Almost half of small businesses have debt problems by 2022

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HALIFAX – A recent nationwide survey by Equifax Canada found that only 56% of small business owners believe they have enough lines of credit to survive the fourth quarter of 2021.

This is not surprising given that the pandemic lasted a year and a half, forcing companies to go into debt and rely heavily on government support programs. According to Equifax, many businesses across Canada now have historically high debt levels.

“Historically, many small businesses have had limited access to trade credit. Less than a quarter of the smallest businesses applied for credit in 2018 to fuel growth, in part reflecting access to trade credit products, ”a press release from Equifax read.

“The share of small businesses applying for credit tends to lag behind. For some, lower approval rates will lead them to have personal credit.

While 44% of businesses are worried about their debt and line of credit, a surprisingly high number (68%) say they feel confident about resuming operations in 2022. Jeff Brown of Equifax says this juxtaposition can be attributed to the optimistic nature of small business owners.

“Small businesses always tend to be overly optimistic. Financially, they believe they can overcome any obstacle or obstacle, ”Brown said in an interview. “For companies that are generally overly optimistic, seeing that number of 56%) is pretty disheartening. “

“When we look at these debts, we also need to think about the optimism over realistic expectations for these loans.”

For many small businesses, this unprecedented debt comes in the form of CEBA loans from the federal government, which were introduced in 2020. First, the CEBA provided loans of $ 40,000 and then an additional 20. $ 000 has been proposed.

According to the federal government, nearly 900,000 businesses have been approved for the first round of CEBA loans and 567,000 have obtained the additional $ 20,000. In total, the government has granted more than $ 49 billion in loans; it is a significant amount of collective debt.

The federal government is prepared to give up 33% up to $ 20,000 of the loan if a business can pay off the balance by the end of 2021. According to the Equifax survey, only about half of small businesses estimate that ‘they can repay the entire loan within this period. .

Jeff Brown believes that, given the length of the pandemic, the federal government should reconsider its policies regarding CEBA loans.

“When these loans were first issued, no one thought we were going to struggle that long,” Brown said. “Should there be more discounts on these loans?” The repayment period begins in 2022. Unless some of these loans are repaid in full, that remission is completely wiped out.

“What will probably end up happening is that some small businesses will want to be able to obtain this forgiveness. So they will take out bridging loans…”

The survey results also suggest that debt was, however, necessary for a business to be successful during the pandemic. The companies that generated the most revenue also had to take on more debt.

“Those whose businesses made more than $ 100,000 in revenue last year were much more likely to report that they took on additional debt / credit during the pandemic,” the press release said.

The Equifax poll also showed that companies have a long list of other concerns. It’s no secret that the cost of living has increased in recent months. Statistics Canada recently reported that last August inflation rates rose by more than four percent from the previous year.

It is therefore not surprising that 47% of the companies surveyed say that the cost of goods is a major concern. Other business concerns include customer demand, supplies and staff shortages.

“Forty-seven percent of small businesses have told us the cost of goods seems unrealistic,” Brown said.

“It always seems like there is this dark cloud surrounding the pandemic and we are never going to get back to a new normal. And these are ongoing concerns. “

Brown couldn’t guess when or if small businesses would get breaks with inflation or any other problem. As he and others have noted, there is little historical precedent to build on.

“Unprecedented, that’s really it,” said Brown. “I don’t think there is anything we can compare him to lately that is going to give us any indication of what to expect next year.”

Derek Montague is a Huddle reporter in Halifax. Send him your comments and article ideas: [email protected].

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