In these unprecedented times, small businesses across Canada have relied on financial assistance to navigate the challenges brought about by the global pandemic. One significant form of support was the Canada Emergency Business Account (CEBA) loan. As we near the end of 2024, it is crucial for borrowers to stay informed about the updates surrounding CEBA loans to make sound financial decisions.
What is the CEBA Loan?
On March 27, 2020, the Government of Canada introduced the Canada Emergency Business Account (CEBA) Program.
Through this initiative, small businesses and not-for-profits meeting the eligibility criteria could access emergency funding of up to $60,000. These loans, initially interest-free and partially forgivable, aimed to assist with essential expenses incurred during periods of shutdown, such as payroll, rent, insurance, and utilities.
The application window for the CEBA Program spanned from April 9, 2020, to June 30, 2021, distributing over $49 billion to around 898,000 businesses through the collaboration of over 230 financial institutions.
When was the CEBA Loan Repayment Period?
CEBA loan recipients meeting the eligible criteria had the opportunity to qualify for partial loan forgiveness by repaying the non-forgivable principal of their loan by January 18, 2024. For those who pursued refinancing with the original financial institution by the same date, the deadline extended to March 28, 2024. The forgivable portion amounted to a maximum of $20,000, calculated as 25 percent of the initial $40,000 borrowed, and 50 percent on any additional amounts up to $60,000.
Individuals found ineligible for the loan they received were not entitled to forgiveness. They were obligated to settle the outstanding balance of their CEBA loan(s) in full by December 31, 2023, without the possibility of forgiveness. As of January 19, 2024, an interest rate of 5% per annum was applied to any outstanding amounts owed on CEBA loans.
Businesses who fail to repay their loan on time will first receive a request from their financial institution for a lump sum payment of the overdue amount. If the borrower does not fulfill this repayment request, the financial institution may have to transfer the loan to the CEBA Program for additional collection efforts. The Canada Revenue Agency (CRA) is involved in assisting with the collection of defaulted CEBA Loans that have been transferred to the CEBA Program.
What Does Loan Assignment Mean?
Loan assignment involves transferring your CEBA Loan from the initial financial institution responsible for its establishment and management to the CEBA Program for the collection of outstanding debts. Essentially it would become “default”.
Prior to the assignment of your CEBA Loan, your financial institution will issue a Demand Letter notifying you of the default status of your loan and the likelihood of its transfer to the CEBA Program if not settled. Upon assignment, the CEBA Program will send you a formal Loan Assignment Notice via postal mail, detailing the transfer of the loan and providing essential guidance on making payments and overseeing your CEBA Loan moving forward.
What Happens To My CEBA Loan if My Business Closed?
As a business owner, you might naturally consider closing down to shield yourself from loan repayment obligations. However, taking this step will not provide protection if you operate as a sole proprietorship or partnership. The CEBA loan remains a liability that must be settled, and even if you manage the interest payments, you will eventually need to repay the entire outstanding amount once the interest-only term concludes. Failure to meet this repayment could result in the debt being transferred back to the federal government through the CEBA program, impacting your eligibility for future benefits such as income tax refunds, GST cheques, and potentially government pensions.
On the flip side, corporate owners bear no responsibility for CEBA loans, unless they have individually co-signed or guaranteed the obligations, as the corporation is accountable for its own debts. However, if the corporation remains operational, the CEBA will be excepted to be paid by the corporation – if it closes, the proper steps much be followed.
I Can’t Pay the CEBA Loan
If you find yourself unable to repay your CEBA loan or facing challenges with other debts like loans or credit cards, seeking alternative solutions including credit counselling, bankruptcy, and consumer proposals is your next best option.
A consumer proposal is a legally binding arrangement overseen by your licensed insolvency trustee (LIT). In this scenario, you negotiate a repayment plan whereby you can settle a portion of your debts. This proposal can encompass various debts such as credit cards, lines of credit, payday loans, and unsecured loans like the CEBA loan, provided you satisfy specific criteria. Among these criteria are the capacity to repay a portion of your debts and ensuring that your total debt, excluding your mortgage, is under $250,000.
For small business owners ineligible for a consumer proposal, resolving personal liability for the CEBA loan may be achieved through bankruptcy. While bankruptcy is considered a last resort option, it offers a resolution that frees you from the obligation of repaying all unsecured debts, including the CEBA loan.
How 4 Pillars Helps
4 Pillars is not a LIT, 4 Pillars is a debtor advocate and works with the debtor to fully understand all options to deal with debt and how each option fits their budget and the long term impact on their credit rating. If you decide a consumer proposal is the most viable option you will be introduced to one of the carefully chosen LIT’s in the network 4 Pillars works with, where they will prepare and file your consumer proposal. You can learn more here.
Additionally, Our sister company, Corporate Turnaround Group gives you practical and specific advice on the challenges your business is facing. CTG offers a free online assessment to business owners needing help.
The goal of this initial report is to give you some understanding of the situation you are facing and covers the key financial and legal aspects to consider when your company is facing financial challenges. You may decide this information is enough for you to know what to do or you can schedule a call with a CTG consultant to discuss your situation and the options available.
To receive the report, head over to the CTG website and click ‘KNOW YOUR OPTIONS BUSINESS ASSESSMENT’
