Will the deadlines change?It’s been a hot topic for over a year – will the government extend the repayment deadlines? They’ve moved the date twice already, landing now on January 18, 2024. In late 2023 the CFIB, the Provincial premiers and several other organizations petitioned the federal government to extend the forgiveness deadline to December 31, 2024. Despite strong appeals for an extension to December 31, 2024, it’s looking pretty set in stone. Two weeks is not enough notice for the banks and credit unions to change their systems and processes, many companies who have repaid the loan would see it as unfair and the economy continues to chug along quite nicely. The government changing its stance now would be a shocker, considering the logistics for banks and credit unions, fairness to those who’ve already repaid, and the steady state of the economy.
Is January 18, 2024, the final date for partial loan forgiveness?Canadian businesses have been focused on January 18, 2024 for good reason. This is the last day for the CEBA loan to be interest-free. On January 19, 2024, interest at a rate of 5% per year will start to accrue and payments are due monthly. In addition, January 18 is the final day to qualify for up to $20,000 in loan forgiveness.
Extending the Forgiveness DeadlineHere’s a lifeline: You can push the partial forgiveness deadline to March 28, 2024. To do this, apply for a CEBA refinancing loan from your current lender before January 18, 2024. Remember, switching lenders won’t extend this deadline. The perk? You get to enjoy the full interest-free period and a lower interest rate until March 28, 2024. It is important to note that applying to a different financial institution or alternative lender for CEBA refinancing will not change the partial forgiveness deadline from January 18, 2024. With commercial lending rates higher than 5%, for companies that need to refinance their CEBA loans, the most economical option is to apply for CEBA refinancing via the financial institution that has their CEBA loan and repay the loan before March 28, 2024. Interest will be charged at 5% from January 19, to March 28, 2024 (or until the loan is repaid) after which you will pay whatever rate you negotiate with your lender. This plan allows companies to take advantage of up to $20,000 in government forgiveness, utilize the full interest-free period of the CEBA loan and pay a low rate of interest through to March 28, 2024.
Refinancing CEBA loansI have been receiving many questions about refinancing CEBA loans for companies that have struggled through the pandemic and are yet to achieve pre-pandemic levels of income. The best advice I can provide is if sales are less than $10,000 per month, it is unlikely to find an institutional lender so it is best to seek out a private lender. A private lender can be a family member, acquaintance or a trusted source of financing. Be careful to thoroughly investigate the credentials of any private lender as they are typically not regulated. If sales are above $10k per month, alternative lenders should be a good option. The engine at www.ceba.ca/refinance will provide a list of lenders that can compete for your business and provide you with the best rates and service. Most lenders use cash flow-based underwriting. The lenders will look at the revenue and expenses to determine if there is sufficient cash flow to pay the monthly payments. Because there are a variety of lenders, chances are good that www.ceba.ca will find a lender to meet your needs.
Focus on the government’s forgivenessIn almost all circumstances it is more economical to repay the CEBA loan in time to qualify for government forgiveness of up to $20,000. Even if the borrowing rate is relatively high, because the government is providing a $20,000 incentive for a $60,000 loan, it will cost less than continuing with the CEBA loan. A very crude example is assuming a lender charges 25% per year. If a business borrows $40,000 it would pay $10,000 per year. Over 2 years they would have paid a total of $60,000. If the same company would continue with the CEBA loan they would pay $3,000 per year in interest for a total of $66,000 over the same 2 years. Therefore, even at credit-card-type rates, it is less expensive to borrow funds than to continue with the CEBA loan.
The Final Push: Action Steps for BusinessesWith the deadline looming, it’s crucial to act swiftly. Here are the steps you should take:
- Evaluate Your Current Financial Position: Understand where your business stands financially.
- Explore Refinancing Options: Visit www.ceba.ca/refinance and compare different lenders.
- Consult With Financial Experts: Get professional advice to navigate the refinancing process.
- Make an Informed Decision: Based on your research and advice, choose the best refinancing option.
- Act Promptly: Ensure all necessary applications and paperwork are completed before the deadlines.