COVID loan repayment deadline an 'anvil around the necks of business,' Toronto advocate warns

Local businesses in Toronto are facing a looming deadline to repay — or refinance — tens of thousands of dollars each in government-backed emergency loans offered during the COVID-19 pandemic.

The upcoming deadline means small- and medium-sized businesses and non-profit organizations eligible to receive a portion of their loans forgiven could lose out on that forgiveness if they can't pay back what they owe or prove they've applied for refinancing with a financial institution by Jan. 18, 2024.

"It's so stressful for us," said Irem Sacakli, co-owner of Turkish restaurant and design studio Flame Food and Design. 

"We can't foresee what is going to happen."

The federal government created the Canada Emergency Business Account, or CEBA, in April 2020. The program provided zero-interest loans of up to $60,000 to small- and medium-sized businesses and non-profit organizations that saw substantial revenue declines due to forced closures, capacity limits and other pandemic restrictions. 

Business owners who borrowed $40,000 or less could have up to $10,000 forgiven, and those who took the maximum $60,000 could have $20,000 forgiven.

Businesses that don't meet the upcoming deadline will see their balances automatically converted to a three-year loan with a five per cent interest rate. Those businesses don't have to make payments on the loan itself until the end of 2026. Instead, they can choose to pay the interest only during that time. 

With the clock ticking, some businesses are struggling to get the cash together while others have been told they never qualified for the borrowed money in the first place. 

'Still living tough days... not because of COVID this time'

Sacakli, who opened the restaurant serving "neo-Anatolian" cuisine in Bloor West Village with her husband in 2018, told CBC Toronto she's been dreading the CEBA repayment date because she can't pay back $40,000 right now.

She says they've been working hard to cut costs while maintaining staff and the quality of their food, but business hasn't fully recovered.

"We are still living tough days because of the general economic situation, not because of COVID this time," Sacakli said. "We are so lucky for having our guests but... we see that mortgage increases are a lot so they want to stay at home and then they rarely go out and that really affects us."

In total, CEBA loaned out around $49 billion to more than 898,000 businesses across Canada. In Ontario, more than 360,000 Ontario businesses were approved for CEBA loans totalling over $19.7 billion.

The federal government has already pushed the deadline back twice in recognition that some small businesses continued to struggle to make ends meet. The original deadline to repay the CEBA loan and benefit from the partial loan forgiveness was Dec. 31, 2022.

Businesses working to refinance their CEBA loan have an additional two months  — until March 28, 2024  — to repay and get the partial loan forgiveness.

Sacakli said her bank rejected her refinancing application and now she fears drowning in debt if the amount she owes for CEBA increases to $60,000, plus interest.

"It will accumulate and it will be like a snowball," she said.

'Highly unfair,' says business owner deemed ineligible

Maaz Ghani is one of many Ontario business owners who received a CEBA loan but was later told he'd have to pay it all back.

Ghani said his online tutoring company, A+ Students, was two months away from bankruptcy when he received $40,000 in late 2020, $10,000 of which was supposed to be forgivable.

But a few months ago, Ghani said he received a message from the bank that manages his loan, informing him that he never met the requirements of the CEBA program, and now has to repay the full amount by the end of the year.

Ghani said when he contacted the CEBA call centre, he was told the rejection had to do with the fact that the vast majority of his 40 employees are independent contractors.

"This is highly unfair … They gave it to us on the premise that $10,000 of that would be forgiven," he said. "They should honour what they said."

Ghani said his business is doing better and he can afford to pay back the full amount, but he feels mistreated.

Around one third of businesses across Canada that took out a CEBA loan report that they don't have enough money to repay it by the deadline to access the forgivable portion, according to Dan Kelly, president and CEO of the Canadian Federation of Independent Business (CFIB). 

"It is like an anvil around the necks of business owners right now," Kelly said. 

"Because if your business hasn't recovered from the pandemic, that loan is really causing you to worry about your future." 

Premiers, CFIB call for 1-year extension

The CFIB is calling for a one-year extension of the repayment deadline and for the creation of an appeal process for those who received a loan but were later deemed ineligible.

"We believe that if Ottawa were more patient, and allowed businesses longer runway to recover, that more of these businesses would survive," Kelly said.

"If we push too hard, these businesses are going to fail. They're going to default on the entire loan and it's going to be taxpayers that end up on the hook for the full $60,000."

The call for an extension was echoed in an Oct. 20 letter written by all 13 provincial and territorial premiers  to Prime Minister Justin Trudeau.

Toronto city council will vote on a motion requesting the same at its meeting this week.

A spokesperson for Finance Minister Chrystia Freeland said the "additional flexibility" the federal government has already announced to help small businesses that are still struggling is significant.

"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 repay it in full," Katherine Cuplinskas wrote in an email to CBC Toronto.