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Owner and massage therapist Cheryl Hyckie stands in her spa Breathe in Calgary, on Dec. 22.Todd Korol/The Globe and Mail

Tens of thousands of companies are facing an early deadline to pay back their pandemic business loans because of errors on their applications.

This fall, the federal government – under immense pressure from business organizations around the country – extended the deadline to repay Canada Emergency Business Account (CEBA) loans. Companies can take until Jan. 18 to repay and still have the loans partially forgiven; alternatively, they will be charged interest if they choose to repay in full by Dec. 31, 2026.

But the deadline wasn’t extended for everybody. Of the 900,000 businesses that received CEBA loans, Ottawa deemed about 40,000 ineligible because of errors in their applications.

That group of CEBA recipients has until Dec. 31 of this year to repay in full. And some of those companies, as well as the main lobby group for small businesses, say the reasons they were disqualified were inappropriate.

One of those thousands of business owners is massage therapist Cheryl Hyckie, owner of downtown Calgary’s Breathe Massage Therapy and Total Body Health.

In the spring of 2020, with her spa closed because of lockdowns, Ms. Hyckie applied for and received a $40,000 CEBA loan through her bank. When the government offered a $20,000 top-up later that year, she applied for that, too.

And then, she says, the bureaucratic nightmare began.

Her bank informed her that both applications were being rejected because she had included an incorrect business number. Ms. Hyckie resubmitted her applications with the correct business number, but was told the criteria had changed since she first applied, so she would need to include new paperwork and copies of documents such as invoices.

Throughout 2021, she resubmitted her forms, along with supporting documentation, half a dozen times – first with the bank, then with a government-contracted call centre run by Accenture Inc. Each time she was rejected, for reasons that ranged from filling out a form by hand, instead of electronically, to not including the postal address of an employee on a contract.

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Finally, that November, the government told her that was it – a deadline had passed to fix applications and no more changes would be made. Ottawa considered her in default of the $40,000 CEBA loan, and she had to pay it back in full.

She said that, although her revenue still isn’t back to what it was prepandemic, she has been able to save up about $20,000 and is working with her bank on how to pay off the rest of the loan by Dec. 31.

But she still doesn’t understand why she couldn’t have the loan partially forgiven, as most other CEBA recipients have.

“For them to take it back from me, when I’m a legitimate business, just makes me angry at the government,” Ms. Hyckie said.

Dan Kelly, president of the Canadian Federation of Independent Businesses, said his group has been receiving an increasing number of calls in recent weeks from business owners who say they have been told they defaulted on their CEBA loans for what they say are clerical errors.

While some businesses received letters from the government to that effect last year, Mr. Kelly said others are only finding out now. He said he hopes the government reviews these files.

“While government should pursue any cases of potential fraud with full force, many businesses applied to a confusing program with frequently changing rules and procedures during a giant, worldwide crisis,” he said. “Additional care and compassion is needed to ensure no business is punished for administrative mistakes or missing an e-mail.”

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A hand-painted sign about the Canada Emergency Business Account in a store in Toronto on April 15, 2020.Fred Lum/The Globe and Mail

The federal government has so far said it is not interested in revisiting these cases.

Katherine Cuplinskas, spokesperson for Finance Minister Chrystia Freeland, said businesses that have been retroactively deemed ineligible for their CEBA loans still received a three-year, interest-free loan and are not facing further financial penalties.

“In 2021, the federal government established a process in which small business owners with incomplete or ineligible CEBA applications were contacted multiple times by their financial institutions, inviting them to provide further details to prove eligibility,” she said in a statement. “Businesses, who either did not respond to these requests or who remain ineligible, must repay their CEBA loan in full by December 31, 2023.”

An internal government briefing note from July 15, 2021, obtained by The Globe and Mail through an access-to-information request, estimated there were 40,000 CEBA recipients who would be in default for some $1.6-billion worth of loans because of errors on their applications.

The government issued a total of $49-billion in CEBA loans to nearly 900,000 businesses in 2020 and 2021. Ottawa recently reported that 176,353 of those businesses had paid back their loans as of Aug. 31, adding that $38.7-billion in loans were outstanding as of Oct. 25.

As for CEBA recipients who default on their loans next year, their financial institutions are to make two attempts to collect the debt before passing their files to the Canada Revenue Agency for collections.

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