Struggling B.C. restaurants face COVID-19 debt repayment deadline

It has been a brutal three years for the restaurant industry, and it is only getting tougher with bankruptcies reportedly more than doubling compared to 2022 and a major COVID-19 debt repayment deadline looming.

An industry survey suggests 51 per cent of Canadian restaurants are not making a profit right now, with bankruptcies up 116 per cent so far this year.

“It’s tough,” said Matthew Senecal-Junkeer, owner of The Birds and the Beets in downtown Vancouver. “There are two principal challenges that a lot of restaurants are facing — rising labour costs and rising food costs.”

He says he has not been able to match menu prices with rising food inflation and higher wages. There’s only so much people will pay before he starts losing more business, he explains.

“There are a variety of reasons, including sticker shock, decreasing discretionary spending by consumers, and restaurants not wanting to turn away volume. So, margins have been squeezed,” he told CityNews. “The other challenge is that many restaurants are still trying to get out of their COVID debt, particularly the CEBA loan.”

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Up to $60,000 in federal Canada Emergency Business Account loans were offered interest-free to small businesses through the first year of the pandemic, with up to a third of the money forgivable if the balance is repaid by December 31, 2023.

That money helped keep the lights on and staff paid at many restaurants through the early days of COVID-19 pandemic restrictions.

A survey from Restaurants Canada finds 83 per cent of its full-service members and 64 per cent of its quick-service members took out CEBA loans and other debt, but only one-in-five restaurants that still owe money say they will be able to make those repayments by the deadline.

“In my case, we own two little restaurants and took out loans, but all that cash went to rent and payroll. It’s not like we invested in something that’s able to continue to generate revenue, it’s really a buried loss from the past that is rearing its ugly head,” said Senecal-Junkeer.

“If you are unable to pay by December 31st, the amount that’s owed goes from $40,000 to $60,000 and there’s an interest component that is added on as well. I think it’s hard to see a scenario where if someone is unable to pay the $40,000 on December 31st that they will be able to pay $60,000 on January 1st. It’s a scary prospect for a lot of operators and, without change, I think we will see a big rise in bankruptcies.”

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Senecal-Junkeer says it’s a “coin toss” as to whether he will be able to repay his CEBA debt by the deadline — a lot depends on profits over the summer.

“We are praying for an extension on the government end. There’s a lot of people I know and a lot of restaurants that everyone frequents, that should there be no change to the program, [they] won’t be here in the one to two-year horizon.”

An extension to the CEBA repayment deadline is exactly what Restaurants Canada is pushing for, with vice president for Western Canada Mark von Schellwitz describing a “perfect storm” of issues keeping so many restaurants from making a profit, including soaring inflationary costs, labour shortages and the continued recovery of customers, along with limits to how much menu prices can be increased before losing business.

“They’re between a rock and a hard place right now and that has led to these record un-profitability numbers. So what we are asking for is a little bit more flexibility with CEBA,” said von Schellwitz.

“We’ve asked for a flexible 36-month schedule — a revised repayment schedule — which still incentivizes people to pay as soon as possible because they will lose five per cent of the forgivable portion of that loan for every six months they are late paying,” he said.

Restaurants Canada is pressuring the federal government to make a quick decision on revising the deadline, with von Schellwitz suggesting many restaurants will have no choice but to default on the loans if nothing is changed.

“Help the industry get through this difficult period. There’s no question our industry has been the last to recover from the pandemic. With these challenges, it’s certainly not making it any easier.”