‘They don’t have the cash’: Why COVID loans meant to help B.C. businesses may now lead to their closures

The owners of Celeshmet Persian restaurant on Victoria Drive face a dilemma as the Jan. 18 deadline to repay Canada Emergency Business Account loans approaches.

The $60,000 interest-free loan through CEBA was a lifeline in 2020 when the COVID-19 pandemic hit. The Khansari family had just barely opened their establishment as part of a plan to immigrate to Canada from Iran under an entrepreneur program.

“And $20,000 is a lot,” she said. “There is no other way. We have to pay this one, but I’m not sure about continuing, to be able to continue the business.”

Conditions have improved for Celeshmet, and Khansari likes the location.

But the “new normal” of business since COVID restrictions has proved challenging, along with the effects of inflation and rising costs. Each month, Khansari said, is a struggle to survive.

Celeshmet won’t be alone in making tough decisions, according to business groups that contend the Jan. 18 deadline to repay CEBA loans will shape the outlook for a lot of B.C.’s small businesses in 2024.

CEBA offered businesses interest-free loans of $40,000 to $60,000 at the start of pandemic restrictions, with the possibility of earning forgiveness of up to one third of the debt if they could repay the balance by a certain date.

They just don’t have the cash

A recent survey by the Canadian Federation of Independent Business suggests just 37 per cent of businesses repaid their CEBA loans already, with about 22 per cent unable to meet the Jan. 18 deadline and being forced to consider their options.

“Some restaurants will probably fold — we don’t know how many — because they just don’t have the cash,” said Ian Tostenson, CEO of the B.C. Restaurant and Foodservices Association. “This is the worst time to ask businesses, in January, to pay back a little, whether it’s a restaurant or retailer.”

Revenue restaurants earn in December is what they rely on to carry them through slow months and “they don’t have the cash,” Tostenson said.

Restaurants might have been busier over the recent crucial holiday period, but their patrons have been spending less, often hitting happy hours instead of reservations for more expensive meals, Tostenson said.

Restaurants Canada, the national industry group, estimated 53 per cent of Canadian restaurants are only breaking even or operating at a loss, which it says underlines their last-minute plea for an extension of the CEBA deadline.

Prospects for an extension of that CEBA deadline, however, are diminishing with Deputy Prime Minister Chrystia Freeland holding firm on Jan. 18 in recent statements, noting that the deadline has already been extended.

The first repayment deadline was Dec. 31, 2022, which was then extended to Dec. 31, 2023, owing to a business recovery that wasn’t as robust as hoped.

Under pressure from business groups, opposition MPs and provincial premiers — including B.C. Premier David Eby — Ottawa extended the deadline again, but just until Jan. 18.

Government argues it has done what it can to lessen the blow of that by making the repayment term three years, repayable by Dec. 31, 2026, with an interest rate of five per cent — less than commercial loans based on prime lending rates.

Businesses that show they are working with their lender have a grace period until March 28 to repay their balances — either $30,000 if they borrowed $40,000 or $40,000 if they borrowed $60,000 — to earn the forgivable portion.

Businesses repaying over three years will also have the option of paying only interest — no principal — until the loans come due at the end of 2026. Or, they can pay them off at any time without penalty.

“The bottom line is that if you are a small business and do not currently have the funds to repay your ceba loan, you now have three years to pay it in full,” Cuplinskas said. “The additional flexibility that we announced is significant support for small businesses who might still be struggling to make ends meet.”

Deadline coincides with slowing economy

A substantial number of businesses are still struggling enough that they will have to roll over their loans, according to the CFIB, whose survey estimated 22 per cent of B.C. businesses won’t hit the Jan. 18 deadline.

“That’s one in five small businesses that will not be able to repay the loan in time to access that much needed forgivable portion,” said Annie Dormuth, CFIB’s provincial director for B.C. and Alberta.

That will be difficult for many businesses as they also cope with inflation and facing rent increases, higher property taxes and increases in payroll deductions.

“I think everyone started 2023 hoping this was the year that was really going to help their businesses recover from all those revenue losses,” Dormuth said. “However, 2023 had a different story to tell.”

The fact remains that “full economic recovery is simply not a reality for many small businesses,” Dormuth said.

Business groups are keeping pressure on Freeland for a last-minute reprieve, considering the number of owners who have indicated they face difficulties in repaying, said Jasroop Ghosal, policy and research manager for the Surrey Board of Trade.

The CEBA deadline also coincides with a slowing of B.C.’s economy in the past six months, which isn’t expected to get any better in 2024, according to Bridgitte Anderson, CEO of the Greater Vancouver Board of Trade.

“It’s a little bit early in the year, but there are pretty big concerns from our members and from the business community in general, which started showing months ago,” Anderson said.

In December, the board issued a warning about Vancouver’s economy showing signs of stalling at the same time businesses face increasing costs.

“We did see quite a few businesses close in the fourth quarter of 2023 and I think that’s going to continue for at least this first quarter” of 2024, Anderson said.

Holding out hope

Even businesses that had the cash flow to save up to repay their CEBA loans by the deadline say an extension would give them much-needed breathing room.

“I’m waiting to the last minute, but yes, we have enough cash reserves to pay the $40,000,” said Mo Tarmohamed, operator of the Rickshaw Theatre concert venue on Hastings Street.

“It’s not a huge stretch,” because he didn’t lose sight of those deadlines and Rickshaw experienced a surge in concert bookings once COVID-era restrictions were lifted, as bands wanted to “make up for lost time,” he said.

CEBA was a lifeline of cash when the Rickshaw had very little, but Tarmohamed said deferring the repayment deadline for another year would allow him to reinvest in his business at a time when ticket sales for shows are starting to slow.

“It does take away from any capital acquisitions or infrastructure improvements, which I would rather have spent that money for,” Tarmohamed said.

Still, “in terms of the hospitality industry, I think music venues and music industry has recovered fairly well,” Tarmohamed said. “I feel sorry for other businesses, from what I hear, restaurants especially.”

Peggy Lee, co-owner of Pegster’s Coffee Shop, a mostly soup-and-sandwich lunch spot on Lonsdale Avenue in North Vancouver, is in that category. She is pleading for grace after taking $40,000 from her and her husband’s retirement savings to pay back at least part of the loan.

She said the best they could come up with was that $40,000 and she’s now bracing herself to start hearing from the Canada Revenue Agency about repaying the balance. “It’s nerve-racking.”

Unpaid loan balances will be sent for collection, according to the program’s website, but it promises businesses “will be offered appropriate leniency” in a repayment schedule.

Lee, who is 69, considered retiring at the start of the pandemic, but she and her husband decided to carry on when they learned about CEBA because she loves serving the clientele they’ve built up in the surrounding community that “is like family.”

“We have built a lot of relationships with the seniors here, with young people,” Lee said, noting there are more and more young customers because of apartments being built in the area.

Lee acknowledges Pegster’s decor has become dated, but she is devoted to keeping prices down. Sandwiches average $9, a large soup is $7.

Lee said she asked the lender who helped them with the CEBA process why they were eventually deemed ineligible, “but they don’t know.”

Now, she and her husband face working a few more years to replenish their retirement fund and is hoping government can reconsider their eligibility for the CEBA loan so they too can be forgiven part of the loan.

“To be fair, we owe the ($40,000), we have to pay that back,” Lee said. However, she also recalls Prime Minister Justin Trudeau declaring, “We have your back.”

“We’re just asking for a little bit more time.”