Amidst a backdrop of inflation and possible recession on the horizon, a coming “CEBA Tsunami” represents a $15 billion opportunity for community lenders to help get capital in the hands of small businesses, according to a study by JUDI.AI and Angus Reid.
To commemorate BDC’s Small Business Week, Vancouver-based fintech JUDI.AI partnered with Angus Reid to conduct a survey exploring how lenders can serve Canadian small businesses around the Canada Emergency Business Account program, which served as a source of pandemic-related financial assistance, offering interest-free loans of up to $60,000.
Nearly 900,000 Canadian small businesses were approved for a total of $49 billion in CEBA funding. About three-quarters have not fully repaid. Nearly one-third don’t have a plan to repay in full by the deadline. And among those with a plan, a majority hope to use cash on hand, according to JUDI.AI’s report, “How Canadian Lenders and Small Businesses Can Ride the Loan Refinancing Wave in 2023.”
“If CEBA recipients repay their loans in full by December 31, they are eligible for up to $20,000 in loan forgiveness from the federal government,” explains JUDI.AI. “One option for repaying CEBA loans is securing a conventional loan. In this scenario, lenders may receive hundreds or even thousands of loan applications in the span of a few months, which could put a significant strain on lending operations.”
Hence the CEBA Tsunami.
“With most CEBA loans yet to have been repaid and the 2023 deadline approaching, many businesses are going to be looking for options,” said Demetre Eliopoulos, Senior Vice President and Managing Director of Research at Angus Reid Group. “This research shows that many businesses are likely to be considering refinancing as the deadline draws near.”
According to JUDI.AI, CEBA refinancing is a unique, one-time opportunity to support small businesses and grow loan portfolios.
“Freeing up valuable cash remains a priority for small businesses as they grapple with rising interest rates and inflation,” said Gord Baizley, CEO, JUDI.AI. “There’s a big pool for lenders to play in on CEBA.”
Although many small businesses plan to repay CEBA loans with cash, they are also receptive to a relevant refinancing offer.
“Whether engaging existing borrowers or acquiring new ones, lenders can add value by educating and guiding them through a repayment and refinancing strategy,” noted Baizley.
Those successful in capturing the market will be ones offering tech-forward solutions that provide timely service,
“Lenders will need a way to manage risk effectively and evaluate creditworthiness efficiently—in a matter of minutes,” says Baizley, adding week-plus wait times no longer cut it.
We happen to know of several Canadian companies innovating the credit and lending spaces.