Thousands of Small Businesses Holding Covid Emergency Loans Losing $10,000 or More as They Are Now Deemed Ineligible

The Canadian Federation of Independent Business (CFIB) is urging the federal government to ensure small businesses that received the Canada Emergency Business Account (CEBA) loans in good faith but are now deemed ineligible get to keep the $10-20,000 forgivable portion of the loan as other applicants.

“The CEBA program was incredibly helpful to over 900,000 small businesses as it provided an interest free $40-$60,000 loan to help them through the pandemic. One of the most important features was that $10-$20,000 of the loan would be forgiven by government upon repayment of the balance, allowing the business to retire a portion of the debt many were forced to take on to survive lockdowns and restrictions,” said Corinne Pohlmann, senior vice-president of national affairs and CFIB. “Unfortunately, thousands of small businesses are now being contacted by their financial institutions demanding that they pay back their CEBA loan in full by end of 2023 because they have now been deemed ineligible in the first place.”

“It is deeply unfair to force small businesses that received a government-backed loan in good faith to lose one of its key benefits,” said Dan Kelly, CFIB president. “While businesses were given some time to provide more information to qualify, it feels like government has forgotten that many were fighting every day for the very survival of their businesses during lockdowns and restrictions. Making businesses who applied and received funds repay the full amount will push some over the edge given the massive debt load many accumulated due to the pandemic.”

Other than in cases of outright fraud, CFIB is calling on government to allow any business that received a CEBA loan to keep the forgivable portion upon repayment of the balance. At minimum, government needs to ensure there is a fresh process for businesses to requalify and to address cases of extreme hardship.

Since coming out of COVID, small businesses have been dealing with high input costs, inflation, labour shortages and supply chain challenges. The latest data on CFIB’s Small Business Recovery Dashboard shows that 58% of small businesses are still making less than their normal revenues and 64% are carrying pandemic debt at an average of $144,000.

Throughout the pandemic, government made changes to its programs to address the changing nature of the pandemic. Small businesses were pleased government listened to earlier CFIB advice by allowing all CEBA recipients to repay the loan by the end of 2023, rather than the earlier deadline of December 31, 2022. CFIB urges government to continue this approach by making the following changes:

  • Ensure all CEBA loan recipients who received it in good faith but are now deemed ineligible get to keep the forgivable portion if they repay the loan by the end of 2023
  • Increase the forgivable portion of all CEBA loans to at least 50%
  • Extend the repayment deadline of the CEBA loan for an additional year to December 2024

“Implementing these recommendations will help ensure more businesses are in a position to recover and repay the balance of their loans in full,” Kelly concluded.

Source: Yahoo Finance

Storm Without End: The Economic and Fiscal Impact of COVID in Canada

The COVID-19 pandemic created enormous economic and fiscal disruption in both Canada and around the world. As revenues dropped and pandemic-related spending soared, governments incurred large deficits. Globally, the IMF has estimated that in 2020 world governments ran a negative general government fiscal balance of 10.2%. This was forecast to decline to 7.9% in 2021 and 5.2% in 2022. Canada did not escape this fiscal impact of the pandemic. According to the IMF, Canada saw a negative fiscal balance of 10.9% in 2020 with a forecast 7.5% in 2021 and 2.2% in 2022. However, the pandemic affected the public finances of the federal and provincial governments differently.

Whereas the federal government saw total revenues fall by 5.3% in 2020/21, the provinces saw total revenues grow by 2.9%. It is estimated that, in the subsequent year, both tiers saw total revenues rise with the federal government experiencing revenue growth of 17% and the provinces collectively 10%. Federal government spending rose 73% to $644.2 billion in 2020/21 before declining 21% to an estimated $508 billion in 2021/22. Total spending by provincial governments rose 9.2% in 2020/21 to $504.4 billion and an estimated further 5.6% to $532.9 billion in 2021/22.

Between 2019/20 and 2020/21, the federal deficit-to-GDP ratio went from 1.8% to 13.2% while the collective deficit-to-GDP ratio of the provinces went from 0.8% to 1.9%. At the provincial level, deficits appear somewhat correlated with the intensity of the pandemic impact. Federally, over half the deficit incurred during the pandemic was related to COVID-19—either health transfers or income support to people and business—while the remainder was spending independent of the pandemic that represents a permanent long-term ramping up of federal expenditure.

Along with substantial amounts of income support to individuals and business with emergency response benefits, the federal government during the pandemic engineered a substantial permanent increase in its own spending levels that deserves particular attention. The spending forecast in the federal 2022 spring budget shows that, compared to the pre-pandemic fiscal year 2019/20, total spending in 2022/23 will be about 27% higher, an average annual increase of 9% per year. This means a bigger federal government expenditure footprint.

As well, health spending deserves some mention. Total health spending was estimated to have increased by nearly 13% between 2019 and 2020 to deal with the pandemic, a rate of increase not seen in more than 30 years and triple the steady 4% growth rate from 2015 to 2019. While total health spending is up, closing of outpatient departments and postponing of medical visits and procedures during the height of the pandemic meant a reduction in some aspects of health services and spending. When provincial-territorial governments are examined, their real per-capita total health spending in 2020 rose 8.1%. However, once the COVID-19 response is factored out, their spending declined by about 1% in 2020, though it is expected to rebound in 2021. The biggest declines in real per-capita health spending by provincial governments net of COVID-19 response funding in 2020 were in New Brunswick, Quebec, and Alberta.

Summarizing the fiscal effects of the pandemic in Canada, both tiers of government saw revenues decline early on in the pandemic and then recover, with the provinces recovering faster in part because of transfers provided by the federal government. Both tiers also saw expenditures rise with an associated rise in both deficits and debt. However, collectively, the effects on Canada’s provinces were more modest, producing smaller ratios of deficit and debt to GDP than was the case for the federal government.

Source: Fraser Institute