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The Canada Emergency Business Account (CEBA) is an initiative of the Government of Canada.  The official Government website is

Is Refinancing CEBA Loans a Good Idea?

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Refinancing CEBA loans has become a hot topic – with almost $50B in CEBA loans across almost 900,000 companies, there’s a lot on the line. Not everyone has the funds to repay the loan, and refinancing CEBA loans is relevant because of the way the federal government structured the program. In short, it’s almost definitely a good idea to refinance your CEBA interest-free loans.

But, is refinancing CEBA loans a good idea? The best option will depend on the business and its needs, but it is certainly a good idea to refinance CEBA loans if the business does not have the capital to repay. In this case, refinancing could save your business a lot of money over the term of your loan.

CEBA Loans Were Designed for a Unique Situation

Why does Canada Emergency Business Account or CEBA refinancing program even exist? Typically, a company would apply for credit or a loan, and either repay it or continue to use the credit facility over time. Unless the financial circumstances of the company change, there is rarely a need to refinance credit. Some loans mature and when they do, obtaining new financing may be important. However, in the case of CEBA refinancing, the government has set up unique terms which make it advantageous to refinance if a company does not have the funds to repay the loan. These terms involve a portion of the CEBA loan forgiveness.

The terms of the CEBA loan provide that if the loan is repaid by a certain date the government will forgive a portion of the loan. This partial loan forgiveness means:

  • For companies that do not apply for CEBA refinancing from their financial institution, the repayment deadline to qualify for the forgiveness is January 18, 2024.
  • If you do apply for a loan to refinance CEBA before January 18, 2024, the deadline to repay to qualify for the forgiveness is March 28, 2024.

Because the government is forgiving $10,000 if you have a $40,000 loan and $20,000 if you have a $60,000 loan, there is a significant incentive to repay the CEBA loan by the forgiveness deadline. After March 28, if a company meeting CEBA eligibility criteria has not repaid their CEBA loan, it must pay the full amount (either $40k or $60k) to repay the loan in full.

Continuing with the CEBA Loan

Continuing with the CEBA loan is the best option under certain circumstances. Although a majority of the time choosing not to refinance the CEBA loan is the most costly option, it may also be the best option for cash flow.

Some business owners may elect to defer paying the principal as long as possible. This strategy allows for relatively small monthly payments, allowing your small businesses to keep more of their funds. The challenge in this scenario is that eventually the principal will come due and must be paid. By kicking the ‘principal repayment can’ down the road, companies may be avoiding the inevitable. More often than not, it’s better to address the key challenges in a business causing limited cash flow to pay down the CEBA loan.

This strategy does highlight the fact that the principal can be paid at any time before December 31, 2026. This gives business owners slightly more runway, and thoughtful planning will provide entrepreneurs with the greatest probability of success.

When the CEBA program was launched, interest rates were in the two percent range and a 5% interest rate seemed high. Fast forward to today’s economic environment, and a 5% rate is quite attractive to some. A business in search of a credit facility may consider extending the CEBA loan because it is not possible to obtain a loan at 5% or less. This would make perfect sense if the government were not forgiving part of the loan – which might be why Canadian decision-makers structured it this way in the first place!

The Economics of CEBA Refinancing

A summary of CEBA refinancing alternatives can be found in this blog. There are always two key aspects to consider when looking at CEBA refinancing: the total cost of the loan and the cash flow of the loan.

The total cost can be looked at in simple terms: it’s the total outflow of funds to pay the loan. Simply add up all the interest payments and principal payments and this is the total cost of the loan.

However, a more technically accurate way of looking at the total cost of the loan is to employ a discounted cash flow analysis. The discounted cash flow model finds the current value of future cash flows using a discount rate. The reason it is technically more accurate is that it takes into account the concept of time value of money. Basically, having money today is worth more than having it tomorrow. The cost of paying back $1 today is more costly than paying back the same $1 on December 31, 2026.

Because it is possible to repay the principal of the CEBA loan on December 31, 2026, in today’s dollars, the total cost of the loan is significantly reduced. The question then becomes a matter of just how much that amount is.

Why not have an exact number for the true cost of the loan? The answer lies in the fact that the discount rate is different for each business. Some well-established SMBs may have a discount rate of 5% and other, more risky, enterprises 25%. If it is important to have a discount cash flow analysis completed, speak to your financial institutions or financial advisors.

Cash flow is probably the single most important parameter for an SMB. Cash flow is looking at all the cash inflows and outflows and determining how much is left at the end of each period. Add up all the expenses such as payroll, travel, taxes and any other expenses to determine the total outflows. For inflows, add up the revenue, investment gains and anything else that brings cash into the business. The difference between the inflows and outflows is the earnings or net cash.

To be able to pay their lender, business owners must plan to have enough cash at the end of each period. The cost of the loan each week or month (“loan servicing”) must be achievable and planned for in order to be successful.

Pay Now or Later

There are some business owners who don’t like the idea of a loan in the first place, not just refinancing the CEBA loan. They know that failing to repay a loan will mean the lender takes steps that are usually unpleasant. The bank will have security over your company and can take you to court to enforce this security. In the worst case, the bank can take over your business through an insolvency process. There are some entrepreneurs who can’t sleep at night knowing that they owe money to an entity that has this amount of power. Their goal is to repay the CEBA loan as soon as possible, and even if they elect for CEBA refinancing, to repay this as soon as they can.

There are other entrepreneurs who don’t mind having a certain amount of debt on their balance sheet and are comfortable with their ability to repay the loan. They would rather have debt than sell part of the company’s equity to raise capital. This works well if everything is in balance and the company is managing their net cash flows.

Is Refinancing CEBA Loans a Good Idea? Conclusion

Refinancing CEBA loans will save a company money. However, refinancing a CEBA loan will have a more significant impact on cash flow. If a business has the ability to pay more on a monthly basis then it should elect for CEBA refinancing. Being debt-free and taking advantage of the government CEBA forgiveness program are important factors to consider when you’re thinking about refinancing your loan.

Frequently Asked Questions

What is the advantage of repaying the CEBA loan before its due date?

Repaying the CEBA loan before its due date can have several advantages. It can ease the mental burden some business owners feel when in debt, as it alleviates the potential consequences of defaults such as unpleasant steps taken by the bank or even insolvency. Furthermore, repaying early can reduce the total cost of the loan, as you would pay less in interest over time.

How can I determine the total cost of my CEBA loan?

The total cost of a CEBA loan can be determined in two ways. The simpler method is to add up all the principal and interest payments to get the total outflow of funds. For a more technically accurate result, you can perform a discounted cash flow analysis. This method takes into account the time value of money, which acknowledges that having money today is worth more than having it in the future. In this case, the cost of repaying $1 today is more costly than repaying the same $1 on December 31, 2026.

How can CEBA refinancing impact a business’s cash flow?

CEBA refinancing can have a significant impact on a business’s cash flow. While it will save the company money overall, it can increase the amount that needs to be paid on a monthly basis. Therefore, it’s important for business owners to consider their net cash flows and ensure they have enough cash at the end of each period to cover these repayments. This will help avoid potential difficulties in loan servicing.

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