Navigating the Canada Emergency Business Account (CEBA) Repayment Process

Givens LLP | Aug 29, 2023

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The Canada Emergency Business Account (CEBA) program emerged as a lifeline for countless small businesses and not-for-profit organizations during the unprecedented challenges of recent times. Designed to provide interest-free loans of up to $60,000, CEBA aimed to support these entities as they navigated uncertain economic waters. As the program enters its next phase, beneficiaries must understand the repayment process and the latest updates. 

$20K of Forgiveness

CEBA was established to provide financial aid to businesses and organizations. One of the program's most appealing features was the potential for loan forgiveness. Those in good standing, who repay the non-forgiveable portion of their loans by December 31, 2023, could experience loan forgiveness of up to 1/3rd, amounting to a maximum of $20,000 free cash from the feds. 

Some of you may be reading this and thinking to yourselves, “But I thought it was 25% forgiveness or only $10,000.” Well, you are partially correct. When it was first established, CEBA was set at a maximum of $40K with a 25% forgiveness ($10K). But with time, the government extended another $20K to some businesses and allowed for a 50% forgiveness rate ($10K) on this expansion amount. Combined, this amounts to a maximum of $60K in loans and a forgiveness of up to $20K. 

We’ll give you a few examples of the math in a moment, but right now, it’s important that you understand that you need to have repaid the portion of your loan that isn’t forgivable in order to qualify for forgiveness. Put another way, if you don’t repay the majority of your CEBA loan before the end of this calendar year, you are giving up a $10K to $20K gift from the government, which you definitely don’t want to do!  

Okay, so let’s tackle a few examples to ensure you understand how this is all going to math out. (Yes, we accountants know how to use math as a verb as well 😄). 

If you borrowed $40,000 or less, you need to repay 75% of the loan on or before December 31, 2023, to receive loan forgiveness of 25% (up to $10k).

Example 1:

  • Amount Borrowed: $40,000
  • Amount Repaid By December 31, 2023: $30,000
  • Available Forgiveness: $10,000

Example 2:

  • Amount Borrowed: $20,000
  • Amount Repaid By December 31, 2023: $15,000
  • Available Forgiveness: $5,000

Example 3:

  • Amount Borrowed: $40,000
  • Amount Repaid By December 31, 2023: $25,000
  • Available Forgiveness: $0 (because you needed to repay 75%, and this is only 62.5%)

If you received a $40K loan and subsequently received up to $20K of the expanded loan, you will need to repay $30K from the original loan and 50% of the second loan on or before December 31, 2023. 

Example 4:

  • Amount Borrowed: $60,000
  • Amount Repaid By December 31, 2023: $40,000
  • Available Forgiveness: $20,000 ($40,000 x 25% + $20,000 x 50%)

Example 5:

  • Amount Borrowed: $50,000
  • Amount Repaid By December 31, 2023: $35,000
  • Available Forgiveness: $15,000 ($40,000 x 25% + $10,000 x 50%)

Example 6:

  • Amount Borrowed: $60,000
  • Amount Repaid By December 31, 2023: $35,000
  • Available Forgiveness: $0

You may be wondering why, in example 6, you don’t receive any forgiveness when your payment is more than the required 75% of the first loan. “Shouldn’t I get $10K in forgiveness on the first $40K loan, leaving me with only $15K left to pay against the second $20K loan instead of $25K?” While we don’t like the answer any more than you do, the government combines the two forgiveness portions into a single tranche of forgiveness, which is only available if all other outstanding amounts are repaid by December 31, 2023. This means that if $60K was borrowed, no forgiveness is available unless $40K is repaid.

To add to the potential confusion on this point, some financial institutions may record your $40K loan and $20K expansion as two separate loans. Don’t be fooled into thinking you only need to pay $30K against the $40K loan. For the purposes of loan forgiveness, borrowings and repayments on both loans will be aggregated.

CEBA Loan Repayment Strategies

As you can see from the above, it’s highly advantageous that you repay the non-forgivable amount of the loan(s) before the deadline so you can realize the full benefits of the CEBA program, which could be worth $20K to your business. Since cash flow is always a concern for businesses, we thought it would be helpful to share several strategies that you can use to mitigate potential repayment difficulties:

  • Set Aside Repayment Funds: We've been advising our clients to set aside funds each month dedicated explicitly to CEBA loan repayment for the past year. This proactive approach ensures that you will have the cash on hand to make the necessary repayment by the deadline without scrambling to find the funds in the fourth quarter. But what if you haven’t been doing this? Well, now is the time to look at your cash on hand as well as your projected cash flow for the balance of the year and determine if your operation can handle setting aside a 1/4 of the repayment amount each of these remaining 4 months. If you can, do it. If you can’t, then it’s time to consider financing options.  
  • Secure a Term Loan: With the deadline approaching, now is the time to talk to your financial lender about securing a loan for the forecasted amount of the non-forgivable portion of your CEBA loan(s). Your lender may require current financial records, proof of upcoming cash flow, and other documents before approving a loan, and this may take some time for you to collect and review. Doing this now will alleviate the stress and uncertainty that will result in delaying until closer to the deadline. 
  • Leverage Existing Lines of Credit: If you don’t think you will qualify for a lower interest rate term loan and you possess an operating line of credit, you can strategically use this to cover the loan repayment amount while retaining the forgivable portion. This approach preserves the opportunity for loan forgiveness while maintaining operational flexibility.
  • Open Communication: Open channels of communication with your financial institution are paramount. If you anticipate challenges in meeting the repayment deadline, discuss your situation with your lender. Financial institutions often possess specialized programs or options to assist businesses facing financial difficulties.

What If You Can't Repay In Time?

In scenarios where borrowers are unable to meet the forgiveness repayment deadline, an alternative comes into play. The full amount of the loan is converted into a 5-year term loan, carrying an interest rate of 5% per annum. While this avenue provides a more extended timeframe for repayment, it's essential to approach it with careful consideration, as interest charges will be applicable.

In such situations, it’s key to maintain proactive communication with your financial institution. By initiating a conversation about your challenges and exploring potential solutions, you can navigate the transition from the original loan terms to the 5-year term loan with a clear strategy in mind.

Seeking Additional Information

If you have questions about the CEBA program, repayment timelines, or eligibility determinations, the CEBA Call Centre is your go-to resource. Reach out to them at 1-888-324-4201. This dedicated support is available Monday to Friday from 9 AM to 6 PM Eastern Standard Time, excluding statutory holidays.

Before calling, have your 9-digit CRA business number and the relevant tax form used in your application (T1, T2, or T4SUM) ready. If you applied through the Non-Deferrable Expense stream and lack the tax form, have the documents you uploaded available for reference.

Timely repayment is the next step in honouring the Canadian Emergency Business Account program's intent and maintaining your business's financial health. By strategizing repayment, engaging with your financial institution, and seeking assistance when needed, you can confidently navigate the repayment process.

For businesses seeking expert guidance on how to navigate the CEBA repayment process and other financial endeavours, Givens LLP is here to help. Our seasoned professionals offer tailored solutions to navigate complex financial landscapes. Contact us today to receive personalized support and ensure your business's continued financial success.

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