Small businesses facing hard decisions about CEBA loan forgiveness deadline

With a major deadline to repay a pandemic era loan on the horizon, Rod Castro says he feels like he's performing a "juggling act" while trying to figure out the best way forward.

"I haven't written myself a paycheck or cashed a paycheck in about three months," he told CBC News. "Right now, all we're doing is just trying to keep every single dollar in the business."

Castro owns two restaurants in Ottawa — 10 Fourteen and Pubblico Eatery. Like many small business owners, he took out a Canada Emergency Business Account (CEBA) loan to help cover some of his costs when he was forced to close his doors during the pandemic.

The CEBA program offered interest-free loans backed by the federal government. A business could apply for up to $60,000 through the program. Any business that repays the bulk of the loan by January 18 can see up to $20,000 of the loan forgiven.

Businesses don't have to pay interest on CEBA loans right now, but the loans will start accruing five per cent interest after January 18.

With that deadline fast approaching, Castro said he isn't sure what his plans are yet.

A business can refinance their CEBA debt — essentially by taking out another loan at a higher interest rate — and still qualify for the forgivable portion.

Castro said paying the loan out of pocket would mean using up the cash his restaurants have started taking in recently from hosting holiday parties — even as he anticipates slower business in January. He said he's also not thrilled about the prospect of paying higher interest on a new loan.

"What do we do? Do we take a loan out or do we just empty the bank account? And that's where we're at right now," he said. "That's the juggling act right now."

If a business decides to refinance their CEBA loan, they have until March 28 to have part of the debt forgiven.

Dan Kelly, president of the Canadian Federation of Independent Business (CFIB), said some of the rules around refinancing weren't made clear until recently.

"There's a whole host of administrative questions around this special extension that the government didn't have answers to until [early December], which is pretty outrageous," Kelly said.

The government recently noted that businesses looking to refinance first need to apply to the financial institution that originally provided them with the CEBA loan. Businesses can then look elsewhere if they are turned down by that institution, or want to look for a better offer.

In order to qualify for the March 28 deadline, a business must apply for refinancing by January 18. After that date, five per cent interest will be charged on the CEBA loan — but a business that secures a refinanced loan by the March deadline and repays the outstanding principal can still receive partial debt forgiveness.