Everything you need to know about CEBA loans and your repayment options

Though the deadline for forgiveness repayment has passed, there are still options for businesses owing

Financial recovery from the COVID-19 pandemic has been difficult for countless Canadians. From individuals dealing with the interest rate increases in the pandemic’s aftermath to the millions of businesses that struggled to keep their operations afloat, it has been a challenging four years.

Among the many stimuli and supportive funding and grant packages offered by the provincial and federal governments, the Canada Emergency Business Account (CEBA) was one of the most applied for programs.

Nearly 90,000 businesses were approved for a CEBA loan since it was introduced in 2020. The loan offered small businesses and non-profits up to $60,000 interest free over the course of the pandemic years. Almost $50 billion in total funds were approved for CEBA loans and loan expansions (a $20,000 boost from the original $40,000 that was offered).

Ontario businesses took the bulk of funding from the program, with 40.76 percent of funds allocated in that province. Quebec came in second at 20.78 percent and Alberta in third at 14.13 percent.

This January, that debt came due, and many businesses are struggling with how they will repay the government amid ongoing financial constraints.

What does this mean for current CEBA loan holders?

Since the CEBA loan forgiveness repayment date of January 18, 2024 has passed, eligible outstanding CEBA loans have become non-amortizing term loans with full principal repayment due on December 31, 2026, according to the government of Canada.

If a business is unable to pay back their loan, their banking institution will request a lump sum repayment. If from there the loan cannot be repaid, the lender may assign your loan to the government’s CEBA Program for collection.

“The CEBA Program recognizes that the recovery from the pandemic has been difficult for many Canadians and businesses, and remains committed to being compassionate, flexible, and supportive,” the federal government’s website states.

CEBA loan repayment will be reviewed on case-by-case basis in order to assist businesses in establishing a payment plan tailored to ability to repay.

If you are a loan holder who has submitted a refinancing application on or before January 18, 2024 you may still be able to qualify for partial loan forgiveness if the outstanding principal is paid on or before March 28, 2024.

What are my options if I can’t repay my CEBA loan?

Taking out a loan

One option for businesses needing more time and flexibility to repay their CEBA loans is to take out a loan with their financial institution. Some financial institutions have begun offering to pay off the government debt for their customers and provide them with a loan that can be paid back over the course of a number of years, as needed.

Informal Restructuring

As more times goes on, it will become more difficult to pay a debt like this down, especially when combined with other debts and interest.

Restructuring your business means looking at your situation holistically. Assessing your assets, liabilities, cash flow, etc. can help come up with a strategy to tackle your CEBA loan repayment in a manageable way that ensures you’re not letting other financial responsibilities fall to the wayside.

Division I Proposal (Formal Restructuring)

A Division I Proposal is a formal procedure governed by the Bankruptcy and Insolvency Act. Unlike other restructurings, there is no criteria for how much debt you must have in order to qualify.

The filing of a Division I Proposal involves looking at all of your assets, creditors, and cash flow to come up with a payment plan to pay creditors a certain amount of what you owe them.

Creditors will vote on your proposal and if you meet the required majority consent the court will then approve it and you can begin the process of making monthly or quarterly payments until the terms of the proposal are met.

With a Division I Proposal, your business must have enough cash flow to be able to keep operating, maintain normal operating costs, and be able to come up with the funds needed to repay a portion of the debt depending on the outcome of the proposal.

Bankruptcy

In certain situations, a Bankruptcy might be a business’s best option. Likely, this scenario will involve closing the doors, releasing employees, and selling assets.

While it’s certainly a last resort, it does allow business owners to tie up their operations neatly if necessary.

In some cases, directors of these small businesses may need to file a proposal or go Bankrupt. However, if the directors remain solvent and if they have advanced money to the company in terms of shareholder loans, and the company cannot pay the debt back, filing an Allowable Business Investment Loss (ABIL) will reduce your taxable income and consequently, you will pay less tax.

Debt can feel suffocating, but there are solutions if you act now. Whether you need help restructuring your operations or assistance filing a proposal, contacting an advisor to find out the best option can give you the peace of mind that you’ve made a well-informed financial decision.