(MENAFN) A looming financial crisis is threatening thousands of small businesses across Canada, signaling potential closures as the government terminated pandemic-era support last month while interest rates soar to a two-decade high, warns a Reuters report. The risk of a surge in bankruptcies, already witnessing a 38 percent increase in the first 11 months of 2023, poses a significant threat to the country's economic growth, according to lobby groups and economists cited in the report.
The economic challenges stem from the conclusion of pandemic-related support, particularly the Canada Emergency Business Account (CEBA) interest-free loans, which provided a lifeline to businesses during the challenging times. Small businesses, constituting a vital segment of Canada's economy and employing almost two-thirds of the country's 12 million private-sector workers, are grappling with the repayment deadline for these loans, originally set for the end of December 2022. The deadline has been extended several times, with the latest cutoff on January 18, allowing struggling businesses additional time to stabilize.
Official statistics indicate that there were approximately 1.2 million small businesses in Canada in 2021, contributing over a third to the nation's GDP. Canadian Finance Minister Chrystia Freeland revealed on Monday that out of the 900,000 businesses that received government support, one-fifth have not yet repaid their loans. The Canadian Federation of Independent Businesses (CFIB) estimates that a quarter of businesses have missed the repayment deadline, raising concerns about the financial viability of a significant number.
CFIB President Dan Kelly expressed the gravity of the situation, stating that "there are tens of thousands, if not hundreds of thousands, of businesses that remain viable but will not be able to outrun their debt." The looming crisis places these businesses in a precarious position, with the prospect of repaying debts by borrowing at higher interest rates, creating a ripple effect across the Canadian economic landscape. As policymakers and business leaders grapple with these challenges, the fate of these small enterprises remains uncertain, with broader implications for the overall economic health of the nation.
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