How to Use CEBA Loan? The Do’s and Don’ts

Navigating the financial landscape can be a challenge, particularly when it comes to understanding how to use a CEBA Loan effectively. CEBA, or Canada Emergency Business Account, is a loan program designed to help small businesses facing financial hardship due to COVID-19 with interest-free loans. But many business owners may not know how to use CEBA Loan properly and make the most of these funds. In this blog, we will outline the do’s and don’ts when using a CEBA Loan so you can make sure your business takes full advantage of CEBA program.

Criteria to Apply for CEBA Loan

Not every business will qualify for a CEBA Loan, so it is important to understand the CEBA eligibility criteria. Make sure you meet the following requirements if you are looking to apply for CEBA Loan:

1. The business must have been in operation since March 1, 2020, and should either have opened a business banking account with a participating primary financial institution (FI) on or prior to this date or have used a personal bank account to operate the business.
2. There should be a genuine intention to keep operating the business or resume operations.
3. The business must not have been involved with the original CEBA loan program before and can’t apply for CEBA support at other financial institutions.
4. The organization should agree to take part in post-funding surveys conducted by the Government of Canada or its agents.

Businesses such as small Canadian businesses, not-for-profits, sole proprietors, corporations that pay employees through dividends instead of payroll, and those that rely on contractors are all eligible to apply for CEBA Loan. If your business meets all the criteria, you may be able to get financial assistance from CEBA for up to $60,000 in your emergency business account CEBA.

Do’s of Using CEBA Loan

Businesses need to use the CEBA Loans responsibly and within the restrictions outlined by the government if they are to benefit from the 0% rate of interest or forgiveness components of the loan. Generally, CEBA money can be used for business operating costs such as payroll, rent and utilities, insurance payments, and debt service. Payroll costs include salaries, wages, benefits, and employer contributions to pension plans. Eligible rent and utilities include payments for rent, leasing costs, property taxes, heat, light, and power.  Insurance premiums such as property, liability, and business interruption insurance can also be covered by CEBA Loan. Additionally, regularly scheduled principal and interest payments on all debt obligations incurred while operating the business are eligible. Businesses should also keep records of the expenditure made from their loan, as they will need to be reported accurately when they apply for CEBA Loan forgiveness at the end of the program. In short, businesses should use their CEBA Loan balance to ensure their operations (non deferrable expenses stream) remain sustainable during this difficult period so they can emerge from the crisis in a stronger position. Read more: How Does CEBA Loan Work?

Don’ts of Using CEBA Loan

Besides the above-given do’s, all other expenditures might not be allowed under the CEBA program. Businesses, therefore, must carefully evaluate their expenses to ensure they are spending the loan money on eligible costs as approved by the program. Here are some of the don’ts you must, must keep in mind when using a CEBA Loan:

• Don’t use the funds to pay for costs that do not fit into the non-deferrable expense categories. Expenses such as capital investments in property or assets, refinancing of loans and payments for dividend distributions are not eligible under the program. It is important to remember that non-deferrable expense categories must form at least 60% of the total eligible expenses.
• Don’t use CEBA funds to invest in a GIC, savings or trading accounts. GICs and savings accounts are not considered eligible expenses under the CEBA program.
• Don’t use CEBA funds to loan money to someone else, including another company that you may own or control. This activity does not fall within the program’s scope and likely will result in non-compliance with the terms of the loan agreement and CEBA loan payback.
• Don’t use CEBA funds to pay additional dividends or additional management salary. Distributing dividends and increasing the salary of the business owner is not a permissible use of CEBA funds.
• Don’t use CEBA funds to re-finance or prepay an existing loan, i.e., make an extra payment. All expenses funded by the loan must be for legitimate business operations, and any additional payments to an existing loan would not fall within this category.
• Don’t use CEBA funds to purchase capital property or assets. The program is intended for the sole purpose of covering non-deferrable expenses to support businesses during the covid crisis.

When in doubt, contacting your participating financial institution for further clarification on the program rules and regulations is always best. Following the guidelines will help ensure businesses remain compliant with CEBA loan requirements and can take full advantage of CEBA Loan benefits.

Conclusion

CEBA Loan is indeed a great way for small businesses to get financial assistance during this difficult period. But businesses must use the loan money responsibly and adhere to the rules and regulations of the program. Today, we covered both the Do’s and Don’ts of using a CEBA Loan so you can make sure to make the most of this opportunity. If you still have any questions or concerns, your best bet is to contact your participating financial institution for further guidance. Here’s wishing your business all the luck and success in its endeavors!