Thousands Of Businesses Told They Were Ineligible For CEBA Loans

HALIFAX — Independent businesses across Canada have a major debt problem. When the pandemic brought small retailers and restaurants to their knees, many turned to government-provided loans to survive.

And we’re not talking about a typical small business loan.

Many business owners took on more than $100,000 in new debt over the last two years. A large chunk of that came from the federal government’s Canada Emergency Benefit Account (CEBA) Loans, which gave eligible businesses as much as $60,000.

But for many across Canada, the CEBA loans are coming back to bite them. According to Dan Kelly, the president of the Canadian Federation of Independent Businesses (CFIB), the federal government has now deemed 50,000 businesses that took out CEBA ineligible.

Kelly believes the majority of the 50,000 businesses were disqualified for minor technicalities, like incorrect paperwork.

“There’s business owners that are eligible for the program but they haven’t their paperwork was wrong. And they may have missed the letter, or didn’t receive a letter, from the bank asking for more. I suspect that’s a fairly large group,” said Kelly.

“I also suspect that there are some who applied for the program who may not have been technically eligible, but still needed the money to keep their business going, and they were given a loan.”

This could cost these businesses, who have already spent their CEBA money, tens of thousands of dollars. That’s because loan recipients who pay off their full loan by December 31, 2023, will get a large chunk of it forgiven. If someone received the full $60,000, they could get $20,000 back.

Starting January 1, 2024, the loans begin collecting five percent interest.

But the 50,000 businesses who have now been called ineligible will not get any forgiveness. Kelly says the government was also going to demand immediate repayment, but the CFIB successfully lobbied to maintain the 2023 deadline.

Kelly says most of the disqualified businesses only received the first $40,000 CEBA Loan, so they will lose $10,000 that would have been forgivable.

He believes the government should only be punishing the businesses that committed fraud to receive CEBA loans. Any business that applied and received the loans in good faith should be grandfathered in.

“The government is going after these business owners now and they will lose key benefits, which will be devastating,” said Kelly. “We think this is deeply unfair. If your business is teetering on the brink of survival, getting that forgivable amount will be very motivating for the business owner to repay. If they lose that benefit I suspect we’ll see a lot more businesses just collapse.”

“To come back two years later and say, ‘sorry, we made a mistake; we shouldn’t give into this loan, you have to pay the whole thing back,’ I think is cruel and unusual punishment.’

Many of the business owners who are now declared ineligible found out through their bank. Kelly said some business owners were in literal states of disbelief when reading their emails.

“They thought this was a scam,” said Kelly. “It’s not typical to get an email from your bank anyway, right? Once we informed them that, sadly, this isn’t a scam, they’re in disbelief that the government more than two years later (changed their minds).”

“The businesses are counting on that forgivable portion In order to retire a chunk of the Covid debt that they’ve taken on. Our data shows that the average small firm has taken on $150,000 worth of debt through Covid.”

Kelly says the disqualified group was identified months ago by the federal government but most only received emails from their banks last week.

Huddle reached out to the federal government to ask about the timing of the disqualifications. A spokesperson from Global Affairs Canada said “critical checks” on businesses’ eligibility goes back to 2020; such as confirming that they had businesses deposit accounts open by March 1 of that year.

Kelly is also hoping that the federal government will extend the deadline for repayment, given the struggles of small businesses. He wants the new deadline to be December 31, 2024, and for half of the loan to be forgivable.

Kelly notes that sales have not returned to pre-pandemic levels for many businesses, and inflation has added new expenses to their books.

“Given the length of the pandemic, the fact that sales have not returned for most businesses back to normal. The fact that the costs now post-pandemic are way higher. We really believe that there’s gonna be a lot of businesses that did qualify for the loan that are going to struggle to repay it by its deadline.”

“We were already seeing business bankruptcies tick up. We’re expecting to see a lot more of that.”

Derek Montague is a Huddle reporter in Halifax. Send him your feedback and story ideas: [email protected].