Entrepreneur clients must research all options to repay pandemic debt, says Blueshore Financial business advisor
Last month, Canadian business owners still living under COVID’s long financial shadow anxiously awaited the answer to a crucial question: would the government once again move the deadline to pay back the pandemic debt they’d borrowed through the Canada Emergency Business Account (CEBA)?
The government did give more slack on that vital lifeline, but the announcement was nonetheless a letdown for many business owners, including those advised by Anna Plut, business advisor at Blueshore Financial.
“They are disappointed to say the least,” says Plut. “The government said the extension is to 2026, but it's not the extension of the forgiveness. That's what is very much needed.”
In September, the government announced it would extend the deadline for CEBA payment by one year from December 31, 2025 to December 31, 2026.
But that extra year doesn’t include the forgivable portion of CEBA loans – an amount of up to $20,000 that many small business owners are hoping to retain. The deadline to repay the CEBA loan and still be entitled to that forgiveness was moved only by 18 days; business owners looking to keep that benefit must be ready to repay the loan by January 18, 2024.
A hard choice for CEBA debt-saddled businesses
In a poll of small business owners by the Canadian Federation of Independent Business (CFIB), only a third (34%) said they can make the January CEBA repayment deadline. Another 30% are thinking about refinancing to make the required level of repayment and avoid losing the forgivable portion.
From the very beginning, Plut says she coached a lot of small business clients to use their CEBA lifeline with care – “put as much as you can into savings each month” and “draw only the funds you need, and make sure you put it back” – so they’d be in a position to settle that debt when it’s due.
While many clients followed that advice, others didn’t even have the opportunity. With revenues not having recovered to pre-pandemic levels, she says many small business clients are having to de-prioritize spending on equipment, hiring, and other investments in their business just so they can make the fast-approaching CEBA debt payment deadline.
Today, Plut is urging her clients to “first and foremost, act now.” Among other documents, she says business owners still struggling with CEBA debt should expect their financial institution to ask for two years’ worth of financial statements and proof of taxes paid, so they should have those ready.
“Tell your bank specifically ‘I'm looking to refinance my CEBA loan,’ so it is then flagged in the system and the March forgiveness deadline is taken into account,” she says.
She also advises business owners to take stock of their options. A personal line of credit or any pre-approved credit they haven’t taken advantage of, she says, could be useful; those with access to both a line of credit or a loan should weigh various factors including fees, interest rates, and their ability to sustain the payments.
“People with a line of credit are able to pay it down as much or as little as they want to, but they’ll also want to always contain the interest,” she stresses. “If they’re only able to pay the interest for the next three years, that’s not really what a line of credit is meant for … In that case, maybe a loan is the better option.”
Explore all cash flow options
Some desperate business owners might also be thinking about tapping B lenders and loan sharks to address their CEBA debt. Before venturing into these options, Plut encourages entrepreneurs to consult their bank or a credit counselling expert. She also tells clients to leave no stone unturned in searching for sources of cash flow.
“Take small steps,” she says. “I always tell my clients to simplify, streamline, and take a look at each item on your financial statements and see what you can influence.”
While many business owner clients enjoy keeping their accounts payable balances small, Plut says it’s worth asking if they’re paying their suppliers too fast. Making those payments just in time or asking for an extension, she suggests, could free up more cash to use toward CEBA repayment.
Using a credit card may also make sense for some, she adds, as they could extend their cash flow by as much as 21 days and even potentially get some of their cash back.
Business owners should also be on the lookout for government grants they may be eligible for, or consider renting out unused space in their business. Showing solidarity with other entrepreneurs they’re working with, Plut suggests, could also prove valuable both in the short and long term.
“Be part of the community. If you can offer longer payment terms, then you’ll help your clients,” she adds. “Once you change your mindset, this will help with your CEBA … and it will help you in the long run as well.”
