bourbeau, Restaurants Canada’s vice-president of Quebec and federal affairs, said his association recently surveyed its members and found that 20 per cent of those who had not yet repaid their CEBA loans were not sure they ever could. About 30 per cent of its members reported having pandemic-related debt of more than $100,000.

Data from the Office of the Superintendent of Bankruptcy show there were 533 insolvencies in the accommodation and food-services sector in the 12 months ending Jan. 31, up from 377 in the prior 12 months – an increase of 41 per cent.

Under the current rules, CEBA loans are worth either $40,000 or $60,000 and are interest-free and partly forgivable ($10,000 for the smaller loans, $20,000 for the larger ones) if the balance is repaid by Dec. 31, 2023. After that, the forgivable portion is forfeited, interest begins to accrue at a 5-per-cent rate, and the loan goes to collections if not repaid in full by Dec. 31, 2025.

Restaurants Canada has proposed the government phase out the loan forgiveness over six-month periods, so that