Small businesses are billions in debt, CFIB says

Seven out of 10 Canadian companies owe an average of $170,000 each due to COVID-19

Small businesses in Canada owe a collective estimated $135 billion thanks to the pandemic, according to a new report by the Canadian Federation of Independent Business (CFIB) released Thursday.

In a February survey of 3,554 small business owners in Canada, the CFIB found that seven out of 10 businesses took on debt due to COVID-19, owing an average of almost $170,000 each.

Three-quarters of the businesses that have taken on debt say it will take them more than a year to repay it, and more than 10 per cent of those are concerned they will be unable to repay it at all. Four in 10 businesses surveyed don’t expect to return to pre-pandemic profit levels for more than a year. Some don’t know if they ever will.

Certain sectors are more likely to have taken on debt because of the pandemic, notably businesses in hard-hit sectors like hospitality, the arts, recreation and information, and social services. Nine out of 10 hospitality businesses have taken on debt due to the pandemic.

The average amount of debt also varies per sector; for example, businesses in hospitality and arts and recreation

took on a debt average higher than the national average.

“Unsurprisingly, businesses in sectors that have more flexibility to conduct operations remotely, are able to maintain required physical distancing, or be considered essential services are more likely to … come in below the national average on both indicators,” the report states.

Report author Taylor Matchett said it’s important to remember that even when businesses can open their doors, their recovery will be slow, especially in the hardest-hit sectors.

Businesses in Ontario were hardest hit, with the average debt per business hitting almost $208,000.

Ryan Mallough, director of provincial affairs for Ontario at the CFIB, said Ontario’s average business debt is “alarming,” especially since for many areas of the province, including Toronto, business restrictions are nowhere near over.

Businesses are taking on debt in addition to benefiting from non-repayable governmental COVID-19 support.

The source of debt with the highest pickup is the Canada Emergency Business Account (CEBA), which provides interest-free loans, a portion of which are forgivable. Almost six out of 10 businesses are using CEBA.

Other sources of debt include credit card debt and loans from financial institutions, mortgages and loans from family or friends. Some business owners are dipping into their retirement savings, and more than a quarter are using other personal savings to keep their business afloat.

Matchett said it’s worrying that business owners are dipping into their personal funds, as they’re creating financial difficulties for themselves further down the road.

Liz Clark owns Chair Décor, a linen supply company in Woodbridge, Ont. Prior to the pandemic, her business was debt free and growing every year. Now, she’s $100,000 in debt between CEBA and the Business Development Bank of Canada, despite also accessing every single subsidy her business qualifies for.

Clark said she’s lacking a concrete long-term plan from the governments, federal and provincial, to ensure businesses like hers aren’t trampled by the debt they’re in. Without a plan, she said it’s hard to know whether to keep surviving or cut her losses and close the business.

“Without a plan from the government, it’s really, really hard for us to understand, as a business, what’s the right decision,” she said, adding that she thinks both levels of government should consider some amount of debt forgiveness to help stimulate the economic recovery.

Matchett recommends that the government increase the amount offered by CEBA from $60,000 to $80,000, and increase the forgivable portion of CEBA to 50 per cent to help lighten the burden.

Mallough agrees that governments have a role to play in helping alleviate the burden on business owners, and said that role could come in many different avenues.

He also agreed that businesses are looking for a signal, however vague, from the provincial government that there is help on the way.

“I do think that governments really need to at least put the broad strokes of a plan in place now,” he said.