Businesses That Received Pandemic Relief Typically Small and Heavily Indebted: Federal Report

A pedestrian walks past a vacant storefront as the COVID-19 pandemic continues to impact small businesses in Montreal on Nov. 23, 2020. (The Canadian Press/Ryan Remiorz)

Businesses that borrowed from a federal relief program during the pandemic tended to be small and heavily indebted, says a report by the Department of Industry.

Losses under the program are estimated to be in the billions.

Published late December, the report, “SME Profile: Recipients of the Canada Emergency Business Account,” noted that the borrowers were typically “young” businesses.

“Around 40.8 percent of them had been in operation for no more than 10 years,” said the federal department, as first reported by Blacklock’s Reporter.

“Most of these (53.2 percent) were micro-sized, having no more than 4 employees, and 38 percent had between 5 and 19 employees.”

The findings were based on a survey conducted by Statistics Canada from April to August 2021 on 19,283 small and medium-sized enterprises (SMEs), using 2020 as the reference year.

“The target population for the survey was private-sector, for-profit SMEs with 1 to 499 employees and $30,000 or more in annual revenue in 2020,” the report said.

“For the main population, the response rate was calculated at 56 percent. Of these respondents, CEBA recipients represented 65 percent of all SMEs surveyed.”

In 2020, the Liberal government introduced the Canada Emergency Business Account (CEBA) program, offering $40,000 in interest-free loans to business owners affected by lockdown orders during the COVID-19 pandemic.

About six months after its rollout, it was expanded to $60,000 with a third forgiven—a maximum of $20,000—on final repayment. Loans were originally due for repayment last month, but were subsequently extended to Dec. 31, 2023.

Debt Financing

The SME Profile report said most borrowers were mostly from the hospitality industry.

“The accommodation and food services sector had the highest CEBA application rate (81.6 percent), followed by the tourism sector (77.6 percent),” the report said. “The tourism group includes businesses that operate in transportation, recreation, and entertainment industries.”

Nearly 18 percent of businesses that received the CEBA loans in 2020, also requested other types of debt financing, such as second mortgages, lines of credit, term loans and credit cards, according to the report.

Final default rates under the $49.2 billion loan program are unknown. Cabinet, in an Inquiry of Ministry tabled in Parliament in November, put the figure at $2.4 billion.

Speaking virtually at a press conference on Jan. 12, 2022, Small Business Minister Mary Ng said the extended repayment deadline “will help businesses get that flexibility and continue to work together through this pandemic until the end.”

“I want to assure Canadian businesses we’ve had your back from day one,” Ng said. “We are going to continue to do that.”

According to official estimates, a total of 898,271 businesses were approved under the CEBA program as of Jan. 26, 2022.