Small businesses facing hard decisions about CEBA loan forgiveness deadline

With a major deadline to repay a pandemic era loan on the horizon, Rod Castro says he feels like he's performing a "juggling act" while trying to figure out the best way forward.

"I haven't written myself a paycheck or cashed a paycheck in about three months," he told CBC News. "Right now, all we're doing is just trying to keep every single dollar in the business."

Castro owns two restaurants in Ottawa — 10 Fourteen and Pubblico Eatery. Like many small business owners, he took out a Canada Emergency Business Account (CEBA) loan to help cover some of his costs when he was forced to close his doors during the pandemic.

The CEBA program offered interest-free loans backed by the federal government. A business could apply for up to $60,000 through the program. Any business that repays the bulk of the loan by January 18 can see up to $20,000 of the loan forgiven.

Businesses don't have to pay interest on CEBA loans right now, but the loans will start accruing five per cent interest after January 18.

With that deadline fast approaching, Castro said he isn't sure what his plans are yet.

A business can refinance their CEBA debt — essentially by taking out another loan at a higher interest rate — and still qualify for the forgivable portion.

Castro said paying the loan out of pocket would mean using up the cash his restaurants have started taking in recently from hosting holiday parties — even as he anticipates slower business in January. He said he's also not thrilled about the prospect of paying higher interest on a new loan.

"What do we do? Do we take a loan out or do we just empty the bank account? And that's where we're at right now," he said. "That's the juggling act right now."

If a business decides to refinance their CEBA loan, they have until March 28 to have part of the debt forgiven.

Dan Kelly, president of the Canadian Federation of Independent Business (CFIB), said some of the rules around refinancing weren't made clear until recently.

"There's a whole host of administrative questions around this special extension that the government didn't have answers to until [early December], which is pretty outrageous," Kelly said.

The government recently noted that businesses looking to refinance first need to apply to the financial institution that originally provided them with the CEBA loan. Businesses can then look elsewhere if they are turned down by that institution, or want to look for a better offer.

In order to qualify for the March 28 deadline, a business must apply for refinancing by January 18. After that date, five per cent interest will be charged on the CEBA loan — but a business that secures a refinanced loan by the March deadline and repays the outstanding principal can still receive partial debt forgiveness.

Like Castro, Nathan Hynes, owner of the Sand and Pearl Oyster Bar in Prince Edward County, Ont., said he's still weighing his options. 

"It's a huge additional expense at an inopportune time for a lot of small businesses and restaurants," Hynes said of the option of taking on a higher interest rate with a refinanced loan.

"Inflation is really hitting people [and] I think restaurants are the first thing that people sacrifice," he said. "I know that it is that way for me and I'm in the restaurant business."

Hynes said that while his bank pre-approved him for a refinanced loan, he's looking at other options, such as adding it to his mortgage.

"You just do the math and find out which one's more economical and which one you can handle," he said.

Both Castro and Hynes said businesses that don't have the option to refinance are in a bad place right now.

"That's going to be terrifying for a lot of businesses," Castro said.

Some businesses unable to refinance

Kara Deringer, owner of the Pink Gorilla restaurant in Edmonton, said she doesn't think she'll be able to refinance her CEBA loan and won't be able to pay off the loan in time to qualify for the partial forgiveness.

"I've been looking at a variety of creative options and just hitting roadblocks ... one roadblock after another," she said. 

Like other business owners, Deringer said she's been feeling the pinch from inflation and higher interest rates. She's said she's taking on side jobs to pay down her CEBA and other debts.

"Small business owners, what a lot of people don't always realize is, ... we're sometimes funding our businesses out of our own pockets. So even when there's increases in personal costs, like our mortgage goes up, that reduces our ability to fund our businesses at times," she said.

Kelly said many small businesses still haven't seen their incomes return to pre-pandemic levels. He said he fears that some might start going under if they don't make the forgiveness deadline.

"That extra $10,000 or $20,000 worth of debt that they will take on could be the straw that breaks the camel's back," he said.

Hynes said he knows of other businesses "that are in a much tougher situation than I am."

"I think this is going to put a lot of people out of business and it deeply disturbs me," he said.

In September, the government announced an 18-day extension to the forgiveness deadline. But advocacy groups such as the Canadian Federation Of Independent Business (CFIB) and Restaurants Canada have been pushing the government to extend the forgiveness deadline to the end of 2024. 

In October, Canada's premiers added their voices to that call. Earlier this month, federal NDP small business critic Richard Cannings wrote to Finance Minister Chrystia Freeland and Small Business Minister Rechie Valdez asking for an extension.

But the government seems reluctant to push the deadline back.

Freeland was asked by a reporter earlier this month if she'd reconsider the request to extend the forgiveness deadline. She said that while she knows the deadline is worrying some business owners, they have until 2026 to repay the loan in full and five per cent interest is "reasonable."

"I know people have some anxiety about it, which is completely understandable," Freeland said. "You have three years to pay it back, and the rate of interest charged over those three years is really, really reasonable."

A spokesperson for Freeland's office told CBC News that roughly a fifth of CEBA loan holders had fully repaid their loans and qualified for partial forgiveness as of the end of August. The spokesperson said the department expects more businesses will pay off their loans closer to the deadline.

Nobody's asking for a handout. Nobody's asking for a bailout. All we're asking for is time. That's that's all the ask was. And to be told no is literally very disheartening.- Rod Castro, restaurant owner

But Kelly said an extension would allow more businesses time to get back on their feet.

"I'm not suggesting the government subsidize these businesses. Businesses do fail," he said.

"But failing because they took on damage from the pandemic, because they were ordered to close down for month after month — it just seems like very short sighted policies."

Hynes said not extending the deadline is "incredibly heartless."

"Postponing it another year would not kill them," he said. "It's just another one of those things, too, where you feel kind of slighted as a small business as opposed to big business. You feel like this wouldn't happen to a bigger industry."

Deringer said a year's extension "would mean the world" to her.

"I have tears in my eyes, actually, because it really would mean a lot," she said.

Castro agrees.

"Nobody's asking for a handout," he said. "Nobody's asking for a bailout. All we're asking for is time. And to be told no is literally very disheartening."