Businesses need to pay CEBA loans or lose free money — because the deadline isn’t changing

Some businesses in Canada who took out a CEBA loan may be hoping in vain for a last-minute reprieve and one more chance at free money from the federal government, but others involved say it’s time to move past trying to shift the deadlines for repayment.

The federal government has indicated the deadline to pay back up to $60,000 in loans issued as part of the Canada Emergency Business Account, or CEBA, program isn’t going to be postponed again after being extended to Jan. 18.

If the loans are paid back by that date, businesses could have up to $20,000 forgiven of the loan. Loans that are not paid back before the deadline will start to accrue interest.

More than 885,000 small businesses and not-for-profits took out CEBA loans, totalling more than $48 billion.

Speaking to hundreds of people at a luncheon put on by the Chamber of Commerce of Metropolitan Montreal on Tuesday, Prime Minister Justin Trudeau said that the deadline for the loans had already been extended twice and it was time to move forward.

‘Unfair’ to forgive loans, says one CEBA recipient

It’s a message echoed by some CEBA loan recipients such as Thomas Watson.

His company, Guardsman Insurance Services, took out a CEBA loan and paid it back as of Dec. 31, 2023, said Watson, who is based in Ottawa. 

“It’s very frustrating to hear businesses looking for more, and it’s also relatively understandable, right?” he said, adding he is sympathetic to those who cannot pay back the loans at this time.

While many businesses have been lobbying for yet another extension to the loan, others have been pushing for the loans to be forgiven entirely.

That doesn’t sit well with Watson.

“It would be unfair to forgive unpaid balances because in effect, you’d be penalizing the businesses that did what they needed to do to get those loans paid back,” said Watson. At the same time, he acknowledged his insurance business faces different cost pressures than other small enterprises such as restaurants. 

The independent parliamentary budget officer has said that delaying repayment of the government-backed CEBA loans would cost the federal government $907 million.

Federal officials told CBC News that the CEBA program was entirely funded by the federal government, and that the role of financial institutions was only to administer the loans. Institutions were paid a fee of 0.4 per cent of the outstanding balance of loans. 

Because the loans would start accumulating interest after Jan. 18, even delaying the deadline would cost money due to lost interest payments, and the possibility that some of the loans would become uncollectible if businesses don’t survive.

“How’s someone going to feel if their tax dollars just gave $40,000 or $60,000 of free money to a business that may or may not have the ability to pay it back?” said Watson.

It’s not pay up or go under, says fintech company

There are multiple options to allow a business to extend their eligibility for the CEBA loan forgiveness subsidy, according to both federal documentation and a financial institution working to extend loans and refinancing.

Companies that are unable to pay their entire loan off by the deadline can continue onward, without receiving the free money as part of the loan forgiveness, and have a five per cent interest rate per annum starting Jan. 19, 2024.

Businesses can also refinance the loan with banks or other financial institutions, and will still receive the loan forgiveness. This would require the business to be deemed loan-worthy by one of those institutions, such as a bank, credit union or financial technology company.

If eligible for a new or refinanced loan, the business would then have to start making repayments to their institution (rather than the federal government) at an agreed-upon interest rate, which is likely to be significantly higher than five per cent. 

But again, the business would receive up to $20,000 in loan forgiveness in exchange for this.

“No matter how you slice up percentages or dollars, you know, the simple math is you end up way ahead if you can repay,” said David Gens, founder and CEO of Merchant Growth in Vancouver.

His company offers refinancing options for many small businesses looking to take advantage of the federal government’s loan forgiveness subsidy.

Gens believes the government should not extend the deadline and rejects the argument that with more time, businesses will just be able to repay their loans. “That logic is flawed,” he said, because the nature of business is that some will fail. 

“The longer Ottawa waits, the less Ottawa will collect,” said Gens, explaining that the number of businesses that received CEBA won’t grow as the program has ended.

“Some business models become no longer viable. They have to close, and new businesses are born, right?”

There is another extension until March — sort of

Gens said that because of the repeated loan extensions and lobbying for new extensions, some companies may have expected another bailout — one that isn’t likely to come.

“Some businesses were not as proactive as they otherwise would have been,” he said.

Gens pointed out that the federal government’s criteria for the loan forgiveness states that as long as a loan recipient had applied for refinancing before the deadline, they are eligible to receive the free money if they pay back their loan by March 28, 2024.

“There’s some confusion around how to qualify for that, so we’re having some conversations around that. But at this point, everyone’s just working within the reality.”

CEBA the ‘scariest’ loan for one owner

These extensions and changes haven’t been enough for at least one business owner, who told CBC Radio’s The Cost of Living she had to break her lease because of how extensive her company’s debt was.

“My biggest loan is CEBA. It’s the biggest one. It’s the scariest one. And I think all of our other debt is manageable,” said Brittany Megna, owner of BOVJEE Beauty Boutique in Guelph, Ont.

Megna was declined refinancing for her CEBA loan by her financial institution, and as she cannot pay the body of the loan back by January 18, will not receive $10,000 in loan forgiveness.

She usually focuses on eyelash extensions — not loan extensions. But the experience of being unable to repay her CEBA debt has turned her off trying to open her own location again, and she’s moved from operating a commercial location to operating as a sole proprietor, renting out a room in an existing and established salon. 

“There’s no way that I would ever risk putting all of my savings and hard work into another commercial unit knowing that there is a possibility it could close within a year,” she said. “There’s no way.”