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Export Development Canada's head office in Ottawa on Feb. 14, 2019.Justin Tang/The Globe and Mail

Ottawa may be unable to recoup $5-billion or more of the $49-billion in emergency loans it extended to small businesses during the pandemic lockdowns, according to a government projection.

The task of chasing down business owners to collect on the mountain of debt issued during the most acute phase of the pandemic, when many struggled to survive widespread shutdowns, was recently handed by the federal government to the Canada Revenue Agency.

Ottawa announced the Canada Emergency Business Account (CEBA) loan program on April 9, 2020, and sent more than $49-billion to nearly 900,000 businesses. Each loan is worth up to $60,000, and is interest-free and partly forgivable if the balance is repaid by Dec. 31, 2023.

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However, the program had no mechanism to seek out and collect from those who did not repay, and a government briefing document obtained by The Globe and Mail under access-to-information law estimated that a total of $5-billion worth of loans could be particularly difficult to get back.

It says 100,000 borrowers might need to be chased down: 40,000 who should not have received funds; 50,000 who do not meet the repayment deadline to take advantage of the forgivable portion; and 10,000 who do not repay in full by Dec. 31, 2025.

The 100,000 estimate is preliminary and “actual numbers may be higher,” says the July 15, 2021, briefing note, which was done for Mairead Lavery, the chief executive officer of Export Development Canada (EDC), by her staff.

EDC, a Crown corporation, administered the loan program in conjunction with financial institutions.

CEBA was the first pandemic aid the government introduced for small businesses. It was designed and implemented quickly to help many enterprises weather the first few uncertain months. But some businesses were not eligible, and Ottawa tweaked the program multiple times until the deadline for applications on June 30, 2021.

After that deadline passed, more than a year after the program was launched, the government’s focus shifted to a new concern: what to do about business owners who did not pay back their loans.

“The CEBA program does not have a built-in solution for collections,” reads the briefing note, which also says the eligibility requirements of the loan did not include a consideration of the creditworthiness of the recipient.

The briefing note said neither EDC nor the financial institutions would be able to handle collections.

“EDC does not have in-house expertise or capacity to collect or enforce thousands of CEBA loans,” the note says.

“When the CEBA agreements were negotiated between Export Development Canada (EDC) and the financial institutions (FIs), it was agreed that FIs would not take on full collection efforts and would only have limited duty of care (e.g. make two recovery attempts).”

Mathieu Labrèche, spokesperson for the Canadian Bankers Association, said it was appropriate for the government to lead collection efforts because it guaranteed the loans, and is therefore the true lender.

The briefing note describes two guiding principles for collections: fairness, by seeking to minimize undue hardship for borrowers, such as offering repayment plans; and prudence, by balancing the cost of collections against the expected benefits to maximize net recovery.

The government weighed different options in how to collect, which are redacted.

In April, the federal cabinet issued an order that assigned the CRA the duty of collecting the outstanding loans.

EDC and the office of Mary Ng. the minister responsible for small business, declined to comment for this story.

Dan Kelly, president of the Canadian Federation of Independent Business, which lobbies Ottawa on behalf of its 95,000 members, said the government should absolutely go after loan recipients who received money fraudulently.

But he said he has urged Ottawa not to move too aggressively on other collections, because some small businesses racked up hundreds of thousands of dollars in debt during lockdowns.

“I had been hoping that the government … would have dropped plans to go after these businesses,” he said. “It would be disappointing if that’s not the case.”

However, he said he believes loan recipients will be highly motivated to meet the Dec. 31, 2023, repayment deadline, because that is the only way to have the loan partly forgiven.

“I firmly believe most business owners that are in a position to do so will pay the unforgivable portion in full so they can keep the $10,000 or $20,000,” Mr. Kelly said.

According to the government’s 2021 annual financial report, the most recent available, Ottawa had $45-billion in outstanding CEBA loans and expected to spend $13-billion on loan forgiveness.

The Auditor-General of Canada noted at the time that loans that were not yet repaid would be booked as assets on the government’s financial statements and the value of those assets would decrease as loans were written off. “This reduction in the value of assets increases the annual deficit,” the Auditor-General’s report said.