‘No one has 40 thousand more’: companies feel the domino effect of CEBA

Some Ottawa business owners had to borrow more money to qualify for the forgivable portion of the government’s CEBA loans.

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Amir Rahim says his team built Grounded Kitchen, Coffee & Bar “from scratch on a shoestring budget” in 2010. But just as the business was starting to turn a profit a decade later, COVID-19 hit.

His business survived. Rahim credits the support to loans from the federal government’s Canada Emergency Business Account (CEBA), a program aimed at helping small businesses weather the pandemic.

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“I’m not a very political person, but in this particular scenario, I want to put it on record that without (CEBA) I wouldn’t have been able to survive,” he says. “She would have finished in the blink of an eye.”

Now that COVID-19 appears to be behind us, Rahim feels that his venture should finally be bearing fruit.

And yet he continues feeling the ripple effects of the pandemic despite Prime Minister Justin Trudeau announced earlier this year that Canada should “conclude” its pandemic programs.

For some small business owners, like Rahim, that means borrowing more money now to qualify for the government’s forgivable portion of CEBA loans, and continuing to borrow now presents additional challenges for the foreseeable future.

“There are no free lunches,” Rahim says. “In the end I would have to return it.”

Grounded kitchen, cafe and bar
Grounded kitchen, cafe and bar on Carling Avenue Photo by Abisinia Abebe /postmedia

The CEBA program offered interest-free loans of up to $60,000 to small businesses and nonprofits during the pandemic.

If businesses repaid $40,000 by January 18, 2024 (or requested refinancing to pay the amount by March 28, 2024), the government would forgive up to $20,000 of the initial $60,000.

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The window between January and March was an unofficial extension to qualify for government forgiveness. Beyond the grace period is the deadline to repay loans with interest rates of five percent per year on December 31, 2026.

According to CEBA loan statistics released after the end of the program, the federal government approved nearly $50 billion in loans during COVID-19.

Advocacy groups expressed dismay after Trudeau announced that CEBA loan terms would not be extended beyond the Jan. 18, 2024 deadline. They highlighted the importance of the forgivable portion for small businesses.

In December 2023, the Canadian Federation of Independent Business (CFIB) surveyed 3,148 of its members across Canada to assess their outlook on the coming year, particularly the January 18 deadline.

The survey found that among the top issues business owners want the government to address in the new year are increasing the prices of doing business (77 percent) and reducing general taxes (74 percent).

Alchad Alegbeh, a research analyst at CFIB, is now working on the results of new surveys on CEBA loans.

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In an interview, Alegbeh says unpublished CFIB data from February 2024 shows that of the rough estimate of 378 companies that missed the Jan. 18 payment deadline, six percent would have been eligible for the forgivable portion. if they had met the March 28 deadline.

“The deadline of March 28 is for those who cannot pay [CEBA] but they have proof that they were looking for loans,” says Alegbeh.

“Six percent is a very large number if we think about it at the national level,” Alegbeh says. “This means that many companies could close their stores.”

In fact, 74 percent of 3,148 respondents said they are seriously considering filing for bankruptcy.

Alegbeh says that of the businesses that were able to repay their loans on time to take advantage of the forgivable portion valued at up to $20,000, 61 percent accepted personal deposits, while 22 percent had to borrow from another lender.

“Even if you repaid the loans (CEBA) with your existing deposit or with borrowed money, it still puts you in a difficult situation because you can no longer invest anymore,” Alegbeh added.

Michael Wood, an Ottawa-based small business advocate and consultant, once owned an event rental company in the city with 23 full-time employees.

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He says that in the first year of the pandemic he lost 97 percent of his gross income.

“In April 2019, our revenue was about $400,000,” he says. “Our revenue in April 2020 was $12,000.”

Portrait of Michael Wood
Michael Wood, a former event company entrepreneur, is now a small business advocate and consultant. Photo by ERROL MCGIHON /postmedia

Wood did not accept CEBA loans, since his losses were in the millions. Instead, he turned to promotional and consulting work to help companies struggling to pay their debts.

Shortly after Parliamentary Budget Officer (PBO) Yves Giroux published his report on the cost of extending the CEBA forgiveness deadline in 2023 (the second extension for CEBA loans), Wood says he met with him to discuss the results.

The PBO report estimated that delaying the deadline for companies to repay their government-backed pandemic loans to access the forgivable portion would cost Ottawa about $907 million.

During Wood’s meeting, he says he reiterated that the cost of mental health and the unemployment rate on the system would far exceed the potential $907 million figure in the PBO report.

“(CEBA) wasn’t meant to offset massive losses… it was meant to pay them back,” Wood says. “The problem is that small business revenue growth doesn’t cover it.”

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Wood says that even if a company makes $100,000, it would have to generate 40 percent more revenue to cover the loans without additional debt.

“People are taking out loans from outside providers,” he says. “The problem with that is that it really boils down to more debt.”

Ruth Smiley-Hahn is a fifth-generation resident of Shawville, Que., a rural town 75 kilometers northwest of Ottawa, where she runs Café 349.

He remembers the six weeks in the middle of the pandemic when he ran the restaurant without any other staff. During that time, Smiley-Hahn says her government’s CEBA loans helped her cover accumulated debt, which took “a huge weight off my shoulders.”

Although getting the loans was easy enough, paying them off was a struggle. He had to visit three different banks to request a partial refinancing before he could pay the money back.

“It was frustrating trying to pay (the loans) because the banks didn’t seem to know what to do,” he says.

John Borsten, owner of five Zak’s Diner locations in Ottawa and partner in The Grand Pizzeria and Bar, Metropolitan Brasserie and Starling Restaurant and Bar, says his main concern now is inflation.

Borsten says two of his five Zak’s Diner locations (Elgin and Kanata) took out CEBA loans during the pandemic. For him, pushing for another extension was not necessary.

“At some point you have to pay back the money,” says Borsten. “No one ever has an extra $40,000 that just happens to be lying around.

“You have good years, better years and worse years. The trick is to stick with the game and adapt as best you can.”

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