Pegsters Coffee Shop owner Peggy Lee has one of many small businesses caught up in bureaucratic bungling related to the federal government’s $49 billion, interest-free loan program during the COVID-19 pandemic.
The result is that she, like many others, are looking into what financing options are on offer to help keep her business afloat.
The federal government said in October that about $38.7 billion worth of Canada Emergency Business Account (CEBA) loans remained unpaid, which constituted about 79 per cent of the money it had lent under the program.
When Lee sought her $60,000 CEBA loan from the federal government in 2020, she was approved, as were about 900,000 others across Canada, including an estimated 120,000 business owners from B.C.
A rotation of government health regulations had limited Pegster’s Coffee Shop’s capacity to operate. Lee thought the idea of having an interest-free loan – one that only required her to repay two-thirds of the amount borrowed – sounded like a deal too good to refuse.
Her payroll was in the $20,000-to-$1.5-million range that it needed to be in. She had also been in business the required amount of time and had filed tax returns, and she told BIV she believed she adhered to all requirements.
Last fall, however, her financial institution, BlueShore Financial, alerted her that she did not qualify for the loan after all.
That meant that instead of having to pay back $40,000 of the loan by Jan. 18, she had to pay back the full $60,000 by the end of last year.
Failing to pay back that entire amount by the end of December 2023 would mean that any outstanding balance would be converted into a loan with a five-per-cent interest rate, she said.
Lee paid back $40,000 by Dec. 31, and is hoping that a last-minute reprieve can save her from having to pay back the additional $20,000 plus interest.
Some business owners who did quality for CEBA loans are also feeling financially squeezed.
Canadian Federation of Independent Business (CFIB) president Dan Kelly said his organization is “disappointed” with the government’s handling of the CEBA loan program.
“CFIB believes it is still deeply unfair that businesses will lose the forgivable portion of the loan if not repaid [by the deadline],” he said.
Qualified borrowers who received $60,000 had to pay back $40,000 by Jan. 18 to be eligible to keep the remaining $20,000. If by Jan. 18 they had already started a refinancing application with the original bank that provided them with a CEBA loan, they are able to finalize their repayment by March 28 and keep the forgivable $20,000 portion, according to the federal government.
Business profitability has not returned as fast as some would like.
The bus and SeaBus shutdown yesterday and today (Jan. 22 and 23) has only added to small-business owners' woes, as some staff are unable to get to work. The strike has also prompted some customers of small businesses to work from home, thereby meaning that they were not at their office and needing to pop out to buy lunch or do other errands.
Rising prices for input costs, such as supplies, labour and rent, in many cases has exceeded business owners’ ability to raise their prices.
A recent Bank of Canada Business Outlook Survey found that the share of businesses planning larger-than-normal price increases in the next year fell to 37 per cent in the fourth quarter of 2023, down from 42 per cent in the previous quarter.
The impact could be widespread business failures.
Between 10 and 14 per cent of the more than 15,000 restaurants in the province could close as a result of the federal government not extending its deadline for repaying CEBA loans, BC Restaurant and Foodservices Association CEO Ian Tostenson told BIV.
He explained that those restaurant owners are stretched so thin that requiring them to repay the full $60,000 loan plus up to $3,000 in interest in the first year if they miss the repayment deadline, is enough to push them into receivership.
Some business owners have gone to the big banks to see what kind of financing they could get to pay back the CEBA loan in time to keep the forgivable portion.
Others have tried alternative lenders, which have higher interest rates.
Merchant Growth CEO David Gens told BIV that so far this year his alternative-lending business has seen a spike in interest.
“We’re seeing 600 per cent more people apply with us each day now than we did a month ago,” he said, adding that the vast majority of those seeking loans are CEBA loan recipients.
Merchant Growth has about $100 million in loans out to small-business clients and the loans’ interest rates tend to be between 15 and 25 per cent.
Thanks to a new partnership with Fortress Investment Group, Merchant Growth has the capacity to lend up to $375 million – $300 million of which would be loans that Fortress would buy, while $75 million is in a separate Merchant Growth-owned fund, said Gens, who was a BIV Forty Under 40 winner in 2014.
His Gastown-based company used to provide financing to small businesses that saw Merchant Growth being repaid by taking a small slice of every sales transaction that was conducted by a credit card or a debit card.
It has since moved away from that model toward providing small loans.
“We found that the market likes a more simple and more traditional loan structure,” Gens said. “It’s easier to explain and it’s easier to understand.”
What makes Merchant Growth different than financial institutions is that it tends to provide loans to businesses that have less than $5 million in revenue.
Banks or credit unions that do that would require loan recipients to provide proof of collateral, he said.
Merchant Growth, in contrast, looks at cash flow, Gens explained.
“We look at bank transaction data, credit bureau data and a few other data sources,” he said.
BDC is another option for small-business owners seeking loans. That lender’s website says its loans have “flexible repayment” options.
Pacifican’s interest-free loan program offers help for some tourism businesses
Some tourism-related businesses could also be eligible for interest-free loans up to $250,000, particularly if owners have infrastructure upgrades, or projects separate from the day-to-day function of their enterprises.
PacifiCan, which is the federal economic development agency dedicated to help British Columbians, is launching a new $108 million program that provides those loans to eligible tourism businesses that apply by Feb. 20.
The intent of the program is to help fund infrastructure upgrades, such as trail development and leasehold improvements.
The loans can also fund costs incurred when business owners design new or improved tourism products and services.
Business owners can use the money to buy or rent machinery. They can also use it to pay for community engagement, planning, marketing, product demonstrations and acquiring new technology.
They are not able to use PacifiCan loans to refinance existing debt, buy assets at prices that exceed fair market value or pay for lobbying. Other ineligible costs include salary bonuses, dividend payments, entertainment expenses, motor vehicles, land or building acquisitions, donations and ongoing operational costs.
“Restaurants, accommodation and retail are not normally eligible,” Pacifican said on its website.
“Some exceptions can be made for restaurants or accommodations that are an anchor for a tourism community.”
Approximately 15 per cent of the program’s loans are set to be for Indigenous applicants.
Businesses and not-for-profit organizations can apply for the loans, while not-for-profit ventures are able to keep the money and not pay it back.
Pacifican would give businesses that receive loans a one-year grace period on repaying the money. Equal monthly payments would then be required for five years.
To be eligible, applicants must have financially viable businesses that have operated for a minimum of two years in B.C.
