On March 11th, the World Health Organization declared the ongoing Corona virus a pandemic, and over the following weeks Canada went on full lock down. Among the biggest changes enforced were non-essential businesses being ordered to close down, sending Canada’s small business economy into a rocky start for the new decade. Without being able to service customers, small businesses began to falter and the Government took action in providing support programs for businesses heavily affected. The CEBA program in particular has quickly become the cornerstone of the Government’s efforts in minimizing the devastating impact of the COVID-19 crisis on Canadian small businesses.
The program is designed to offer economic relief to the business owners that have experienced a massive decline or complete halt of revenue due to the pandemic and distancing measures in place. Although small businesses have lost more than this program is able to replenish, CEBA has become the first reliable thread in the safety net for small businesses in Canada.
An Overview of CEBA:
- Interest-free government loan of up to $40,000 for small businesses and not-for-profits.
- Can only be used for non-deferral operational expenses like rent, payroll, insurance and regularly scheduled debt service.
- 25% of loan amount is forgivable if loan is paid in full before December 31, 2022.
- Not all financial institutions are able to distribute this loan.
- Only available to small businesses with a 2019 payroll between $20,000 and $1.5 million.
- If any part of the balance is not paid by December 31, 2022, the remaining balance will be converted to a 3-year term loan at 5% annual interest, paid monthly, effective January 1, 2023.
- The full balance must be repaid by no later than December 31, 2025.
How does it work?
The CEBA program consists of interest-free Government loans of up to $40,000 for small businesses and not-for-profits affected by the COVID-19 crisis.
This program has been implemented by eligible financial institutions in cooperation with Export Development Canada (EDC). Unfortunately however, not all financial institutions have access to this program. Some institutions such as alternative lenders and some credit unions do not have access to this program and are not able to distribute these loans to their clients.
The loan itself is meant to be used to pay non-deferrable operational business expenses. This includes payroll, rent, utilities, insurance, property tax and regularly scheduled debt service. The funds cannot be used for expenses such as prepayment/refinancing of existing indebtedness, payments of dividends, distributions and increases in management compensation.
Thankfully, the terms of the loan itself are friendly to the small business owner. Not only is the loan interest-free, but repaying the balance of the loan principal on or before December 31, 2022 will result in loan forgiveness of 25% (up to $10,000).
All major banks have implemented this program but some may have additional restrictions. It is important to contact your bank in order to understand what limitations may be applicable to you.
This program was the first emergency support program launched in 2020 to prevent small businesses from going out of business due to the quarantine lockdown. It remains the cornerstone of the support effort, but not everyone is eligible.
Who can get it?
To be eligible for receiving the CEBA funds from a Lender, Canadian businesses must fit the following criteria:
- Business had a 2019 payroll of between $20,000 and $1.5 million
- Business has a chequing/operating account with the Lender that was opened on or prior to March 1, 2020
- Business was not in arrears on existing borrowing facilities, with the Lender by 90 days or more as of March 1, 2020.
- The business intends to continue to operate its business or resume operations.
Frequently Asked Questions:
If I’m a Sole Proprietor can I use the funds to pay for expenses on my personal credit card?
The short answer is that yes, you may be able to use the CEBA funds to cover non-deferrable operational business expenses that are under your personal credit card. The long answer is that you must have proof that the expense in question is a business expense and not a personal expense. Sole proprietors should approach the CEBA expenses in much the same way as declaring your business taxes. If it’s not a business expense, don’t include it.
What happens if I’m not eligible?
Businesses that are ineligible for CEBA may have other programs that can support them such as the following:
- CECRA - Rent Relief [Blog link]
- CEWS - Wage Subsidies [Blog link]
- BCAP - Loan Guarantees & Co-Lending [Blog link]
What exactly does interest-free mean?
Interest-free means that there is no cost for borrowing the loan. An interest-free loan of $40,000 means you only have to pay back the original $40,000 during the term of the loan. In the context of CEBA, that means you will not be charged interest until the interest-free expiry date on December 31, 2022. After that date, the remaining loan is turned into a 3-year, 5% business loan where you will be charged interest.
Does my business banking institution provide this program?
The CEBA program is available in most large financial institutions such as CIBC, RBC, ScotiaBank, TD and BMO. If your financial institution is not one of these, they may not be able to offer the CEBA program to their clients.
We recommend reaching out directly to your financial institution with this question as there may be additional important information pertinent to your specific banking circumstances.
