The Canada Emergency Business Account (CEBA) was a lifeline for many small businesses and not-for-profit organizations during the challenging times of the COVID-19 pandemic. But do you have to pay back CEBA?
This limited-time interest-free loan program provided crucial financial support, allowing eligible businesses to access up to $60,000 to navigate through the economic uncertainties brought on by the pandemic. However, as the dust settles and the economic recovery gains momentum, questions arise about the repayment terms and loan forgiveness associated with CEBA.
Remember, all applicants that received funding through the Canada Emergency Business Account (CEBA) program are required to repay their loan in accordance with the repayment terms of their respective loans. In this article, we will explore the repayment obligations and loan forgiveness options for CEBA borrowers.
CEBA Loan Repayment
The CEBA loan repayment process is designed to offer flexibility to the borrowers, considering the ongoing recovery and economic stability of businesses. Eligible CEBA borrowers in good standing have the following repayment terms:
Interest Rate
From the date of loan disbursement until December 31, 2023, the CEBA loan carries 0% interest, providing relief to businesses during the initial recovery phase.
Starting on January 1, 2024, the interest rate on the outstanding balance of the loan will be 5% per annum. The frequency of interest payments will be determined by the borrower’s financial institution.
Principal Repayment
CEBA borrowers are not required to make any principal repayments before December 31, 2023.
If the loan remains outstanding after December 31, 2023, only interest payments will be required until the full principal is due on December 31, 2025.
CEBA Loan Forgiveness: Do You Have to Pay Back CEBA?
The Canada Emergency Business Account (CEBA) offers different terms of forgiveness based on the amount borrowed, providing businesses with greater flexibility in managing their financial obligations.
Let’s explore the forgiveness conditions for different borrowing amounts:
If You Borrowed $40,000 or Less:
- Repayment Deadline: CEBA borrowers who received $40,000 or less must repay the outstanding balance of the loan (excluding the forgivable amount) on or before December 31, 2023, to be eligible for loan forgiveness.
- Forgiveness Amount: Meeting the repayment deadline will result in loan forgiveness of 25 percent, up to a maximum of $10,000.
Example 1:
Maximum Amount Borrowed: $40,000
Amount Repaid By December 31, 2023: $30,000
Available Forgiveness: $10,000 (25% of $40,000)
Example 2:
Maximum Amount Borrowed: $20,000
Amount Repaid By December 31, 2023: $15,000
Available Forgiveness: $5,000 (25% of $20,000)
Example 3:
Maximum Amount Borrowed: $40,000
Amount Repaid By December 31, 2023: $25,000
Available Forgiveness: $0 (Amount repaid is less than the maximum loan amount)
If You Borrowed More Than $40,000 and Up to $60,000:
CEBA borrowers who received more than $40,000, up to the maximum amount of $60,000, and subsequently received the $20,000 expansion will experience different forgiveness terms.
- Repayment Deadline: Similar to those who borrowed $40,000 or less, borrowers must repay the outstanding balance of the loan (excluding the forgivable amount) on or before December 31, 2023, to be eligible for loan forgiveness.
- Forgiveness Amount: The forgiveness is calculated using a blended rate, combining 25 percent on the first $40,000 and 50 percent on amounts above $40,000 up to $60,000.
Example 4:
Maximum 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:
Maximum 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:
Maximum Amount Borrowed: $60,000
Amount Repaid By December 31, 2023: $35,000
Available Forgiveness: $0 (Amount repaid is less than the maximum loan amount)
Note: Some financial institutions may treat the $40,000 loan and $20,000 expansion as separate loans. However, borrowings and repayments on both loans will be aggregated for loan forgiveness purposes to determine the eligible forgiveness amount.
Businesses Seek Extension for CEBA Loan Repayment Deadline
As the post-pandemic recovery continues to present challenges, business groups across Canada are urging the federal government to grant them more time to repay.
In January 2022, the government extended the repayment deadline to December 31, 2023, providing eligible businesses “in good standing” a chance to repay and be eligible for debt forgiveness of one-third (up to $20,000) of their loan.
Hundreds of thousands of small businesses represented by more than 250 local chambers of commerce, tourism, and industry groups are seeking another extension, requesting an additional one or two years to repay their CEBA loans.
CEBA Loan Repayment: Businesses Face Uncertain Future
Despite calls for an extension from businesses, NDP Leader Jagmeet Singh, and the Canadian Chamber of Commerce, the government has not yet signalled its intention to grant a further extension.
As of May 31, only 21 percent of businesses had fully repaid their CEBA loans, but the government expects more businesses to repay their loans in full as the repayment deadline approaches.
Uncertainty Surrounds Equitable Recovery
While businesses acknowledge their commitment to repaying the loans, they argue that additional time is essential to ensure a sustainable recovery without pushing them into financial distress.
The outcome of this plea remains uncertain, and businesses are anxiously awaiting the government’s response.
As the recovery remains uneven across sectors, the federal government faces the challenge of striking a balance between supporting businesses’ financial stability and managing the national economic landscape.
Conclusion
The Canada Emergency Business Account (CEBA) has been a critical financial aid program for small businesses and not-for-profit organizations facing economic challenges during the pandemic. Understanding the repayment terms and loan forgiveness options is essential to take full advantage of the benefits provided by CEBA.
As the economic recovery continues, businesses are encouraged to plan their finances strategically to ensure a smoother path to prosperity and long-term stability.
Consultation with financial advisors and staying informed about program updates will enable businesses to make well-informed decisions and leverage the opportunities provided by CEBA to fuel their growth and success.
