Canada’s restaurant industry is poised to receive yet another financial blow as the deadline to repay the Canada Emergency Business Account (CEBA) comes this week.

The deadline comes after four years of diminished clientele as consumers continue to struggle financially. 

“The effects of aggressive interest rate increases have not yet been fully felt by consumers directly nor by the economy as a whole,” said DBRS Morningstar, a global credit rating agency said in its 2024 Restaurant Outlook, released on Wednesday.

The agency is predicting moderate potential improvements for restaurants by the end of the year, but said that remains contingent on how interest rate shifts affect consumer behaviour. 

“The restaurant industry has had to endure significant hardships over the past few years. Acknowledging some geographic nuances, restaurant traffic generally only recovered toward pre-pandemic levels in 2022,” said the agency, which went on to say that the macroeconomic challenges have also compounded over that same timeframe.

“Consumers’ purchasing power was squeezed during (2023), leading to considerable changes in their behaviour as consumers tried to stretch their wallet. These changes naturally also extended to the restaurant industry.”

Globally, the number of consumers dining out dropped dramatically in 2023, decreasing by low single digits on a monthly basis consistently year-over-year since the pandemic.

Just over half of Canadian restaurants, 53%, are now operating at a loss or barely breaking even, according to DBRS Morningstar. Whereas before the pandemic, that number held steady at a rate of about 10%.  

Additionally, Canada saw a nearly 40% year-over-year increase in bankruptcies in the accommodation and food services industry for the 12 months ending Nov. 30, 2023, according to Financial Post.

Now restaurants are faced with the challenge of repaying their CEBA loans by Jan. 18. 

The Canadian Federation of Independent Business (CFIB,) predicts this will result in a 50% increase in pandemic debt as many of these businesses will be unable to repay their loans.  

The restaurant industry and a number of small-business groups requested a deadline extension several months ago, however the Trudeau government did not respond to their pleas. 

“The Canadian Federation of Independent Business is very disappointed that the federal government has ignored the pleas of tens of thousands of small business owners to give them more time to repay their Canada Emergency Business Account loans in order to keep the forgivable portion,” said the CFIB in a press release on Wednesday. 

According to the terms of the CEBA loans, business owners are required to repay as much as $40,000 on their loans, or opt for refinancing from the initial issuing bank by Jan. 18, 2024. If they decide to refinance, they could be qualified for the forgivable portion of up to $20,000. 

However, businesses that miss the deadline may be on the hook for a CEBA debt increase of an additional $20,000. 

“Ottawa failed to address the most critical issue on outstanding CEBA loans — the loss of the forgivable portion,” said CFIB president Dan Kelly in the release. “I believe the government will regret the decision to not grant more time as small businesses fail and default on their entire loan. For many businesses, CEBA will be the straw that breaks the camel’s back.”

Kelly warned that the deadline is likely to bring one in every five Canadian restaurants to the brink of closure.