MNI INTERVIEW: Canadian Firms At 'Scary Point' on Debt-CFIB

Many Canadian small firms may struggle when the government calls in pandemic loans at a time of high inflation and fierce competition for workers, a top official with the nation's leading small business association told MNI.

"For some it's not over yet," said Corinne Pohlmann, who represents 95,000 firms as senior vice president of national affairs at the Canadian Federation of Independent Business. The CFIB hosted Finance Minister Chrystia Freeland a few weeks ago to go over their concerns and have asked for her to extend forgiveness on loans which were taken out by a total of 900,000 businesses across the country.

"Only about 40% of small and medium sized companies across Canada are back to normal revenues," and two-thirds are carrying debts averaging CAD160,000 that are big enough to push some to the brink, she said. "It is a bit of a scary point right now."

In the next few months more firms may "make the very difficult decision to not move forward because the debt load is just too high and customers have just not come back the way they were before," she said.

DEBT DESTRUCTION

Small businesses with fewer than 100 workers account for 68% of Canada’s private-sector employment, and medium-sized companies with up to 500 employees make up another 21%. Those firms contribute about half of Canada’s GDP.

The government says that with unemployment returning to historic lows the time for emergency spending -- such as about CAD100 billion on wage and rent subsidies -- is ending. The bulk of those programs wind down this weekend, shifting focus to loans that are partially forgiven if repaid by the end of next year.

"We don't disagree that supports do have to come to an end at some point, that's completely valid," Pohlmann said. "We need to think about the one remaining piece that can really destroy a lot of smaller companies and that's the debt that they're carrying."

It's not just CFIB showing concern. Business sentiment is at the lowest since the third quarter of 2020 according to the Conference Board of Canada, with seven in 10 respondents saying the economy may weaken over the next six months and inflation will top 5%.

SKYROCKETING COSTS

"The single largest concern right now is the cost of doing business is just skyrocketing," Pohlmann said. "Many small businesses who are trying not to raise their own prices in order to keep their customers may have no choice." The government has also been raising payroll pension taxes, the carbon tax and excises on alcohol, she said.

Industries forced to lay off workers two or three times during Covid lockdowns are struggling to bring back staff, in many cases putting strains on family-owned businesses that can't keep up with the extra work needed, she said. Firms across all industries are now competing for workers at the same time as the economy re-opens, bidding wages higher, she said.

Companies operating in downtown cores are also facing a bigger burden as the shift to remote work keeps customers away, Pohlmann said. "We have to make sure that the policies that are brought forward continue to encourage folks to still take those risks and to open those businesses."