The government has just announced the long-trailed expansion of the CEBA loan facility.
To remind long-suffering readers: CEBA (Canada Emergency Business Account) is the interest-free $40k loan, of which $10k is potentially forgivable if $30k is repaid by December 31, 2022. You access the loan through your regular bank or credit union, but the government back-stops it and makes the decision as to whether or not you qualify.
The program has just been expanded to a total loan of $60k, with up to $20k of that being forgivable. Here are the key things you need to know:
Who’s eligible?
This should be straightforward. It may be slightly more complex than it seems.
According to the above website, applicants who already have a $40k CEBA loan can apply for the $20k expansion – and CRA has stated that it doesn’t matter if you’ve already repaid the first tranche.
If you already received $40k, then you can only apply for the new $20k (not a fraction of it). If you haven’t yet applied for the $40k, now you can only apply for the full $60k. Apply through the same bank or credit union as before, by March 31.
The eligibility criteria remain the same: need to have either between $20k-$1.5m in payroll, or at least $40k in annualized non-deferrable expenses (see the link for detail). It’s much easier to demonstrate you’ve met the payroll test.
If you already qualified for the $40k, presumably that means you qualify for the extra $20k. However, note that you need to adjust your calculation of eligible costs to reduce them by other government benefits received.
- For example, if you had total eligible costs of $50k but will receive $13k of wage or rental subsidy under the CEWS or CERS programs, then that reduces your costs to $38k and you may not qualify.
- It’s not clear if the government will do this (by cross-referencing your other benefit obligations) or you will have to do it, on your application.
- Your situation may have changed since the first $40k, depending on what claims we’ve put in on your behalf!
Do you need to demonstrate hardship?
There were rumblings that the additional $20k would only be available to businesses that have been hard hit by COVID. This does not appear on the CRA website.
However…. certain commentators (eg. CFIB) have indicated that you will need to sign an attestation that COVID-19 has had an impact on your business. This seems to apply in practice.
Just for the fun of it, I worked through the process at our bank (which is one of the major chartered banks). It was very efficient to apply for the extra $20k – only 3 minutes from log-in to finish. For your reading pleasure, I cut-and-paste the attestation that my bank requires:
The Borrower certifies:
- that its business is facing an ongoing financial hardship (including, for example, a continued decline in revenue or cash reserves, or an increase in operating costs) as a result of the COVID-19 pandemic;
- that it intends to continue to operate its business or to resume operations; and
- that in response to the COVID-19 pandemic it has made all reasonable efforts to reduce its costs and to otherwise adapt its business to improve its viability.
- that it has not used any loan received under the Program to make any payment or pay any expense other than Eligible Non-Deferrable Expenses. Specifically, the Borrower has not used any loan received under the Program to make any prepayment/refinancing of existing indebtedness, any payment of dividends, distributions, or increases in management compensation, or to increase the compensation of related parties.
The verbiage may vary from lender to lender. The first item is the key one and is highly subjective. I leave it to you to decide how you feel about it. Items 2-4 shouldn’t be too problematic.
What do I get and then what?
You’re entitled to borrow an extra $20k. Of this, $10k is potentially forgivable. So, ultimately, you may receive $20k of “free money” on a loan of $60k.
To get your free money, you have to have repaid all repayable balances owing by December 31, 2022. Same criteria as before, except now $40k by that date, not $30k.
Our advice?
Go for it. After all, it’s free money*.
We are not yet sure how this program will be audited or reviewed, but – if you’re in the lucky position that you don’t need the cash – we counsel against sticking it in a GIC and not touching it. That implies you didn’t need it. Although not against the letter of the program, it’s not in line with the spirit. Put it in your regular bank account where it can be better mapped against the expenses it’s supposed to support.
We also suggest you set up a scheduled repayment program. Note that the program now does NOT allow you to start repayments before April 1, 2021. (Hint: If you repay $2,000 a month, starting on May 1, 2021, you will magically have repaid the required $40k by the deadline, and be eligible for the remaining $20k to be written off.) And also, that allows the program to do what it’s supposed to do: support your cashflows. After all, we’re not out of the woods yet.
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