The Canada Emergency Business Account (CEBA) is a government-backed program designed to assist Canadian businesses during the COVID-19 pandemic which ran from April 9, 2020, to June 30, 2021.
CEBA offered nearly 900,000 small businesses and not-for-profit organizations interest free, partially forgivable loans totaling $49 billion to cover their essential operating expenses, such as rent, payroll, and utilities. It was created as part of the government’s broader economic response to mitigate the financial strain caused by the pandemic.
The CEBA program initially offered interest-free loans of up to $40,000 to eligible small businesses and not-for-profit organizations. Later, eligible CEBA loan holders were offered an expansion of up to $20,000, bringing the total CEBA loan amount to a potential $60,000. The government introduced partial loan forgiveness for those who meet specified deadlines, which have been extended twice.
On September 14, 2023, the Canadian Government made an announcement regarding an extension of deadlines for Canada Emergency Business Account (CEBA) loan repayments. This extension grants an additional year for repaying term loans and offers more flexibility for loan holders seeking up to a 33% reduction in their loan obligations.
Impact on Canadian Businesses
The impact of CEBA on Canadian businesses has been substantial, providing a lifeline during a period of economic uncertainty. Some key aspects of its impact include:
- Economic stability: CEBA has helped stabilize the economy by supporting businesses that might have otherwise faced financial distress or closures.
- Employee retention: Businesses have used CEBA to maintain their payrolls, ensuring employees have job security during the pandemic.
- Operational continuity: CEBA funds have allowed businesses to continue their operations, meet financial obligations, and adapt to changing market conditions.
- Business survival: For many small and medium-sized enterprises, CEBA has played a vital role in their survival, enabling them to weather the challenges of the pandemic.
- Investment in growth: Some businesses have leveraged CEBA funds to invest in digital transformation, expansion, or diversification to prepare for a post-pandemic economy.
Extension of Eligible CEBA Loan Repayment Deadlines
Good news for CEBA loan recipients in good standing! The federal government has extended the loan repayment deadlines to offer more flexibility during these challenging times.
To accommodate businesses during the busy year-end period, the repayment deadline for CEBA loans to be eligible for the up to 33% partial loan forgiveness is extended from December 31, 2023, to January 18, 2024. This builds on the one-year extension previously announced by the government in January 2022.
Here are the updated details:
Revised repayment deadlines
Repay by January 18, 2024: If your business is able to repay the loan by January 18, 2024, you will still qualify for partial loan forgiveness. For instance, if you initially borrowed $40,000 or less, you only need to repay 75% of the loan amount, which means if you borrowed $40,000, you would only need to repay $30,000.
If your loan was over $40,000 and up to $60,000, you need to repay 75% on the first $40,000 and 50% on the amount above $40,000. For example, if you borrowed $60,000, you would need to repay $40,000 (75% x $40,000 + 50% x $20,000). Importantly, no interest will accrue on the loan if you meet this deadline.
Apply for refinancing by January 18, 2024, and repay by March 28, 2024: If you need more time to arrange repayment, an additional extension is available. By applying for refinancing with the financial institution that granted the CEBA loan by January 18, 2024, and then repaying the loan (less the forgivable amount) and any accrued interest by March 28, 2024, you can still qualify for partial loan forgiveness. Please note that interest will begin accruing at a rate of 5% per annum from January 19, 2024, until the repayment date.
Miss both deadlines: If your business cannot meet either of the partial debt forgiveness deadlines, the option for partial loan forgiveness is no longer available. In this case, your outstanding loan will automatically convert into a three-year non-amortizing term loan on January 19, 2024. Interest at a rate of 5% per annum will accrue from January 19, 2024, until the final repayment date, which is set for December 31, 2026.
In simpler terms, small businesses and not-for-profits that haven’t repaid or refinanced their loans will automatically have access to a three-year, low-interest loan of up to $60,000. This extra time will be beneficial for those who cannot secure refinancing or generate sufficient cash flow to repay their loans by the forgiveness deadline.
Loan forgiveness amount
The forgiven amount varies depending on your initial loan amount:
If you borrowed $40,000 or less, the forgiven amount would be 25% of the borrowed amount (e.g., $10,000 if you borrowed $40,000).
If you borrowed over $40,000, you would be eligible for 25% forgiveness on the first $40,000 and 50% on the remainder (e.g., $20,000 if you borrowed $60,000).
Illustrating CEBA repayment scenarios
Here are examples illustrating how CEBA loan holders can take advantage of these new repayment options:
Nancy: She applies for a $40,000 loan from the same bank where she signed her CEBA loan agreement to pay off her $60,000 CEBA loan. Unfortunately, she doesn’t receive a response to her refinancing application by January 18, 2024. However, with the new refinancing extension, she has until March 28, 2024, to hear back from her bank and secure new financing to pay off his CEBA loan, thereby benefiting from $20,000 in partial loan forgiveness.
Chris and Lisa: They need to pay off their $40,000 CEBA loan but cannot manage to do so entirely in time to benefit from the $10,000 partial loan forgiveness. As of January 19, 2024, their loan becomes a three-year term loan with an annual interest rate of five percent. They will make monthly interest payments of approximately $167, and the principal amount will only be due just before the term loan repayment deadline on December 31, 2026.
Plan ahead for your CEBA repayment
It’s essential to assess your ability to meet the revised loan repayment deadlines or explore refinancing options with your financial institution. Proper planning will help you navigate the evolving situation and make the most of CEBA’s offerings.
Please note that the information in this article is based on updates provided by the federal government as of September 2023. Business owners are encouraged to consult official government sources or their financial institutions for the latest information and any future changes to the program.
Book a Free Consultation with a Licensed Insolvency Trustee
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