A federal review released by Blacklock’s Reporter shows small business loan defaults doubled during the government-mandated COVID-19 pandemic lockdowns. Known loan defaults totaled $87 million in 2021, double the $44.2 million in 2019, with a total of $220.9 million during the pandemic years of 2022, 2021 and 2022. The report, Department of Industry report Canada Small Business Financing Program: Cost-Benefit Analysis, forecasts the losses on these taxpayer-backed loans under the Canada Small Business Financing Act are expected to worsen due to “a certain time lag.”“The COVID-19 pandemic and subsequent economic recovery exerted a significant effect on the market dynamics within which program borrowers operated,” wrote federal researchers. “It is important to note that claims received by Department of Industry typically exhibit a lag of two to four years following the issuance of loans and additional time is necessary for the comprehensive review, audit and processing of these claims,” said the report. “Consequently any potential impact of the pandemic on defaults might be observed in the claims data after a certain time lag.”About $1.2 billion in loans have been approved through the Canada Small Business Financing Act, which guarantees loans 85% up to $1.15 million with additional $150,000 lines of credit. Loans are charged at prime plus 3%. The report also compared to loan defaults after the 2008 financial panic, which cost taxpayers $176.4 million.“With the onset of the pandemic there was a substantial increase in the claims processed, reaching approximately 900 in 2021,” said the report. Loans guaranteed under the program averaged $247,000.The highest rate of default was among hotel and restaurant small business owners, the industry department noted, followed by a collapse in small businesses related to tourism. Due to low revenues during the height of the pandemic, hotel owners faced the risk of their insurance being withdrawn, according to Canadian Hotel Association CEO Susie Grynol, who testified at the 2020 Commons Industry Committee hearings.“We’re too much of a risk,” said Grynol. “You can’t run a hotel without commercial insurance. It is a huge issue.”Around the same time, Restaurants Canada estimated 10% of its members closed their establishments permanently and two-thirds of industry employees were laid off, a total 800,000 people.“I can’t think of anything comparable,” said vice-president of the association James Rilett. “Nothing comes close,” Rilett said at the time. According to the Canadian Tourism Commission, revenues fell 69% and the industry was forced to lay off 440,000 employees. A 2021 Corporate Plan Summary released by the commission said the impact of lockdowns and travel bans was far worse than 9/11 or the fallout from the 2008 financial panic. “The impact on global tourism has been immediate, widespread and deep,” it said.
