By Pradeep Saran, Sep 17, 2023
Canada has announced an extension of the repayment period for emergency loans provided to small businesses during the COVID-19 pandemic. Prime Minister Justin Trudeau revealed this decision in response to persistent requests from businesses for more time to repay their Canada Emergency Business Account (CEBA) loans, despite previous assertions that repayment deadlines were fixed.
“We understand that some businesses require additional time,” stated Trudeau.
Numerous business groups across Canada, representing a substantial number of small enterprises, had been urging the government to grant them an extension, preferably a two-year grace period, and to maintain access to the forgivable portion of their loans. However, the announced extension fell short of these advocates’ expectations.
CEBA was initiated by the federal government early in the pandemic as part of a range of financial aid measures aimed at supporting businesses impacted by forced closures and health restrictions. Initially offering up to $40,000 to small businesses and non-profits facing revenue losses due to COVID-19, it was later expanded to provide interest-free loans of up to $60,000.
The application period for these loans ran from April 2020 to June 2021, with approvals granted to 898,271 businesses, totaling $49.2 billion in federal assistance.
In January 2022, the Liberals had previously extended the repayment deadline by one year, pushing it to the end of 2023. This allowed eligible businesses “in good standing” to have until December 31, 2023, to repay and qualify for debt forgiveness of one-third, up to $20,000, of their loan.
However, the recent announcement revealed that the extension of the repayment deadline for CEBA loans to qualify for partial loan forgiveness only amounts to a few additional weeks, from December 31, 2023, to January 18, 2024, recognizing the busy year-end period for businesses. If businesses submit a refinancing application with their loan provider by January 18, 2024, the deadline for partial loan forgiveness extends until March 28, 2024.
Previously, the government had stated that outstanding loans after the 2023 deadline would be converted to two-year term loans with a five percent interest rate, starting on January 1, 2024, and due in full by December 31, 2025. Now, small businesses unable to repay their CEBA loans in time for partial loan forgiveness have until December 31, 2026, to repay their loans in full.The Canadian Federation of Independent Business (CFIB) expressed disappointment with the announcement, highlighting the loss of the forgivable portion as a central issue and calling for a reconsideration of the plan. According to CFIB data, losing access to the forgivable portion could jeopardize the future of up to 250,000 small businesses.
The NDP, local chambers of commerce, and industry groups had all urged the government to provide leniency in loan repayment, emphasizing that many businesses were still struggling in their post-pandemic recovery due to supply chain challenges, hiring difficulties, and high inflation. Without an extension, some local businesses, particularly in the tourism sector, faced the prospect of permanent closure.
The Tourism Industry Association of Canada (TIAC) expressed similar concerns, stating that the extension falls short of addressing the financial strain faced by many tourism businesses. They argued that a mere three-month loan forgiveness extension for businesses needing to refinance does not align with the severity of the crisis.
As of May 31, approximately 21 percent of businesses that received a CEBA loan had fully repaid, according to federal statistics.