Financial health of small business amidst CEBA loan repayment and carbon tax hikes

In the heart of Canada's economic landscape, small businesses play a pivotal role. Findings from CFIB’s April Omnibus survey, which collected responses from 2,750 independent businesses owners ─ spanning across all provinces, industries, and business sizes ─ highlights their financial health and the impacts of policy decisions such as the recent CEBA repayment and carbon tax hike.

The financial health spectrum of small businesses

A significant share (29%) of small businesses report being in robust financial standing, underscoring their resilience. Meanwhile, a substantial portion of businesses (37%) find themselves in a steady state, neither thriving nor weak, while the remaining third (33%) navigate treacherous financial waters. Within this last group, a substantial 25% report being in weak financial health, and a concerning 8% are in critical condition.

Survey findings also reveal that the financial health of businesses varies across sectors, locations, and businesses sizes. The hospitality sector appears to be the most vulnerable, with 52% of businesses reporting poor financial health, followed by retail (41%), and arts, recreation and information (38%). Geographically, Alberta reports the highest proportion of businesses in poor financial condition at 40%, with Ontario (38%) and British Columbia (36%) close behind. Quebec shows the lowest share of businesses in poor health (20%). Additionally, there is a clear relationship between the size of a business and its financial health, with smaller businesses facing greater challenges. Specifically, businesses with 0-4 employees report the poorest financial health at 41%, followed by those with 5-19 (31%) and 20-49 (23%).

Source: The CFIB omnibus survey Your Voice – April 2024, was conducted online April 4-22, 2024. A total of 2,750 CFIB members who are owners of Canadian independent businesses, from all sectors and regions of the country answered the question above. For comparison purposes, a probability sample with the same number of respondents would have a margin of error of +/- 1.9%, 19 times out of 20.
Question: How would you describe the overall financial health of your business right now (e.g., cash flow, debt levels, revenues and profitability)? (Select all that apply)
Notes: *Less than 40 responses. Total may not add up to 100% due to rounding.

The impact of the Canadian Emergency Business Account (CEBA) loan repayment on business health

According to the federal government’s latest estimate a majority (75%) of CEBA balances have already been repaid. However, our survey data indicates that the debt for many businesses did not suddenly go away and is having a detrimental impact on their financial health.

Analyzing the financial health of businesses in relation to their interaction with the CEBA loan suggests a positive correlation between businesses that did not use the loan or self-financed their repayment ─ thereby qualifying for the forgivable portion ─ and stronger financial health. These businesses are characterized by their disproportionately lower share in the weak or critical financial health categories, coupled by a more prominent presence in the average, strong, and very strong categories.

Conversely, the path is less forgiving for businesses that accrued additional debt to meet their CEBA repayment obligations or that were unable to pay back their loan in time to access the forgivable portion. These businesses are more frequently associated with the critical and weak financial health categories, signaling a precarious financial position. This is particularly concerning given that CFIB data shows that over 200,000 businesses (30%) resorted to taking on new debt to refinance their CEBA payment, making it even more challenging to meet operational costs.

CEBA repayment success reflects business’ financial health

Source: The CFIB omnibus survey Your Voice – April 2024, was conducted online April 4-22, 2024. A total of 2,750 CFIB members who are owners of Canadian independent businesses, from all sectors and regions of the country answered the question above. For comparison purposes, a probability sample with the same number of respondents would have a margin of error of +/- 1.9%, 19 times out of 20.
Notes: Special tabulation using the following questions: How would you describe the overall financial health of your business right now (e.g., cash flow, debt levels, revenues and profitability)? (Select all that apply); Was your business able to repay its CEBA loan in time to access the forgivable portion (either by the January 18, 2024 or the March 28, 2024 deadlines)? (Select as many as apply). Total may not add up to 100% due to rounding.

The carbon tax pressure point

On April 1, 2024, the federal carbon tax surged by 23% to $80 per tonne, further straining the already tight operational budgets of many small businesses. According to our survey, four in five businesses agreed that the increase in the carbon tax rate poses a challenge as it hinders their ability to meet other operational expenses (e.g., payroll, rent, mortgage, utilities, inventory).

Across all sectors, most businesses are feeling the negative effects of the carbon tax hike, with agriculture (89%), construction (87%), transportation (8%) and hospitality (84%) being particularly hard-hit. With respect to location, businesses the carbon tax poses a greater challenge for businesses in Saskatchewan (89%), Alberta (88%), British Columbia (78%) and Ontario (78%).

Additionally, our findings suggest a significant negative correlation between the size of a business and the extent to which the carbon tax impacts it, with smaller businesses bearing a disproportionately higher burden. Specifically, about 4 in 5 businesses with under 50 employees indicate that the carbon tax rate poses an operational challenge ─ this figure falls to 73% for businesses having 50 or more employees. This discrepancy highlights the varied financial pressures faced by businesses based on their scale.

Source: The CFIB omnibus survey Your Voice – April 2024, was conducted online April 4-22, 2024. A total of 2,750 CFIB members who are owners of Canadian independent businesses, from all sectors and regions of the country answered the question above. For comparison purposes, a probability sample with the same number of respondents would have a margin of error of +/- 1.9%, 19 times out of 20.

Question: To what extent do you agree or disagree with the following statement: "The increase in the carbon tax rate poses a challenge for our business, making it difficult to cover other operational expenses.”

Notes: The findings encompass businesses across all Canadian provinces except for Quebec. Notably, businesses in Quebec were excluded from this analysis due to their exemption from the carbon tax regulations present in other jurisdictions. *Less than 40 responses

The relationship between the financial health of a business and the impact of the carbon tax reveals a clear trend where the strain of the carbon tax is inversely related to a business’s financial well-being. Specifically, businesses with average or weak financial health are more likely to view — 78% and 57% respectively — the carbon tax hike as a hinderance to their operations. On the other hand, businesses in stronger financial positions were less likely to see the carbon tax hike as a challenge, with 39% of those in strong financial categories and a mere 8% of those in very strong categories acknowledging its negative impact. Additionally, while businesses in vulnerable financial states recognize the carbon tax as a challenge, those in critical conditions, although still impacted, do not consider it their main concern — only 18% agree on the tax's impact. This suggests that such businesses face more immediate or severe challenges.

Higher share of businesses in an average or weak financial position AGREE that the increase in the carbon tax poses a challenge for their business

Source: The CFIB omnibus survey Your Voice – April 2024, was conducted online April 4-22, 2024. A total of 2,750 CFIB members who are owners of Canadian independent businesses, from all sectors and regions of the country answered the question above. For comparison purposes, a probability sample with the same number of respondents would have a margin of error of +/- 1.9%, 19 times out of 20. 
Note: Special tabulation using the following questions: How would you describe the overall financial health of your business right now (e.g., cash flow, debt levels, revenues and profitability)?; To what extent do you agree or disagree with the following statement: "The increase in the carbon tax rate poses a challenge for our business, making it difficult to cover other operational expenses.”

In examining the financial health and the impact of the carbon tax hike across various sectors, it’s evident that the hospitality sector is particularly strained not only grappling with a precarious financial position but also a notable struggle with the increase in the carbon tax. The retail, personal services, manufacturing, transportation, construction, and agriculture sectors are also navigating a complex landscape of balancing financial vulnerability against the ramifications of a hike in the carbon tax. On the other end of the spectrum, the finance, insurance, and real estate sectors show relative resilience.

Impact of carbon tax hikes on businesses: a sectoral analysis of financial health correlations

Source: The CFIB omnibus survey Your Voice – April 2024, was conducted online April 4-22, 2024. A total of 2,750 CFIB members who are owners of Canadian independent businesses, from all sectors and regions of the country answered the question above. For comparison purposes, a probability sample with the same number of respondents would have a margin of error of +/- 1.9%, 19 times out of 20. 
Note: Special tabulation using the following questions: How would you describe the overall financial health of your business right now (e.g., cash flow, debt levels, revenues and profitability)?; To what extent do you agree or disagree with the following statement: "The increase in the carbon tax rate poses a challenge for our business, making it difficult to cover other operational expenses.”   *Less than 40 responses

Looking ahead

These results from our latest omnibus survey reveal that while a share of businesses is showing resilience during these difficult economic times, others are stifled by financial difficulties and policy-induced pressures. The pathway forward requires a delicate balance of support, strategic financial planning, and policy adjustments that help small businesses recover and grow. In response, CFIB offers several recommendations for government actions.

Regarding CEBA ─ implement a review process for loan holders deemed ineligible and introduce a three-year repayment plan to provide more flexibility. Additionally, explore new ways to lighten the debt load for those unable to meet the CEBA repayment deadline.

Concerning the carbon tax, ensure the $2.5 billion in carbon tax revenues is returned in 2024 with meaningful rebates for the smallest of businesses and raise the share of future rebates for SMEs back to 9% from 5%.

CFIB will continue to monitor the financial health of businesses in our future surveys to get a clearer picture of how Main Street will be recovering as we head into the second half of the year. This ongoing assessment will help tailor our recommendations and support strategies for small businesses across the country.