Nearly Half Of Small Businesses Have Debt Worries Heading Into 2022
HALIFAX – A recent country-wide survey by Equifax Canada found that only 56 percent of small business owners feel they have enough lines of credit to make it through the fourth quarter of 2021.
This is no surprise given that the pandemic has lasted a year and a half, forcing businesses to take on debt and rely heavily on government support programs. According to Equifax, many businesses across Canada now have a historically high amount of debt.
“Historically many small businesses have had limited access to commercial credit. Less than a quarter of the smallest enterprises requested credit in 2018 to fuel growth, partly reflecting access to commercial credit products,” reads an Equifax press release.
“The share of small businesses requesting credit tends to lag. For some, lower approval rates will push them to personal credit.
Despite 44 percent of businesses being worried about debt and their line of credit, a surprisingly high number (68 percent) report feeling confident about their business recovering in 2022. According to Jeff Brown of Equifax, this juxtaposition can be attributed to the optimistic nature of small business owners.
“Small businesses always tend to be overly optimistic. Financially, they believe they can overcome any hurdle or any obstacle,” said Brown in an interview. “For businesses that are typically over-optimistic, to see that number 56 percent) is quite disheartening.”
“When we look at these debts, we really need to think about optimism versus realistic expectations around these loans as well.”
For many small businesses, this unprecedented debt comes in the form of the federal government’s CEBA loans, which were introduced in 2020. First, CEBA gave out $40,000 loans, but then there was a top-up offered of $20,000.
According to the federal government, nearly 900,000 businesses were approved for the first round of CEBA loans and 567,000 got the $20,000 top-up. In total, the government handed out more than $49-billion in loans; that’s a significant amount of collective debt.
The federal government is willing to forgive 33 percent up to $20,000 of the loan if a business can pay the balance by the end of 2022. According to the Equifax survey, only about half of small businesses feel they can repay the whole loan in that timeframe.
Jeff Brown believes, given how long the pandemic has gone on, the federal government should reconsider its policies around the CEBA loans.
“When these loans were initially issued out, nobody believed we were going to be struggling for this long,” said Brown. “Should there be more forgiveness on these loans? The payback period starts in 2022. Unless some of these loans are paid back in full, that forgiveness is completely erased.”
“What will likely end up happening is some small businesses will want to be able to achieve that forgiveness. So, they’ll take out bridge loans…”
The survey results also suggest that the debt was needed, however, for a business to be successful during the pandemic. The businesses that brought in the most revenue also had to take on more debt.
“Those whose businesses made $100k+ revenue last year were significantly more likely to state that they took on extra debt/credit during the course of the pandemic,” states the press release.
The Equifax survey also showed that businesses have a long list of other concerns. It’s no secret that the cost of living has gone up in recent months. StatsCan recently reported that this past August saw inflation rates jump more than four percent compared to the year prior.
So, it’s no surprise that 47 percent of surveyed businesses saying the cost of goods is a leading concern. Other business worries include customer demand, supplies, and staffing shortages.
“Forty-seven percent of small businesses told us that the cost of goods seems to be unrealistic,” said Brown.
“It seems like there’s always this dark cloud around the pandemic and we’re never going to get back to a new normal. And these are ongoing concerns.”
Brown couldn’t venture a guess on when or if small businesses would get any breaks with inflation or any other problems. As he, and others, have noted, there is little historical precedent to fall back on.
“Unprecedented, it really is that,” said Brown. “I don’t think there’s anything we can compare it to in recent times that’s going to give us any indication of what we can expect in the next year.”
Derek Montague is a Huddle reporter in Halifax. Send him your feedback and story ideas: [email protected].
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