Small business debts now total at least $139 billion nationwide, the Canadian Federation of Independent Business (CFIB) said on Tuesday. Some operators are so desperate they have resorted to credit cards for last-chance financing, wrote researchers.
"Actual repayment of this debt will be the next big obstacle small businesses will face," wrote senior vice-president Corinne Pohlmann in a statement. "Many are still seeing a slow pickup in revenues, capacity restrictions and uncertainty heading into the fall and winter."
CFIB, in a report Small Business Debt: The Covid-19 Impact, said debts in the hardest-hit hospitality sector averaged $333,174 per operator, reported Blacklock's. Up to 70 percent of hotel operators in Canada face insolvency by year’s end without ongoing federal aid, despite the Canada-US border reopening.
In an April 30 testimony at the Senate national finance committee, Susie Grynol, CEO of the Hotel Association, said many operators would not recover from pandemic lockdowns that saw a 98 percent decline in cross-border traffic. "There will be some carnage, and there already has been," said Grynol.
"Some will not make a recovery," the Hotel Association of Canada wrote in a written submission to the committee. "The Association’s latest member survey from May revealed [most] hotel operators will go out of business if Canada Emergency Rent Subsidies and Canada Emergency Wage Subsidies are not extended to the end of 2021."
The lobby group said the data suggests hotel operators will not regain pre-pandemic revenues until 2024.
The report also found that retailers’ debt averaged $160,985 compared to $141,754 for contractors and $93,265 for wholesalers.
Findings were based on periodical questionnaires with up to 4,950 owners across the country. The estimated $139 billion in cumulative debts compared to $135 billion in a similar survey last February 25.
"This estimate may not capture the complete picture," wrote the staff. "As we are now well over a year into the pandemic, many other highly indebted survey respondents from February may have already gone out of business."
Researchers said most indebted operators, 76 percent, said it would take them "more than a year to pay and worry they may never be able to pay it off." Almost a third of businesses using additional funds "are drawing on credit cards, and the same number are using their personal savings."
"Half of the entrepreneurs, 50 percent, said that repaying their debt is one of the biggest challenges their business is facing on the road to recovery," wrote the report.
"It’s pretty bad," testified CFIB CEO Dan Kelly at the Commons finance committee. "My little not-for-profit association took 78,000 calls from business owners last year to try to provide them with guidance and support: 78,000. And these calls are dark. These business owners are really at their breaking point."
"All those bills for back rent, for inventories they’ve either had to chuck in a restaurant setting or perhaps sell at fire-sale prices in a retail setting, those costs have not gone away," said Kelly. "They are not going to be forgiven in most circumstances. And there will be an anchor around the neck of the business owners as the economy begins to recover."
The documented cases where business operators opted to forego their wages, drained personal RRSP accounts and took out new lines of credit to stay afloat through successive lockdowns.