Desjardins, which manages about half of the “COVID loans” in Quebec, is concerned about the fate of the many small businesses who are having difficulty repaying them by the January 18 deadline.
More than 80,000 Quebec businesses took out a loan via the Canadian Emergency Business Account (CEBA), a federal government program which aimed to support them during the COVID-19 pandemic.
“We estimate that approximately 30 to 40% of businesses that have obtained a CEBA loan are under pressure to repay this loan,” indicated Marc-Antoine Lavoie, spokesperson for Desjardins.
Several options are available to entrepreneurs who do not have the money in their bank account necessary to repay the entire loan, which is $40,000 or $20,000. The first is to agree to lose the “grant” portion of the program, which is $20,000 or an additional $10,000, and to pay the remaining balance over three years with an interest rate of 5%.
However, Desjardins, like many other financial institutions, offers businesses the opportunity to refinance this loan. However, this method allows businesses to quickly reimburse the government and keep the $20,000 subsidy.
“Unfortunately, we will not be able to help them all due to their financial situation,” said Mr. Lavoie, adding that these loans are without guarantee.
Remortgage your house to save your business
The zero-waste grocery store Orange Coco, in Granby, is one of the companies that failed to obtain refinancing from Desjardins for their CEBA loan.
“The banks didn’t want to lend me [de l’argent], because zero waste grocery stores are too risky. There are many that have closed,” reports the owner, Isabelle Guilmain, who also considered declaring bankruptcy.
She had to remortgage her house to pay her emergency loan. It also launched a fundraising campaign with its customers.
Mme Guilmain says she spent the entire $60,000 during the pandemic. “I had a lot of expenses that were not normally necessary. I had my website built for online sales, I had to hire two full-time people to bag the products, as well as a delivery person and someone to do constant cleaning. We did not take advantage of this money to grow our business. There, we have to put it back, but we haven’t had time to recover from all the damage that the pandemic has brought,” says the woman who believes that COVID-19 has slowed down the great momentum of ecological stores.
She describes the Trudeau government’s decision to impose a refund on small businesses as “heartless” in the current economic context.
“It will leave traces”
The beekeeper Jacques Fontaine is just as revolted and worried. “I don’t think anyone has really recovered from all of this. I don’t understand why the government is pushing so hard to get its money back now. It’s going to leave its mark,” said the owner of Miel Fontaine, a company in Estrie.
To repay his CEBA loan, he went back into debt with a financial institution, at an interest rate of nearly 11%. This adds monthly payments of more than $1,000.
The pandemic was also “nightmare” for his honey house, which has existed for 17 years, since his shop was closed for a long period. “Sales were practically zero. We also do beekeeping training and we had small groups for two years,” says Mr. Fontaine.
He now fears the economic slowdown. Sales of many of his products, notably mead, plummeted, and many of his customers closed. Others extend their bill payment deadlines.
According to Desjardins, 20% of businesses with a COVID loan had still not repaid the entire amount due as of Wednesday afternoon. The office of the Deputy Prime Minister and Minister of Finance of Canada claims that 70% of CEBA beneficiaries had done so as of January 15.
For its part, the Canadian Federation of Independent Business is concerned that certain SMEs, if they are refused by their bank, will turn to refinancing companies which impose higher interest charges. The group is still calling for a postponement of the January 18 deadline, but this possibility was rejected by Prime Minister Justin Trudeau himself this week.