Small Businesses Struggle to make Dent in Covid-related Debt
Covid-related debt has not abated since the beginning of the year, with small businesses owing an average of nearly $170,000, according to a new report from the Canadian Federation of Independent Business (CFIB).
“While the overall small business debt load due to Covid-19 has remained stable over the past six months, the actual repayment of this debt will be the next big obstacle that small businesses will face, especially as many are still seeing a slow pick up in revenues, capacity restrictions and uncertainty heading into the fall and winter months” says Corinne Pohlmann, senior vice-president of national affairs at CFIB.
In total, CFIB estimates that small businesses in Canada now owe a collective $139 billion due to the pandemic, a slight increase from the estimated $135 billion in February of this year.
Three-quarters of small businesses that took on debt say it will take more than a year to repay.
“When we look more closely at the data, we can see two very different narratives emerge between businesses that faced lockdowns and those that remained open,” says Taylor Matchett, a research analyst at CFIB and author of the report. “We have heard countless stories from members who have not been able to make a dent in repaying their debt. Higher operating costs and lower than normal sales make it seem like a distant reality.”
With only 39 per cent of small businesses back to normal sales, CFIB is calling on provincial governments to implement ‘stay open’ strategies to avoid future lockdowns and business closures, and to provide additional rounds of funding through grant programs.
The association would also like to see governments continue support programs and subsidies until the entire economy can reopen, including international borders, and the repayment term for the Canada Emergency Business Account loan to be extended until Dec. 31, 2024, to give businesses a chance to return to normal sales volumes.