Opinion: Three years after COVID-19, Amanda Monday and other small business owners face a debt hangover

Three years after the COVID-19 outbreak, Amanda Monday says her business has just had its most “normal” year since the pandemic began.

But that doesn’t mean that her company, or that of her fellow small business owners on Toronto’s bustling Danforth Avenue, has returned to anything close to its pre-pandemic state. The new “normal” is still far from the old.

Her company, Workaround, is a combination coworking office space and day care on Toronto’s eastern edge, a year after the last major public health restrictions related to the Omicron wave of the virus were lifted. has passed. The general reopening of the service sector of the economy has provided a more stable and predictable environment, with businesses generating sufficient cash flow to support themselves. Munday was even able to reduce some of the debt Workaround incurred when life support was needed due to public health shutdowns at the bottom of the pandemic.

“We are still standing,” she said last week in an optimistic tone. I can only assume that this has been the state of mind I needed to survive as a small business entrepreneur for the past three years.

Certainly, there were times when I was wobbly and almost fell down completely. When she first spoke to Ms. Monday in March 2020, shortly after the massive lockdown began, she had no idea how she was going to survive until the end of the month. When we spoke again on the annual anniversaries of these closures, she shared stories of teetering on the brink of bankruptcy in the intervening years. rice field.

But she still operates on less than two-thirds of her pre-COVID-19 monthly income. Uncertainty about the future of working from home, cyclical waves of COVID and seasonal viruses, and fears of recession all keep customers cautious.

On the other hand, like most small businesses, the pandemic left us with debt, and the spike in interest rates over the past year has added to the headache. Hundreds of thousands of businesses are now approaching the December 31, 2023 deadline for loan repayment under the Commonwealth of Canada Emergency Business Account (CEBA) program.

“I see a lot of despair,” Ms. Mandy said.

That dark mood is reflected in the Canadian Federation of Independent Businesses’ (CFIB) monthly business barometer, a survey of small business sentiment. It is hovering near its lowest level since the severe shutdown of the pandemic in 2020 and is at its lowest level ever outside of a recession.

CFIB chief economist Simon Gaudreault said in the latest Business Barometer report, “Many businesses continue to feel the burden of years of poor business conditions and are now faced with rising costs of all kinds. It’s getting worse,” he said.

As the safety net of the government’s pandemic assistance program has been removed, more companies are succumbing to pressure. The federal bankruptcy regulator recently reported a 39% year-over-year increase in bankruptcies in the 12 months ending January 31st. In January alone, the number of bankruptcies increased by 55% compared to the same month last year.

CFIB survey data shows that COVID-related debt burdens have eased somewhat over the past year, but remain troubling for many businesses. The group reports that 58% of businesses still have pandemic-related debt, citing an average COVID-19 debt of $106,000. This is down from 67% a year ago, an average of $158,000.

Munday’s business is very typical in that respect. She estimates that the pandemic increased her debt by about $100,000, doubling her from pre-pandemic levels. However, she has reduced her pandemic debt by about $50,000 in the past year.

She now covers her bills and generates enough monthly income to keep her business running. But she is in no position to take on new debt, especially with today’s high interest rates.

Data from the Bank of Canada show that average business loan interest rates will be close to 6% in the second half of 2022, up from less than 2.5% a year earlier. This has undoubtedly dampened the willingness of small business owners to invest.

“There is absolutely no world in which I take new risks,” she said.

And now, she and the nearly 900,000 other small businesses that took advantage of CEBA’s interest-free and partially-permissible loans face an ominous deadline. If they don’t pay off the unforgivable portion of the loan in full by the end of 2023, they will lose the forgiving portion and from January 1st she will have to pay back the full amount plus 5% interest. , 2024.

For the more than 500,000 businesses who have taken advantage of the program and fully utilized their $60,000, this means that by the end of the year, they will either have managed to free up $40,000 in cash, or have lost an acceptable portion of the $20,000 in favor of new loans. It means facing repayment. Other Debt.

Munday worries that some of her fellow entrepreneurs in the Danforth business community will not be able to meet their deadlines and bear the additional burden. As a result, there may be another wave of corporate bankruptcies next year.

“It’s incredibly stressful,” Ms. Manday said. “We’ve had him beaten for three years and now he’s like this.”