Ottawa could lose more than $5 billion in CEBA pandemic loans for small businesses

Canadian Export Development head office in Ottawa on February 14, 2019.Justin Tang/The Globe and Mail

Ottawa may be unable to recover $5 billion or more of the $49 billion in emergency loans it made to small businesses during the pandemic shutdowns, according to government projections.

The job of a business owner’s debt-collection hunt issued during the most severe phase of the pandemic, when many struggled to survive a widespread shutdown, was recently handed over by the federal government to the Canada Revenue Agency.

Ottawa announced the Canadian Emergency Business Account (CEBA) loan program on April 9, 2020, and has sent more than $49 billion to nearly 900,000 businesses. Each loan is up to $60,000, interest-free and partially transferable if the balance is outstanding shoot By December 31, 2023.

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However, the program did not have a mechanism to find and collect those who did not pay, and a government briefing document obtained by The Globe and Mail under the Access to Information Act estimated that a total of $5 billion in loans could be particularly difficult to return.

She says 100,000 borrowers might need to chase them: 40,000 of them shouldn’t have received the money; 50,000 who do not meet the payment deadline to take advantage of the forgivable portion; and 10,000 had not been paid in full by December 31, 2025.

The estimate of 100,000 is a preliminary estimate and “actual numbers may be higher,” says the July 15, 2021 briefing note, which was given to Mered Lavery, CEO of Export Development Canada (EDC), by her staff.

EDC, a subsidiary of the British Crown, managed the loan program jointly with financial institutions.

CEBA was the government’s first pandemic aid for small businesses. It was quickly designed and implemented to help many businesses weather their uncertain first few months. but some Business They were not eligible, and Ottawa modified the program several times until the June 30, 2021 application deadline.

After that deadline passed, more than a year after the program was launched, the government’s focus has shifted to a new concern: what to do about business owners who haven’t repaid their loans.

“CEBA does not have an in-house solution for collections,” states the briefing note, which also says that the loan eligibility requirements did not include a consideration of the recipient’s creditworthiness.

The briefing note said that neither the Export Development Center nor the financial institutions would be able to handle the collection operations.

“EDC has no experience or in-house capacity to raise or enforce thousands of CEBA loans,” the memo says.

“When the CEBAs were negotiated between Export Development Canada (EDC) and the Financial Institutions (FIs), it was agreed that the financial institutions would not undertake full collection efforts and would have a limited duty of care (eg two redemption attempts).”

Matthew Labreche, a spokesman for the Canadian Bankers Association, said it was appropriate for the government to lead the collection effort because it guarantees the loans, and is thus the real lender.

The briefing note describes two guiding principles for the groups: fairness, by seeking to reduce undue hardship for borrowers, such as offering repayment plans; And prudence, by balancing the cost of collection against the expected benefits to maximize net recovery.

The government examined various options in how to collect, which have been revised.

In April, the Federal Cabinet issued an order tasking the Telecommunications Regulatory Authority with the task of collecting outstanding loans.

EDC and Mary Ng’s office. The Minister in charge of Small Business declined to comment for this story.

Dan Kelly, president of the Canadian Federation of Independent Business, which lobbies Ottawa on behalf of its 95,000 members, said the government should go after loan recipients who received money fraudulently.

But he said he urged Ottawa not to move aggressively on other groups, because some small businesses have accumulated hundreds of thousands of dollars in debt during the shutdowns.

“I was hoping that the government… had dropped its plans to go after these companies,” he said. “It would be disappointing if that wasn’t the case.”

However, he said he believed that the loan recipients would be highly motivated to meet the repayment deadline of December 31, 2023, as this is the only way to partially forgive the loan.

“It is my firm belief that most business owners who are able to do this will pay the whole unforgivable portion until they can keep the $10,000 or $20,000,” Mr. Kelly said.

According to the government’s 2021 annual financial report, the latest available, Ottawa had $45 billion in CEBA loans outstanding and expected to spend $13 billion on loan forgiveness.

The Canadian Auditor General noted at the time that loans that had not yet been repaid would be recorded as assets in the government’s financial statements and that the value of these assets would decrease as the loans were written off. “This decline in the value of assets increases the annual deficit,” the auditor general’s report said.