How the end of pandemic aid could trigger a wave of business failures in Canada

The COVID-19 pandemic has been a devastating blow for many small businesses in Canada, especially those in the hospitality, tourism and retail sectors. According to Statistics Canada, about 60,000 businesses closed permanently in 2020, and another 40,000 followed suit in 2021. 

Many of those who survived did so thanks to the government's emergency support programs, such as the Canada Emergency Business Account (CEBA), which offered interest-free loans of up to C$60,000 to eligible businesses. However, these programs came to an end in December 2023, leaving many small businesses struggling to repay their debts and stay afloat.

The Canadian Federation of Independent Businesses (CFIB), a small-business lobby group, estimates that a quarter of the 900,000 businesses that took out CEBA loans missed the repayment deadline in January 2024. Of those who repaid, CFIB estimates that about 225,000 took out a bank loan to do so, at a time when interest rates in the country are at a 22-year high.

The high cost of borrowing and the slow recovery of consumer demand could push many small businesses over the edge, especially if they face another wave of lockdowns or restrictions due to the Omicron variant or other emerging threats. The CFIB warns that there are tens of thousands, if not hundreds of thousands, of businesses that remain viable, but will not be able to outrun their debt.

A spike in bankruptcies would have serious consequences for the Canadian economy, as small businesses account for over a third of the country's gross domestic product and employ almost two-thirds of the private workforce. A loss of jobs, income and tax revenue would also undermine the government's fiscal position and its ability to provide further stimulus or relief.

To prevent a possible wave of business failures, the CFIB and other groups are calling for the government to extend or modify some of the pandemic support programs, such as allowing more time or flexibility for CEBA repayment, providing targeted grants or subsidies for hard-hit sectors, or reducing taxes and regulatory burdens for small businesses.

The government has said that it is monitoring the situation closely and that it is ready to act if needed. Finance Minister Chrystia Freeland said on Monday that she does not expect a negative impact on the economy from CEBA repayment, as loan recipients have long had full information on timelines and have been able to plan accordingly.

However, some economists and analysts are skeptical about the government's optimism and caution that it may be underestimating the fragility of the small business sector. They argue that the government should act sooner rather than later to prevent a domino effect of business closures that could derail the economic recovery and erode public confidence.

Sources:

- [Canada braces for possible wave of business bankruptcies amid slowdown](https://www.business-standard.com/world-news/canada-braces-for-possible-wave-of-business-bankruptcies-amid-slowdown-124020101304_1.html)

- [Canada’s banks brace for possible wave of loan defaults. Why that matters](https://globalnews.ca/news/9526547/canada-banks-loan-defaults/)

- [Sask. restaurant facing possible bankruptcy as pandemic loan payments loom](https://www.cbc.ca/news/canada/saskatchewan/restaurant-bankruptcy-pandemic-loan-payments-loom-1.7041615)