The repayment of Ottawa’s COVID emergency loans is the straw that breaks the camel’s back for many entrepreneurs, who prefer to go out of business.
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“It’s not easy to be an entrepreneur these days, we hear that from our members when we meet them. For most, the last few years have been an ultramarathon that has really exhausted them,” says Simon Gaudreault, vice-president of research at the Canadian Federation of Independent Business (CFIB).
A report from Equifax shows that Quebec saw the largest increase in severe delinquency rates (missed payments for more than 90 days) among Canadian provinces year over year, increasing by 8%.
But above all, businesses facing bankruptcy are up 44% in Quebec over the past year, with just under 3,000 businesses going bankrupt in 2023.
“This data is a combination of bankruptcy proposals (when the entrepreneur offers to repay his creditors) and bankruptcies as such,” specifies Jeff Brown of Equifax.
COVID loans hurt
One of the main factors contributing to the problems of SMEs is the repayment of Canada Emergency Business Account (CEBA) loans.
With the CEBA loan repayment deadline now passed, many businesses are finding themselves struggling financially with monthly payments, which come with a higher interest rate.
“According to our surveys, the biggest challenge facing one in five SME owners right now is the financial situation of their business. It is enormous! Usually it’s the tax burden, paperwork or labor problems,” underlines Simon Gaudreault.
What happens, he adds, is that even if companies manage to repay the loan, it is often at the cost of refinancing and at a very high interest rate.
“It’s as if they took the Visa to reimburse the Mastercard,” he illustrates.
Others get by
That said, the picture is not all black. Many companies are doing well despite everything, notes Simon Gaudreault.
“We will eventually have an economic recovery, but it’s just that we have a fairly high number of businesses that are more fragile. A possible drop in interest rates would be a big element in reviving demand and facilitating financing,” he concludes.
Remember that 183,000 businesses in Quebec applied for the CUEC emergency loan, which had to be repaid by January 18 to be able to preserve the subsidy part of the loan.
According to the firm Raymond Chabot Grant Thornton, only 10% of Canadian companies had managed to make their reimbursement as of December.