Categories
Brandon Blog Post

CANADIAN BUSINESSES CHALLENGES AND OPPORTUNITIES IN 2025: A LICENSED INSOLVENCY TRUSTEE’S COMPLETE GUIDE

Canadian Businesses Introduction

As a Licensed Insolvency Trustee firm serving the Greater Toronto Area for over 20 years, we’ve seen Canadian businesses go through many ups and downs. Right now, we’re facing some tough times that remind me of the beginning of the 2008-2009 financial crisis. But there’s more to the story than just bad news.

Let me share what I’m seeing on the ground and what it means for owners of Canadian businesses like yours.

Overview of the Canadian Business Environment

The Canadian business landscape in 2025 is complex. While some large corporations are doing well, many small and medium Canadian businesses are struggling. This creates a two-speed economy depending on company size, which affects different sectors in different ways.

Current Economic Indicators

Recent data from Statistics Canada shows mixed signals for Canadian businesses:

  • Corporate profits rose by $4.2 billion in Q1 2025
  • The Canadian Small Business Health Index dropped to 99.3
  • Canadian businesses’ delinquencies are at their highest since 2009
  • Credit demand from businesses has slowed significantly

These numbers tell us that while big companies might be profitable, smaller Canadian businesses are having a harder time. This gap is important because small businesses employ millions of Canadians and drive local economies.

Regional Differences Across Canada

Not all provinces are experiencing the same challenges. Ontario and British Columbia are seeing the biggest increases in Canadian businesses‘ financial stress:

  • Ontario business arrears have jumped by 19%
  • British Columbia business debt has risen by 20%
  • The Prairie provinces and Atlantic Canada are facing their unique challenges

These regional differences matter because they show how national policies and global events affect different areas of Canada in unique ways.

Key Economic Drivers

Several factors are shaping the Canadian business environment:

Energy Sector Impact: Canada’s energy sector continues to influence the overall economy, though renewable energy investments are growing.

Technology Adoption: Canadian businesses that adapted to digital tools during COVID-19 are generally performing better than those that didn’t.

Supply Chain Resilience: Companies with diversified supply chains are handling current challenges better than those dependent on single sources.Owner of Canadian businesses reviewing financial statements in Toronto office, looking worried about business financial challenges

Challenges in the Canadian Business Landscape

Canadian businesses face several major challenges right now. Understanding these helps explain why so many companies are struggling with their finances.

Rising Business Delinquencies

The numbers are concerning. Canadian businesses’ delinquencies have reached levels not seen since the 2009 financial crisis. This means more companies are falling behind on their payments to suppliers, landlords, and lenders.

What does this mean for you as a business owner?

  • Cash flow problems become more common
  • It’s harder to get credit when you need it
  • Suppliers may demand payment up front
  • Your customers might pay you later (or not at all)

Impact of Trade Tensions

The ongoing trade dispute with the United States is hitting our interconnected trade relationship with the USA and, therefore, Canadian businesses hard. When politicians in Washington announce new tariffs or trade policies requiring a new agreement on trade, it affects your business here in Canada.

Here’s how trade tensions hurt Canadian business:

Supply Chain Disruptions: Products you need might be delayed or cost more. One business owner told me, “I never thought a tweet could shut down my supplies.”

Increased Costs: Tariffs make imported goods more expensive, which squeezes your profit margins.

Uncertainty: It’s hard to plan for the future when trade rules keep changing.

Customer Impact: Higher costs often mean higher prices, which can drive away customers.

Credit Market Tightening

Banks and other lenders are being more careful about who they lend money to. This creates a problem for Canadian businesses that need financing to grow or even survive.

Signs of credit tightening include:

  • Longer approval times for business loans
  • Higher interest rates
  • More paperwork and requirements
  • Smaller loan amounts are being approved

Regulatory and Tax Pressures

Many business owners feel overwhelmed by government regulations and taxes. While some rules protect workers and consumers, they can also make it harder to run profitable Canadian businesses.

Common regulatory challenges include:

  • Complex tax requirements
  • Employment standards compliance
  • Environmental regulations
  • Industry-specific rules and licensing

Lingering Effects of COVID-19

The pandemic changed how we do business, and some of those changes are still causing problems. Many Canadian businesses are still dealing with:

  • Higher operating costs
  • Changed customer behaviours
  • Staffing shortages
  • Debt taken on during lockdowns

Opportunities for Canadian Business Growth Strategies and Expansion

Despite the challenges, there are real opportunities for Canadian businesses that position themselves correctly. Smart business owners who are innovative leaders are finding ways to succeed even in tough times.

Digital Transformation Advantages

Canadian businesses that embrace technology are often doing better than those that don’t. The pandemic forced many companies to go digital, and those that did it well are seeing benefits.

Digital opportunities include:

E-commerce Growth: Online sales continue to grow, even as physical stores struggle.

Remote Work Benefits: Companies can hire talent from anywhere and reduce office costs.

Automation Savings: Technology can reduce labour costs and improve efficiency.

Better Customer Data: Digital tools help you understand your customers better.

Market Consolidation Opportunities

When times are tough, weaker competitors often exit the market. This creates opportunities for stronger Canadian businesses to:

  • Acquire competitors at lower prices
  • Hire experienced employees from failing companies
  • Take over market share from Canadian businesses that close
  • Negotiate better deals with suppliers

Government Support Programs

Various levels of government offer support programs for Canadian businesses. These can provide crucial help during difficult times:

Federal Programs:

  • Canada Emergency Business Account (CEBA) extension
  • Export development funding
  • Innovation grants and tax credits

Provincial Programs:

  • Ontario Small Business Support Grant
  • British Columbia Recovery Grant programs
  • Industry-specific support initiatives

Municipal Programs:

  • Property tax deferrals
  • Local development incentives
  • Small business support funds

Sector-Specific Growth Areas

Some industries are growing despite overall economic challenges:

Healthcare and Senior Services: Canada’s aging population creates opportunities in healthcare, home care, and senior services.

Green Technology: Government commitments to climate goals mean funding and opportunities for clean technology businesses.

Professional Services: As Canadian businesses face complex challenges, there’s a growing demand for legal, accounting, and consulting services.

Essential Services: Canadian businesses that provide necessities often remain stable during economic downturns.Owner of Canadian businesses reviewing financial statements in Toronto office, looking worried about business financial challenges

When Canadian Business Financial Challenges Become Too Much

Sometimes, despite best efforts, Canadian businesses face financial problems that seem impossible to solve. This is where my expertise as a Licensed Insolvency Trustee becomes valuable.

Warning Signs to Watch For

If your business shows these signs, it’s time to get professional help:

  • Consistently late on payments to suppliers
  • Difficulty making payroll
  • Maxed out credit lines
  • Receiving demand letters or legal notices
  • Customers are complaining about delayed orders
  • Losing key employees due to unpaid wages

How Professional Help Can Make a Difference

As a Licensed Insolvency Trustee, I help Canadian businesses and their owners navigate financial difficulties. My services include:

Business Restructuring: Sometimes, a business can be saved with the right restructuring plan. This might involve negotiating with creditors, reorganizing operations, or finding new financing.

Asset Sales: If a business can’t continue, I can help maximize the value of its assets through organized sales processes.

Personal Insolvency Solutions: When business debts affect personal finances, I provide options like consumer proposals or personal bankruptcy to give owners a fresh start.

Creditor Negotiations: I work with creditors to find solutions that work for everyone involved.

Advisory Services: I provide actionable advice to develop a roadmap for you to follow, where there is a way for company management to carry out a self-help restructuring without resorting to a formal insolvency process.

The Importance of Acting Early

The earlier you seek help, the more options you have. Many business owners wait too long, thinking things will improve on their own. While optimism is important, it’s also crucial to be realistic about your situation.

Early intervention can:

  • Preserve more of your business value
  • Protect your personal assets
  • Maintain relationships with key employees and customers
  • Provide more restructuring options

Looking Forward: What Canadian Business Owners Should Do

The current environment is challenging, but it’s not hopeless. Here’s my advice for Canadian business owners:

Focus on Cash Flow Management

Cash flow is the lifeblood of Canadian businesses. In tough times, it becomes even more critical:

  • Monitor your cash flow weekly, not monthly
  • Speed up collections from customers
  • Negotiate better payment terms with suppliers
  • Keep detailed records of all financial transactions

Build Strong Professional Relationships

Having the right advisors can make all the difference:

  • Work with an experienced accountant
  • Maintain relationships with multiple lenders
  • Know when to consult with legal counsel to solve pressing legal issues
  • Have a Licensed Insolvency Trustee you can call if needed

Stay Informed and Adaptable

The business environment is changing rapidly. Stay informed about:

  • Government service support programs
  • Industry trends and opportunities
  • Regulatory changes that affect your business
  • Economic indicators that impact your sector

Plan for Multiple Scenarios

Don’t just plan for success – plan for different possibilities:

  • Best case: How will you handle rapid growth?
  • Worst case: What will you do if revenue drops significantly?
  • Most likely case: What’s your realistic path forward?Owner of Canadian businesses reviewing financial statements in Toronto office, looking worried about business financial challenges

Canadian Businesses Conclusion

The Canadian business environment in 2025 presents both significant challenges and real opportunities. While business delinquencies are rising and credit markets are tightening, there are still paths to success for well-managed companies.

The key is to stay informed, act decisively, and seek professional help when needed. Whether you’re looking to grow your business or navigate financial difficulties, having the right support makes all the difference.

As someone who has helped many Canadian businesses and business owners, I’ve seen companies survive and thrive even in the toughest times. The businesses that succeed are those that face reality honestly, adapt quickly, and aren’t afraid to ask for help when they need it.

If your business is facing financial challenges, don’t wait until it’s too late. Early intervention provides more options and better outcomes. Contact Ira Smith Trustee & Receiver Inc. today to discuss your situation confidentially and explore your options.

You’re not alone in this. There’s a path forward, and it starts with reaching out for the right kind of help. Take that step—you deserve it. If you’re a GTA resident dealing with overwhelming debt, don’t wait for your credit situation to get worse. As a licensed insolvency trustee serving Toronto, Mississauga, Brampton, Markham, and surrounding areas, I’m here to help you understand your options.

Free consultation available:

  • No obligation to proceed
  • Complete review of your Canadian business debt and credit situation
  • Practical next steps you can take immediately

Remember: Your current financial situation doesn’t define your future. With the right help and information, you can overcome both debt challenges and credit score problems.

As a licensed insolvency trustee serving the Greater Toronto Area, I encourage consumers and business owners to view financial difficulties not as failures but as challenges that can be addressed with proper guidance. By understanding the warning signs of insolvency and seeking professional advice early, many people and businesses can find a path forward – whether through restructuring, strategic changes, or in some cases, an orderly wind-down that protects their future opportunities.

Remember: The earlier you seek help for company insolvency concerns, the more options you’ll have.

If you or someone you know is struggling with too much debt, remember that the financial restructuring process, while complex, offers viable solutions with the right guidance. As a licensed insolvency trustee serving the Greater Toronto Area, I help Canadian entrepreneurs with understand their options and find a path forward during financial challenges.

At the Ira Smith Team, we understand the financial and emotional components of debt struggles. We’ve seen how traditional approaches often fall short in today’s economic environment, so we focus on modern debt relief options that can help you avoid bankruptcy while still achieving financial freedom.

The stress of financial challenges can be overwhelming. We take the time to understand your unique situation and develop customized strategies that address both your financial needs and emotional well-being. There’s no “one-size-fits-all” approach here—your financial solution should be as unique as the challenges you’re facing.

If any of this sounds familiar and you’re serious about finding a solution, reach out to the Ira Smith Trustee & Receiver Inc. team today for a free consultation. We’re committed to helping you or your Canadian company get back on the road to healthy, stress-free operations and recover from financial difficulties. Starting Over, Starting Now.

The information provided in this blog is intended for educational purposes only. It is not intended to constitute legal, financial, or professional advice. Readers are encouraged to seek professional advice regarding their specific situations. The content should not be relied upon as a substitute for professional guidance or consultation. The author, Ira Smith Trustee & Receiver Inc., and any contributors do not assume any liability for any loss or damage.Owner of Canadian businesses reviewing financial statements in Toronto office, looking worried about business financial challenges

Categories
Brandon Blog Post

COMPANIES ARE DECLARING BANKRUPTCIES EVEN THOUGH THEY RECEIVED THE CANADA EMERGENCY BUSINESS ACCOUNT: LOANS, REPAYMENTS, AND BANKRUPTCIES

Declaring Bankruptcies Introduction

Picture this: April 2020, and your small Canadian business survive on thin margins. Suddenly, a global pandemic hits, lockdowns ensue, and your revenue disappears overnight. Then, a lifeline appears in a twist of fate: the Canada Emergency Business Account (CEBA).

On February 18, 2025, Statistics Canada released an economic paper written by Sean Clarke, Jasper Hui, and Dave Krochmalnek, “Borrowing, repayments and bankruptcies by industry: Results from the Canada Emergency Business Account program”. This post explores how this initiative influenced many businesses’ trajectories – some soared, while others crumbled under new pressures as the pandemic’s aftermath unfolded forcing many declaring bankruptcies.

declaring bankruptcies
declaring bankruptcies

Declaring Bankruptcies: Understanding CEBA – Lifesaver or Temporary Relief?

The CEBA was introduced to help small and medium enterprises (SMEs) during the COVID-19 pandemic. But what exactly does this mean for you? CEBA aimed to provide interest-free loans to businesses struggling to survive the economic fallout. With a staggering $49 billion allocated to various sectors, it was a significant lifeline for many. But was it enough?

Overview of CEBA and Its Objectives

CEBA was designed to assist businesses in covering essential operational costs. The loans, which could reach up to $60,000 per Canadian business, were intended to keep the doors open during the toughest times. Think of it as a safety net. But how effective was this net in catching those who fell?

  • Total funding: $49 billion
  • Maximum loan per business: $60,000

Total Funding

Maximum Loan per Canadian Business

$49 billion

$60,000

The Definition of Client-Facing Industries

Client-facing industries are sectors that directly interact with customers. This includes accommodations, food services, and transportation. These industries were hit hard during the pandemic. Imagine a restaurant forced to close its doors. The impact was immediate and severe. Output in these sectors dropped between 30% and 60% during the initial lockdowns. How could they survive without support?

In contrast, industries like construction and retail rebounded more quickly. Construction even saw a boom due to increased demand for single-family homes. This disparity raises questions about the fairness of the support provided. Why did some sectors receive more funding than others?

How CEBA Disbursement Shaped Business Survival

CEBA’s disbursement was crucial for many businesses. As one expert noted,

“CEBA was a crucial bridge for many businesses caught in the pandemic’s storm.”

This statement encapsulates the essence of the program. It was a bridge, but was it strong enough to support all who relied on it?

While many businesses managed to repay their loans, a significant portion—about 18.8%—remained outstanding by the forgiveness deadline. This translates to approximately $9.2 billion still owed. Instead of being forgiven, these loans transitioned into three-year term loans at a 5% interest rate. For businesses already struggling, this new burden was daunting.

Some sectors faced even higher rates of outstanding loans. For instance, the transportation and warehousing industry had 30.7% of loans outstanding. Accommodation and food services were not far behind at 21.9%. Even construction, which seemed to recover quickly, had 20.1% of loans still outstanding. This paints a picture of a complex recovery landscape.

It’s essential to evaluate the overall effectiveness of CEBA. Did it truly save businesses, or just delay the inevitable? The number of companies declaring bankruptcies decreased initially, likely due to government interventions like CEBA. However, as time passed and economic conditions changed, bankruptcy filings surged. By early 2024, over 1,200 businesses declared bankruptcy, many of which had received CEBA loans.

This situation raises critical questions. Did CEBA merely mask deeper vulnerabilities in the economy? The interconnected nature of these economic factors is evident. While CEBA provided immediate relief, the long-term implications remain uncertain.

CEBA was a significant initiative at supporting SMEs during an unprecedented crisis. However, the varying impacts across industries and the subsequent challenges faced by many businesses highlight the complexities of economic support measures. As we continue to navigate these waters, understanding the full scope of CEBA’s impact is essential for future economic resilience.

Declaring Bankruptcies: Diving into the Discrepancies – Who Benefited Most?

When we look at the impact of the CEBA program, it’s clear that not all industries were created equal. Some sectors thrived while others struggled. Why is that? Let’s dive into the numbers and uncover the surprising disparities in funding allocations and the reasons behind them.

Comparison of Industry Sectors

First, let’s consider the sectors that fared differently during the pandemic. The client services industry, which includes accommodations, food services, and transportation, saw a staggering drop of 30% to 60% in output during the initial lockdowns. That’s a significant hit! On the other hand, industries like manufacturing bounced back much quicker. In fact, construction even experienced a boom due to increased demand for single-family homes.

It’s fascinating to see how these differences played out in funding. Construction received a whopping $6.4 billion from CEBA, which is about 13% of the total funding. This is surprising, especially considering that construction was recovering faster than many other sectors. Why did they get such a large slice of the pie?

Surprising Funding Allocations

To put things into perspective, let’s look at the funding allocations:

  • Construction: $6.4 billion
  • Professional Services: $5.5 billion
  • Retail Trade: $4.6 billion
  • Transportation and Warehousing: $4.1 billion

declaring bankruptcies

These numbers reveal a clear trend. The sheer number of businesses in the construction sector likely allowed more companies to qualify for CEBA loans. But what about the service industries? They faced deeper impacts and yet received less funding overall.

Reasons Behind the Disparities

So, what explains these disparities in loan distribution? One reason is the nature of the businesses themselves. The hardest-hit sectors also had a higher rate of outstanding loans. For instance, the transportation and warehousing industry had 30.7% of loans still outstanding, while accommodation and food services faced a rate of 21.9%. Even construction had 20.1% of its loans outstanding, indicating that not all businesses in recovering sectors were out of the woods.

As you can see, the funding landscape is complex. While some sectors received substantial support, others were left to fend for themselves. This raises important questions about the effectiveness of such programs. Are they truly helping those in need, or are they simply delaying the inevitable for some businesses?

As we explore the outcomes of the CEBA program, it’s crucial to consider the broader implications. The differences in funding allocations and the varying impacts on different sectors highlight the need for tailored economic support strategies. Understanding these nuances can help us navigate future economic challenges more effectively.

declaring bankruptcies
declaring bankruptcies

The CEBA was a lifeline for many businesses during the pandemic. It provided essential financial support when the world was in turmoil. But what happened after the loan forgiveness deadline? This question is crucial as we analyze the trends in corporate bankruptcies that emerged in the wake of CEBA.

Initial Effects of the Loan Forgiveness Deadline

When the loan forgiveness deadline approached, many businesses faced a harsh reality. A staggering 18.8% of CEBA loans remained outstanding. This meant that instead of being forgiven, these loans transformed into three-year term loans with a 5% interest rate. For businesses already struggling, this was like adding fuel to a fire.

Imagine running a small restaurant. You relied on that loan to keep your doors open during lockdowns. Now, you have to pay it back with interest. How do you manage that when customers are still hesitant to return? This scenario played out in many sectors, particularly those that were client-facing.

Rising Bankruptcy Rates in Various Sectors

As we moved into early 2024, bankruptcy rates surged. In the first quarter alone, there were 12,000 bankruptcies. Alarmingly, 39% of these corporate bankruptcies involved businesses that had taken CEBA loans. The ticking time bomb of conversion to debt ultimately revealed serious vulnerabilities in many businesses once they started incurring CEBA debt service costs.

  • Accommodation and food services were hit hardest, accounting for 20.3% of bankruptcies among CEBA participants.
  • Retail trade and construction followed, with 13.7% and 11.8% respectively.

These numbers paint a grim picture. The pandemic had already decimated many businesses. Now, the added burden of repaying loans pushed some over the edge. It’s like trying to swim with weights tied to your ankles. You can only struggle for so long before you sink.

Impact of Economic Conditions Post-Pandemic

The economic landscape post-pandemic was anything but stable. Rising interest rates and escalating input costs created a perfect storm. Businesses that had managed to survive the initial lockdowns now faced new challenges. The combination of these factors led to a significant increase in declaring bankruptcies.

In fact, the report indicates that while bankruptcy rates initially decreased during the pandemic, they reversed course in mid-2022. This shift coincided with the looming deadline for loan forgiveness. As businesses scrambled to adapt, many found themselves unable to cope with the financial strain.

Consider the transportation and warehousing industry. They had a staggering 30.7% of loans outstanding. Even sectors that seemed to recover quickly, like construction, faced challenges. About 20.1% of construction businesses still had loans outstanding. This suggests that the recovery was not uniform across industries.

As you reflect on these trends, it’s clear that the CEBA program had both positive and negative effects. While it provided immediate relief, the long-term consequences are now unfolding. Businesses are left grappling with financial obligations, and the economic recovery remains fragile.

In summary, the consequences of CEBA are complex. The initial relief provided by the loans has transitioned into a burden for many. As bankruptcy rates rise, it’s essential to understand the interconnected nature of these economic factors. The pandemic has left its mark, and the path to recovery is fraught with challenges.

The Ripple Effect: Beyond Declaring Bankruptcies

The economic landscape has changed dramatically in recent years. The COVID-19 pandemic shook businesses to their core. Many faced unprecedented challenges. But what happens when the dust settles? What are the long-term implications of the support provided, like the Canada Emergency Business Account (CEBA)? Let’s dive into the ripple effects of these financial lifelines.

1. Long-Term Economic Implications

When we think about the CEBA program, we often focus on immediate relief. However, the long-term effects are just as crucial. Businesses received interest-free loans, but at what cost? The loans were meant to provide a safety net, yet they may have created a larger debt burden. This can stifle growth in the long run.

  • Debt Burden: Many businesses now face significant repayments. This can limit their ability to invest in growth.
  • Market Dynamics: With rising debt, companies may become more risk-averse, avoiding new ventures.
  • Sector Disparities: Some industries, like construction, received more funding but recovered faster. Others, like food services, are still struggling.

It’s essential to ask: Are we setting businesses up for success or failure? The answer may lie in how these loans are managed in the future.

2. The Impact of Rising Inflation and Interest Rates

Inflation and interest rates are like the weather—unpredictable and often harsh. As inflation rises, so do costs for businesses. This can squeeze profit margins. Additionally, interest rates have been climbing, making it harder for companies to manage their debt.

  • Cost of Goods: Rising prices can lead to increased operational costs.
  • Loan Repayments: Higher interest rates mean higher repayments. This can be a heavy burden putting pressuer on being able to repay both secured creditors and unsecured creditors.
  • Consumer Behaviour: As costs rise, consumers may cut back on spending, affecting sales.

As one expert put it,

“It’s a complex interplay of factors—like juggling flaming swords while riding a unicycle through a storm.”

This analogy perfectly captures the precarious balance businesses must maintain.

3. Vulnerability in Businesses Pre- and Post-Pandemic

The pandemic revealed vulnerabilities in many businesses. Some were already struggling before COVID-19 hit. The support from CEBA helped, but it also masked deeper issues. Now, as the economy shifts, these vulnerabilities are resurfacing.

  • Pre-Pandemic Weakness: Many businesses were operating on thin margins. The pandemic exposed these weaknesses.
  • Post-Pandemic Recovery: As the economy reopens, businesses must adapt. Those that don’t may face business bankruptcy.
  • CEBA Recipients vs. Non-Recipients: Interestingly, CEBA participants had a bankruptcy rate of 0.7% compared to 1.3% for non-participants. This shows that support can make a difference, but it’s not a cure-all.

As we analyze the data, it’s clear that while CEBA provided immediate relief, it also created a new set of challenges. Businesses are now navigating a complex landscape of debt, rising costs, and changing consumer behavior.

The ripple effects of the CEBA program are profound. The long-term economic implications, the impact of rising inflation and interest rates, and the vulnerabilities exposed during the pandemic all intertwine. As businesses continue to adapt, they must find ways to manage their debts while also investing in future growth. The journey ahead is uncertain, but understanding these factors will be crucial for navigating the new economic reality.

declaring bankruptcies
declaring bankruptcies

A Cautious Path Forward: Lessons Learned

The COVID-19 pandemic has left many businesses grappling with vulnerabilities. As we reflect on the lessons learned from the CEBA program, it’s essential to consider how we can move forward. What can we take away from this experience? How can we ensure that future financial programs are more effective and sustainable?

Takeaways for Future Financial Programs

First and foremost, we need to recognize that not all businesses are created equal. Different industries have different needs. The CEBA program provided crucial support, but it also highlighted the disparities in recovery among sectors. For instance, while construction thrived, accommodations and food services struggled. This brings us to a vital takeaway: future financial programs must be tailored to the specific needs of industries.

  • Understand industry-specific needs: Programs should be designed with a clear understanding of the unique challenges faced by different sectors.
  • Flexibility is key: Financial support should be adaptable, allowing businesses to pivot as conditions change.
  • Monitor outcomes: Regular assessments can help identify which programs are working and which are not.

The Importance of Targeted Support

Targeted support is crucial for effective recovery. The CEBA program showed us that blanket solutions often miss the mark. For example, many businesses in the transportation and warehousing sector faced significant challenges, with 30.7% of loans remaining outstanding. This indicates that a one-size-fits-all approach can lead to unintended consequences.

As we move forward, we must ask ourselves: How can we provide support that truly meets the needs of businesses? The answer lies in targeted interventions. By focusing on specific sectors, we can ensure that resources are allocated where they are needed most.

Looking Ahead to Sustainable Recovery Strategies

Looking ahead, sustainability in economic recovery is paramount. As the quote goes,

“Sustainability in economic recovery depends on a nuanced understanding of industry needs and vulnerabilities.”

This means that recovery strategies must be holistic and context-sensitive. We need to consider not just immediate relief but also long-term resilience.

Some strategies to consider include:

  • Investing in training and development: Equip businesses with the skills they need to adapt to changing markets.
  • Encouraging innovation: Support businesses in developing new products or services that meet emerging demands.
  • Building partnerships: Foster collaboration between businesses, government, and community organizations to create a supportive ecosystem.

The lessons learned from the CEBA experience are invaluable. We must embrace a more nuanced approach to financial support, one that recognizes the unique challenges faced by different industries. By focusing on targeted support and sustainable recovery strategies, we can help businesses navigate the complexities of the post-pandemic landscape. The road ahead may be cautious, but with the right strategies in place, we can foster resilience and ensure a brighter future for all. Remember, the key to successful recovery lies in understanding the diverse needs of our economy and responding accordingly.

declaring bankruptcies
declaring bankruptcies

Declaring Bankruptcies: CEBA FAQ

What was the purpose of the Canada Emergency Business Account (CEBA) program?

The CEBA program was introduced by the Government of Canada on March 27, 2020, to provide interest-free loans to eligible small and medium-sized businesses to help cover their operating costs during the COVID-19 pandemic. The loans were up to $60,000, with a portion (up to one-third) forgivable if repaid by a set deadline. The aim was to help businesses maintain solvency and operations during a period of significant economic disruption.

Which industries received the most CEBA funding and why?

The construction industry received the most CEBA funding, totaling over $6.4 billion (13.1% of total loan disbursements), largely distributed among residential building construction businesses, building equipment, and building finishing contractors. This was partly due to the high number of legal entities within the construction sector. Client-facing service industries such as professional, scientific, and technical services; retail trade; transportation and warehousing; and accommodation and food services also received significant funding because they were among the most severely impacted by public health restrictions and disruptions to traditional business operations.

What were the repayment terms and deadlines for CEBA loans?

The original repayment deadline to qualify for partial loan forgiveness was December 31, 2022. This was extended to December 31, 2023, and then again to January 18, 2024. If the loan was not repaid by this final deadline, the outstanding balance was converted into a three-year term loan, subject to an interest rate of 5% per annum, with the loan forgiveness option no longer available. The final repayment date for these term loans is December 31, 2026.

Which industries had the highest rates of outstanding CEBA loans after the repayment deadline?

Industries that were hardest hit by pandemic-related lockdowns and experienced slower recoveries tended to have the highest rates of outstanding CEBA loans. These included transportation and warehousing (30.7% outstanding), administrative and support, waste management and remediation services (22.7% outstanding), accommodation and food services (21.9% outstanding), and construction (20.1% outstanding). These sectors often faced prolonged disruptions and financial pressures, making it difficult to repay loans by the deadline.

How did bankruptcies among CEBA borrowers change during and after the pandemic?

Business bankruptcies initially declined in the first half of the pandemic but began to accelerate in mid-2022, reaching a high in the first quarter of 2024, coinciding with rising interest rates, elevated input costs, and the end of the CEBA program forgiveness period. The proportion of bankrupt businesses that had taken out CEBA loans increased from 39% in the first quarter of 2021 to 70% in the first quarter of 2024. After this acute period, bankruptcies dropped sharply over the remainder of 2024.

Which industries saw the most bankruptcies among businesses that had received CEBA loans?

The accommodation and food services industry accounted for the largest share of bankruptcies among CEBA borrowers (20.3%), with full-service restaurants and limited-service eating places being particularly affected. Retail trade (13.7%) and construction (11.8%) also had significant proportions of CEBA borrowers declaring bankruptcy.

What were the overall bankruptcy rates for CEBA borrowers compared to non-borrowers?

Of the 898,271 CEBA borrowers, 6,343 (0.7%) eventually declared bankruptcy by the end of September 2024. In contrast, the overall bankruptcy rate for all businesses between the second quarter of 2020 and the third quarter of 2024 was 0.9%, and for businesses that did not take CEBA loans, the bankruptcy rate was 1.3%. This suggests that while many CEBA borrowers did face bankruptcy, their overall rate was lower than that of businesses that did not receive CEBA support.

What were the expectations of businesses regarding their ability to repay outstanding CEBA loans?

According to Statistics Canada’s Survey on Business Conditions, nearly two-thirds (65.6%) of businesses with outstanding CEBA loans anticipated having the liquidity or access to credit to repay the loan by December 31, 2026. However, approximately one-fifth (19.9%) were uncertain about their ability to repay, and 14.5% did not expect to have the necessary liquidity or credit access, indicating that repayment challenges persisted for a significant minority of businesses.

Declaring Bankruptcies Conclusion

The CEBA provided crucial financial lifelines to many businesses during the COVID-19 pandemic. However, disparities in funding distribution and subsequent declaring bankruptcies highlight a complex economic landscape that continues to evolve. Don’t let the storm of bankruptcy catch you off guard. Take proactive measures now, and you may find yourself on the path to recovery.

I hope you enjoyed this declaring bankruptcies Brandon’s Blog. Do you or your company have too much debt? Are you or your company in need of financial restructuring? The financial restructuring process is complex. The Ira Smith Team understands how to do a complex restructuring. However, more importantly, we understand the needs of the entrepreneur or someone with too much personal debt.

You are worried because you are facing significant financial challenges. It is not your fault that you are in this situation. You have been only shown the old ways that do not work anymore. The Ira Smith Team uses new modern debt relief options to get you out of your debt troubles while avoiding the bankruptcy process. We can get you debt relief freedom using processes that are a bankruptcy alternative.

The stress placed upon you is huge. We understand your pain points. We look at your entire situation and devise a strategy that is as unique as you and your problems; financial and emotional. The way we take the load off of your shoulders and devise a plan, we know that we can help you.

We know that people facing financial problems need a realistic lifeline. There is no “one solution fits all” approach with the Ira Smith Team.

That is why we can develop a restructuring process as unique as the financial problems and pain you are facing as your alternative to bankruptcy. If any of this sounds familiar to you and you are serious about finding a solution, contact the Ira Smith Trustee & Receiver Inc. team today.

Call us now for a free consultation. We will get you or your company back on the road to healthy stress-free operations and recover from the pain points in your life, Starting Over, Starting Now.

The information provided in this Brandon’s Blog is intended for educational purposes only. It is not intended to constitute legal, financial, or professional advice. Readers are encouraged to seek professional advice regarding their specific situations. The content of this Brandon’s Blog should not be relied upon as a substitute for professional guidance or consultation. The author, Ira Smith Trustee & Receiver Inc. as well as any contributors to this Brandon’s Blog, do not assume any liability for any loss or damage.

declaring bankruptcies
declaring bankruptcies
Categories
Brandon Blog Post

CANADIAN BUSINESS: WHAT WILL BE THE ULTIMATE BUSINESS IN ONTARIO RECOVERY PROGRAM?

The Ira Smith Trustee Team is absolutely operational and Ira, in addition to Brandon Smith, is readily available for a telephone consultation or video meeting.

Canadian business introduction

In April 2020, a survey of entrepreneurs who own what could be called a small Canadian business across the GTA was conducted. It found that almost two-thirds of them might have to shut down for good as they struggle to stay on top of rent and other bills throughout the COVID-19 pandemic.

In this Brandon’s Blog, I look at entrepreneurs in Canadian business, both small and large, and talk about the one essential ingredient that will determine Canadian business success or failure. This one necessary item may turn out to be the only Canadian business recovery program that will ultimately work.

Canadian business opening-up again

Many are progressively opening up under local, provincial and federal government guidance. They need to navigate a host of constraints, including restrictions on the number of customers at any one time. I have read that many say the restrictions with their added layer of costs may stop them from being profitable. Even though COVID-19 cases appear to be under control in Ontario, companies have actually reopened to dramatically smaller sized groups, imperilling their survival.

To save local Canadian businesses, and the millions they employ, the federal government developed Canada’s COVID-19 Economic Response Plan. The federal assistance programs for Canadian business include:

I have already written about most of these support programs. I have attached relevant links above so that you can read up on the various support programs for Canadian business.

Provincial governments have also stepped up. For example, in Ontario, the Doug Ford Conservative government has implemented:

  1. Interest/penalty relief – Canadian business in Ontario will get five months of interest and fine relief to make payments for taxes administered by the Province. From April 1, 2020 – August 31, 2020, Ontario will not apply any penalty interest on any late-filed returns or incomplete or late tax obligation payments under the Employer Health Tax, Tobacco Tax and Gas Tax obligations. This enhances relief from the federal government on interest and other charges from not remitting the amount owing for corporate income tax.
  2. WSIB payment deferments – Employers can delay WSIB payments for 6 months.
  3. Rent support for local Canadian business Ontario has partnered with the Government of Canada on the Ontario-Canada emergency commercial rent assistance for small businesses and landlords experiencing financial problems throughout the COVID-19 pandemic.

But there are still Canadian business problems

Despite all these support programs, the Canadian business world still has to figure out how to pay the balance of their rent, utility, insurance as well as a host of various other recurring expenses. While some have had the ability to delay these expenses, they can’t do so for life. Companies will become required to take care of their unmet commitments. They will also have to figure out how they are going to go back to paying all their expenses in full once the support programs end and business has not yet come back to the pre-coronavirus pandemic level.

Some companies may have enough cash savings to ride out the pandemic or can access fresh cash resources from owners. That is both good and bad. Entrepreneurs will take from their retirement savings, and in some cases deplete them, in the hopes of keeping their business alive long enough to survive and once again be profitable. It is highly doubtful that Canadian business will be able to borrow from the Banks as a source of fresh capital under these circumstances.

For a lot of others, the crush of past-due costs will certainly limit and maybe even end their business.

What happens when the government support programs end?

That is a big question that I get asked always. The answer is somewhat obvious: Everyone will have to stand on their own two feet just like they had to before the COVID-19 pandemic. Right now all the Canadian business support programs are all scheduled to end August 31. What will happen then?

My personal belief is that the federal and provincial governments will not be able to end the economic response support programs that soon. Rather, I think they will have to extend all the programs again. They may tweak them to begin the process of weaning Canadian business off of government support. Nevertheless, I feel they will have to be extended.

I think the extension will come with stark warnings. I believe the government would not want to extend for more than 90 days, but Christmas will still come in December. Pandemic or no pandemic. Nobody will want to shut off the tap before Christmas. So, that means an extension until the end of the calendar year 2020. With it, the governments will have to warn everyone to get their houses in order now because for certain there will be no more support programs after December 31.

I don’t have any inside information. I am just guessing. But to me, that seems the most realistic to still help Canadian business because entrepreneurs and workers are still all scared. At the same time, the governments’ exit strategy time clock begins ticking. Everyone will have a fair warning.

There is one precious commodity Canadian business will need when the support programs stop

Please humour me. Let us just say you find my prediction to be a reasonable one. On January 1, 2021, Canadian business is not all of a sudden flush with cash. They have survived. Entrepreneurs will still be scared. They certainly will not hire everyone back with an uncertain economic climate. All of the creditors of the businesses will start demanding payment in full. They have been patient and understanding. But now, all business debts will be demanded.

What is the one commodity Canadian business will desperately need? Cash is an obvious one but, no more is coming. Not from the government, the Banks or investors. Entrepreneurs are already tapped out having used personal savings to keep their businesses afloat. The most precious commodity Canadian business will need is TIME. Time to gear up again. Time to get back on their feet and bring in some cash. The Courts will have reopened. Creditors will begin to sue. There will be no more “time-outs” built into our Canadian economic system.

How will businesses get the time they need?

Bankruptcy protection will very likely be the answer

Breathing time that briefly ices up the need to pay off old debt while letting Canadian business function and have the time to find a strategy to keep going. In most cases, that will only be able to happen with a bankruptcy protection insolvency filing.

While bankruptcy is only thought of with going out of business, there are two Canadian federal statutes that allow viable businesses to develop a restructuring plan to lead them back to success. The trouble is that bankruptcy laws don’t give sufficient time to do this while there is still a pandemic. Ongoing COVID-19 health problems will likely suppress the Canadian economy in 2021.

Some out-of-the-box thinking and creativity are going to have to go into bankruptcy restructuring. It will be incumbent on licensed insolvency trustees (formerly called bankruptcy trustees), insolvency lawyers and the courts to recognize viable businesses that deserve to survive. This will be the case even if the processes being recommended are a bit unorthodox. These times are unorthodox and the solutions will have to fit the realities of our time.

I have previously written many blogs on how the two Canadian insolvency statutes can be used to allow Canadian business to restructure. The two statutes are:

For the purpose of this blog, I won’t repeat what I have previously written about corporate restructuring under either the BIA or CCAA. For this blog, what you need to know is that CCAA proceedings are for companies with $5 million or more of debt. BIA proceedings are for those companies with $4,999,999 of debt or less. Both statutes allow for bankruptcy protection filing. They are the Canadian equivalent to Chapter 11 bankruptcy protection in the United States.

How will bankruptcy protections help Canadian business?

For numerous companies battling the consequences of COVID-19, the main issue will not be a massive backlog of debt. It will be the inability to pay off the debt fast due to an absence of immediate profits. Cash will be needed to carry on business and make commitments on a go-forward basis. Given enough time, Canadian business will be able to repay its debts which accrued during the coronavirus shutdown. Unfortunately, the time Canadian business will need will be much longer than how much longer creditors will be willing to wait.

This is where bankruptcy protection filing, under either the BIA or CCAA comes in. First, under a bankruptcy protection filing, there is an automatic stay of proceedings. Creditors will not be able to start or continue collection efforts. This includes repossession by secured creditors or beginning or continuing legal proceedings.

Other benefits of a bankruptcy protection filing for Canadian business will be:

  1. Buying some time to come up with a restructuring plan to keep viable businesses in operation.
  2. Saving jobs through restructuring rather than liquidating the assets of many companies.
  3. Allowing for the sale of entire business units to be integrated into other healthier companies in order for businesses to survive, albeit in a different legal format.
  4. To allow for the sale of redundant assets to raise much-needed cash.
  5. Get out of onerous equipment, IP or premises leases/contracts that need to be jettisoned or else a restructuring is not possible.
  6. Stopping secured lenders from calling a default on loan facilities due to either cash or non-cash impairment charges leading to going concern worries.
  7. Obtain operating capital by way of a new debtor-in-possession loan credit facility for restructuring. Most companies outside of a formal restructuring will be unable to borrow any more money as I have already mentioned. However, in a BIA or CCAA Canadian business restructuring, the court can approve emergency funding and raise that operating loan to the top of the pile by giving it a priority secured loan position.
  8. Stopping Canada Revenue Agency (CRA) from starting or continuing garnishee tactics, general collection efforts and especially placing liens on business property for unpaid taxes.
  9. To allow companies to restructure their debt and clean up their balance sheets in a post lockdown economy.

The biggest resource Canadian business will need is also going to be its largest enemy

So as you can see, I believe that the most important resource that Canadian business will need to survive will not be cash. It will be time. Creditors will no longer want to give businesses more time to repay. Companies will need more time to get back on their feet when the COVID-19 Economic Response Plan support programs end.

The only way I can see that truly happening while allowing for proper restructuring of viable businesses will be under bankruptcy protection filings. Those businesses that are not viable, by definition, will fall by the wayside causing more harm to many good people.

So this why I say formal bankruptcy protection proceedings to allow viable businesses to restructure will be the ultimate business recovery program in a post-lockdown Canada.

Canadian business summary

I hope you have found this Canadian business Brandon’s Blog interesting and helpful. The Ira Smith Team family hopes that you and your family members are remaining secure, healthy and well-balanced. Our hearts go out to every person that has been affected either via misfortune or inconvenience.

We all must help each other to stop the spread of the coronavirus. Social distancing and self-quarantining are sacrifices that are not optional. Families are literally separated from each other. We look forward to the time when life can return to something near to typical and we can all be together once again.

Ira Smith Trustee & Receiver Inc. has constantly used clean, safe and secure ways in our professional firm and we continue to do so.

Income, revenue and cash flow shortages are critical issues facing entrepreneurs, their companies and individual Canadians. This is especially true these days.

If anyone needs our assistance for debt relief Canada COVID-19, or you just need some answers for questions that are bothering you, feel confident that Ira or Brandon can still assist you. Telephone consultations and/or virtual conferences are readily available for anyone feeling the need to discuss their personal or company situation.

The Ira Smith Trustee Team is absolutely operational and Ira, in addition to Brandon Smith, is readily available for a telephone consultation or video meeting.

canadian business
canadian business
Call a Trustee Now!