Canadian Restaurants Facing Impending Bankruptcies as CEBA Loan Repayment Deadline Looms [Survey]

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Recent research released by Restaurants Canada reveals a 116 per cent increase in bankruptcies for Canadian restaurants compared to 2022, and much of this is due to the unpredictability of running a small business in Canada. 

As the Canadian Emergency Business Account (CEBA) loans are nearing their Dec. 31 repayment deadline, a Restaurants Canada survey has found that nearly 20 per cent of restaurants that have yet to reimburse the government will not be able to repay it in part or at all given the state of Canadian foodservice. 

The organization believes the number of bankruptcies, and local restaurant closures, will only grow.

“Thousands of small independent operators in our industry are at breaking point as a result of their CEBA debts. That’s why we are calling on the Deputy Prime Minister, Chrystia Freeland to take meaningful action by adopting our CEBA repayment proposal to help ensure their survival,” said Olivier Bourbeau, Vice President, Federal & Québec Affairs. 

Queen Anne on Richmond Street in Toronto Shuttered (Image: Dustin Fuhs)

“We are nearing our sector’s summer high season. However, with half of all foodservice companies currently operating at a loss or just breaking even and 80 per cent making less profit today compared to pre-pandemic (2019), many of our members are weighing their options to either remain open and continue incurring further debt, or close their businesses and file for bankruptcy; a decision on CEBA before the summer season is integral to providing small-businesses with predictability.

Olivier Bourbeau

“Not a lot of people know that yes the sales are back from COVID but the profitability is not there. Therefore an average restaurant only makes between two and three per cent pre-tax margin. When we see a lineup in front of a restaurant it’s not because it’s full, it’s because we don’t have enough people to serve – the labour shortage. So we operate at 80 per cent capacity with small, small, thin margins.

“Half of the restaurants, 51 per cent, are breaking even or losing money every day – every day. What we’re proposing is a win win. We want to reimburse. Restaurant owners are entrepreneurs. They are proud. They want to continue to work. They built a business. They just want more time to be able to reimburse.”

Restaurants Canada is calling on the federal government to adopt its CEBA repayment proposal from RC’s 2023 Federal Pre-budget Submission. With only a few weeks until the House of Commons rises for the summer on June 2, and the repayment deadline quickly approaching on Dec. 31, 2023, time is of the essence to address the acute CEBA loan repayment challenges facing restaurants and other small businesses, said the organization.

Restaurants Canada said its CEBA recommendations ask Parliament to provide struggling small businesses with a 36-month payback extension on CEBA loans, with a scale-down model on the forgivable portion. The effective plan will ensure that taxpayer funds are paid back to the government owed while saving thousands of restaurants and other small businesses from being forced to declare bankruptcy in the near future.

For the majority of Canada’s foodservice sector, the pandemic created seismic financial challenges which it is still struggling to recover from. In response, the federal government launched the CEBA program, which gave small businesses, including 83 per cent of table service and 56 per cent of quick-service restaurants, and not-for-profits interest-free loans of up to $60,000, said the organization.

“For many restaurateurs, the December 31st repayment deadline is simply impossible to meet – which reflects the state of our industry as a whole. Post-pandemic operational challenges like inflation, labour shortages and supply chain hurdles are further diminishing the profitability of these businesses and lengthening the sector’s recovery process entirely,” said Bourbeau.

He said its proposal would save thousands of restaurants in Canada and tens of thousands of small businesses in Canada.

According to Restaurants Canada:

  • Canada’s foodservice industry has hit the 100-billion-dollar mark, yet when adjusted for inflation, in comparison to all other Canadian business sectors, restaurants have experienced a 12 per cent drop in economic activity (GDP) from 2019 to 2022; second last to the arts, entertainment and recreation industry which is down by 19 per cent, and;
  • Nearly every operational cost is on the rise due to inflation; utilities have increased by six per cent, proteins have increased by nine per cent (beef), 11 per cent (seafood), 13 per cent (chicken), and cooking oil (up 40 per cent), as well as rising labour costs, and restaurateurs have been forced to absorb as much as they can to avoid impacting consumer traffic.
Shuttered Fran’s Restaurant on Front Street (Image: Dustin Fuhs)

The Canadian Federation of Independent Business said 78 per cent of small business owners report that getting extra time to repay their CEBA loan will increase the likelihood of their business’ survival. The CFIB said its data shows 49 per cent of small businesses are still making below normal revenues, with those in hospitality, arts and recreation, retail and social services hit the hardest.

“Many small businesses are trying to repay their COVID-related debt, while facing an onslaught of additional challenges. High interest rates, inflation and labour costs are all making it hard for small businesses to keep their head above water, let alone make any dent in the debt they were forced to take on to survive pandemic restrictions,” said Dan Kelly, CFIB president. 

“If the government helped ease their debt burden, small businesses could reinvest the money into employees or back in their business. Otherwise, we may see more business failures as businesses realize they can’t afford to stay open.”

The CFIB said 72 per cent of small businesses need to see CEBA repayment rules extended, with 30 per cent preferring a deferral of one year and 42 per cent preferring two years. It said only 10 per cent of businesses that took on a CEBA loan have been able to repay it entirely, while another 47 per cent say they will be able to repay it by the end of 2023. If the CEBA loan is not repaid by December 31, 2023, small business owners will lose the up to $20,000 forgivable portion and start accruing interest.

The CFIB is calling on the federal government to extend the repayment deadline for the CEBA loan to end of December 2025 or at least end of 2024; consider additional debt forgiveness; and implement an appeal process for CEBA loan recipients that are now deemed ineligible.

Mario Toneguzzi
Mario Toneguzzi
Mario Toneguzzi, based in Calgary, has more than 40 years experience as a daily newspaper writer, columnist, and editor. He worked for 35 years at the Calgary Herald covering sports, crime, politics, health, faith, city and breaking news, and business. He is the Senior News Editor with Retail Insider in addition to working as a freelance writer and consultant in communications and media relations/training. Mario was named as a RETHINK Retail Top Retail Expert in 2024.

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