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

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

Export Development Canada headquarters in Ottawa on February 14, 2019.Justin Tang / The Globe and Mail

Ottawa may not be able to recoup $5 billion or more of the $49 billion in emergency loans it provided to small businesses during the pandemic shutdowns, according to a government projection.

The task of chasing business owners to collect on the mountain of debt issued during the most acute phase of the pandemic, when many were struggling to survive widespread shutdowns, was recently handed over by the federal government to the Canada Revenue Agency.

On April 9, 2020, Ottawa announced the Canada Emergency Business Account (CEBA) loan program, sending more than $49 billion to nearly 900,000 businesses. Each loan is worth up to $60,000 and is interest-free and partially forgivable if the balance is paid off by December 31, 2023.

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But the program had no mechanism to seek out and collect from defaulters, and a government briefing document obtained by The Globe and Mail under the Access to Information Act estimated that the loans could total $5 billion. especially difficult to get back.

It is said that 100,000 borrowers may need to be turned away: 40,000 who were not supposed to receive funds; 50,000 who miss the repayment deadline to take advantage of the forgivable portion; and 10,000 who do not repay in full by 31/12/2025.

The 100,000 estimate is preliminary and “the actual numbers may be higher,” according to a July 15, 2021 report by her staff for Mairead Lavery, director general of Export Development Canada (EDC).

The EDC, a Crown corporation, administered the loan program in cooperation with financial institutions.

CEBA was the first pandemic relief the government introduced for small businesses. It was designed and implemented quickly to help many businesses get through the first few uncertain months. However, some businesses were not eligible, and Ottawa tweaked the program several times until the application deadline of June 30, 2021.

After that deadline passed, more than a year after the program was launched, the government’s attention shifted to a new problem: what to do with business owners who defaulted on their loans.

“The CEBA program does not have a built-in collection solution,” the news release said, which also said the loan eligibility requirements did not include an assessment of the borrower’s creditworthiness.

The note states that neither the EDC nor the financial institution will be able to process the collections.

“EDC does not have the in-house expertise or capacity to collect or collect thousands of CEBA loans,” the memo said.

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

Mathieu Labrèche, a spokesman for the Canadian Bankers Association, said it was appropriate for the government to lead the collection effort because it guaranteed the loans and was therefore the real creditor.

The guidance note describes two main principles for debt collection: fairness by seeking to minimize undue hardship on debtors, such as offering repayment plans; and prudence by balancing the costs of withdrawals with expected benefits to maximize net yield.

The government has considered various collection options, which are redacted.

In April, the federal cabinet issued a regulation that mandated the CRA to collect unpaid loans.

EDC and Mary Ng’s office. the minister responsible for small business declined to comment for this story.

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

But he said he urged Ottawa not to pursue other collections too aggressively, as some small businesses racked up debts in the hundreds of thousands of dollars during the lockout.

“I was hoping the government … dropped plans to go after these stores,” he said. “It would be disappointing if it wasn’t.

However, he believes that loan recipients will be highly motivated to meet the repayment deadline of December 31, 2023, because only then will their loan be partially forgiven.

“I strongly believe that most business owners who are able to do this will pay the unforgivable portion in full to keep that $10,000 or $20,000,” Mr Kelly said.

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

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

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