Some small business owners in London, Ont., say they need more time to repay a loan they took during the COVID pandemic because their operations still haven’t fully recovered, and the upcoming mid-January deadline is too close for those who are still struggling.
Businesses must pay back the Canada Emergency Business Account (CEBA) by Jan. 18 to avoid accruing five per cent interest after that date. Any business that pays back the bulk of their CEBA loan by that deadline can see up to $20,000 of the loan forgiven.
But that time limit adds more strain to the inflationary pressures businesses are already under, said Moira Adlan, co-owner of Hyland Cinema in south London, who took a $60,000 CEBA loan.
“It’s not like we don’t want to pay it back, we just wish there was more time. We just need a little buffer. I don’t know why they didn’t do half this year, half next year,” she said.
“It just seems to be ‘pay it back now or else’ but that’s an inflexible approach to small businesses that are trying to hang on and hold their employees.”
The CEBA program initially offered federally-backed interest-free loans up to $60,000. Businesses can also refinance their CEBA debt by taking out another loan at a higher interest rate and still qualify for the forgivable portion.
Adlan plans to pay back $40,000 in order to receive the $20,000 loan forgiveness. Although refinancing is an option, it’s one she’s less likely to take due to high interest rates, she said.
“$40,000 is challenging because it comes out of your operating budget, so that puts us right on the line of survive or don’t survive,” she said.
“Refinancing rates are the highest we’ve seen in years and anything you pay as a personal loan, you only add on because business loans are even more [costly], so it’s quite expensive to refinance through a bank.”
The CEBA funds went toward maintaining the Hyland Cinema building on Wharncliffe Road, rehiring employees and daily operations, Adlan said. But the cinema has only been able to retain 50 per cent of its pre-pandemic customer base, while also facing increasing costs of supplies like theatre snacks.
More businesses consider closing
Phil Kikuchi owns Strings Guitar Shop in Old East Village which sells coffee and guitars and offers guitar lessons. Kitkuchi said he doesn’t know how he will pay back the $40,000 CEBA loan he took out in 2020, and is considering closing the retail aspect of his business.
“Right now, we’re towing the line so I’m not sure what will happen. But the way retail is going, [staying open] doesn’t seem like a smart way to go,” he said. “It’s a real struggle and seems like an uphill battle for business to pick up now with inflation and the cost of living.”
COVID’s impacts are a only a portion of challenges businesses in London are facing, said Scott Collyer, board chair of the London downtown business improvement area (BIA). Ongoing construction, growing homelessness and hybrid workplaces have driven away a lot of foot traffic stores and restaurants would typically see pre-pandemic.
“CEBA money has to be paid back, but a lot of people don’t have the cash flows yet because their businesses haven’t fully ramped up back to what the pre-COVID levels were,” Collyer said.
“A lot of businesses are making difficult decisions to close because of the head winds they’re facing, and the pressure to pay back CEBA is just another one of those head winds.”
Collyer believes the federal government should consider a case-by-case extension for certain businesses to repay their loans, he said.
“I don’t really think CEBA coming due that quickly all at once was the way to go. We need to support small businesses,” Adlan said.