Study finds community lenders could get multi-billion dollar boost from impending 'CEBA Tsunami'
While there are still difficulties with operational readiness, the Canada Emergency Business Account (CEBA) offers lenders chances to attract and keep small business customers.
That’s according to a study by JUDI.AI, a small business lending technology provider, in partnership with Angus Reid, that focused on small business owners who availed of CEBA loans.
During the pandemic, the government’s CEBA program offered interest-free loans of up to $60,000 to struggling business owners. All in all, nearly 900,000 small enterprises in Canada received a total of $49 billion in CEBA funding.
Three quarters (74%) of survey respondents – equivalent to about 650,000 Canadian firms – said they had not yet paid off their CEBA debt in full. Most firms that have not fully returned their loans (87%) are aware of loan forgiveness, but the rest are still in the dark.
Read more: Spare business owners who took out COVID loans in good faith, urges CFIB
According to JUDI.AI, recipients of CEBA loans are eligible for up to $20,000 in loan forgiveness from the federal government if they repay all their debt by December 31, 2023. For cash-strapped business owners, obtaining a conventional loan is one way to pay back CEBA loans.
While 71% of CEBA loan recipients surveyed intend to pay by the end of 2023, 29% of firms with do not currently have a strategy for repayment or are unsure if they will repay by the deadline.
Only 7% of businesses aim to actively look for a new business credit solution when it comes time to return the loan in 2023, while 63% say they would do so with cash on hand.
However, there is considerable interest in a proactive loan offer. Owners say they are more likely than not to think about and accept a loan offer from their current financial institution (72%) or a new one (60%).
The impending "CEBA Tsunami" represents a $15 billion opportunity for community lenders to help get much-needed capital into the hands of small businesses. However, lenders may also receive hundreds or thousands of applications within a short period, which could be very taxing on the lending process.
Read more: Digging into CEBA's tax implications
Even though many small businesses want to pay back their CEBA loans with cash on hand, they would also be open to a timely, pertinent refinancing offer. Lenders may observe that 50% of current CEBA debtors apply for credit within a few months, and that 50% of those applications may be funded.
"For a CEBA refinancing program to be successful, taking a week to reach a loan decision won't meet the demand," continued Baizley. "Lenders will need a way to manage risk effectively and evaluate creditworthiness efficiently – in a matter of minutes."
The poll also found that 62% of small businesses are positive about their future, and more than half (55%) of enterprises surveyed were fully or partly owned by women, persons of colour, or Indigenous people.
