The CEBA (Canada Emergency Business Account) loan program was initiated by the federal government in March 2020, at the onset of the COVID-19 pandemic. The first of its kind, CEBA is an interest-free loan program designed to help small and medium-sized businesses affected by the pandemic. The loan, which is intended to support operational and liquidity needs, provided cash to these entities up to $60,000. CEBA loan funds were intended to cover expenses like payroll, insurance, or property expenses, so these businesses could continue operating even with reduced customer traffic.
The CEBA program is the first of its kind—one of the only ‘bailout programs’ in Canadian history geared towards small businesses. To help small businesses along, the program includes a loan forgiveness component, where 25-30% of the original loan amount is forgiven if repaid by a certain date. CEBA has been extended several times since its inception, and there are possibilities for further extensions through private banks or alternative lenders—although only time will tell whether these extensions will come from government entities.
Previous Canadian Government Aid
In March of 2013, the Canadian government deemed its major banks ‘too big to fail’. As the United States government did for Fannie Mae and Freddy Mac, the Canadian government dubbed the banks too interwoven into the Canadian economy to be allowed to collapse. The effects of the failure would have massive consequences for citizens, and so were supported by federal institutions.
In 2020, the introduction of the CEBA loan served a similar purpose. Small businesses make up 99% of the businesses in Canada. When so many rely on customer traffic to operate, the impact of lockdowns could have meant default on a national scale.
Hence, CEBA was introduced—with the forgiveness measures that go along with it. However, the number of CEBA loans was massive in scale. 885,527 CEBA loans were provided, for a total of $48.4 billion in cost.
This is a massive departure from the single-industry or single-organization bailouts in Canadian history. The 2008-2009 financial crisis resulted in a Canadian government bailout of 13.7B to General Motors and Chrysler, which later included around 1.1B of loan forgiveness.
During the pandemic, the travel industry—and airlines like Air Canada—plummeted thanks to grounded planes. In this case, the Canadian government provided a 5.9B aid package, which was a mix of equity financing and loans. This allowed the company to refund passengers and keep staff on their payroll, similar to the CEBA loan for small businesses.
The closest bailout to CEBA in terms of scale was the 2008-2009 bailout of Canada’s banks: which topped 114B at their peak. However, much of this support was intended to back Canadian mortgages, which makes subsidy amounts and repayment details hard to find.
All of this suggests that as far as Canadian government bailouts in history, the CEBA loan program is one of a kind—and when it comes to extending the loan forgiveness deadline, business owners might be on their own. Will there be Another CEBA Loan Extension?
Given the unique nature of the CEBA loan, the pandemic, and the Canadian government’s history of requiring repayment when extending aid, the likelihood of a CEBA loan extension is unclear. The CEBA loan extension is a good example of the Canadian government’s commitment to supporting businesses over the course of the pandemic. This measure was designed to provide much-needed relief and facilitate business continuity at a time when many enterprises were struggling and may have prevented Canadians from facing widespread collapse. The CEBA loan extension means eligible businesses who have already exhausted their initial CEBA loan amount now have additional resources and a delayed repayment available to them until December 31, 2023.
However, the CEBA loan program isn’t accessible to all. Only businesses that had initially secured approval for and received the original CEBA loan can apply for the extension. No new CEBA loans were underwritten after 2021. As such, this system extends support specifically to companies already identified as needing aid— thereby ensuring financial assistance only where it is most critically needed.
Despite efforts from associations and industry groups across the country, the Canadian government has not given any indication as to whether CEBA recipients will have extra time to repay. This, along with the repayment terms for other government bailouts—gives some indication that a loan extension isn’t underway.
What Happens at the CEBA Repayment Due Date?
The Canada Emergency Business Account (CEBA) was a lifeline for many businesses across the country grappling with the impact of COVID-19. While the $60,000 loan was essential at the time, the repayment structure of these loans is established on terms designed to support businesses only if they are quick to repay. All CEBA loan holders are required to repay outstanding amounts by December 31, 2023. Failure to do so will see the remaining balance of the loan converted to a 2 year term loan bearing interest of 5%.
One of the advantages of the program is the lack of penalties for early repayment; companies can repay the principal at any time. Not only is this flexibility beneficial—especially as we get closer to the repayment date—it rewards enterprises who are early to repay. This flexibility offers substantial benefits to businesses. It allows them to finance the loan if needed, at potentially more favourable terms than the default for Canadian businesses that don’t repay. This helps manage payments according to their own financial conditions and cash-flow forecasts.
However, business owners who have not paid by December 31, 2023, will pay the 5% interest rate. After this date, there will be no opportunity to change the terms of the loan. This feature provides an added incentive to expedite repayment, but business owners should stay well-informed. Knowing about these terms could be vital in preventing unnecessary costs or putting continued operations in jeopardy.
CEBA Loan Repayment Options
The Canada Emergency Business Account (CEBA) offers three options intended to support business needs. Firstly, the borrower can enjoy repayment benefits if they’re able to meet the minimum repayment terms. Paying $40,000 prior to the deadline would trigger up to $20,000 in loan forgiveness.
If, however, early recompense isn’t feasible given the cash flow situation or projected revenue stream, there are other options. Instead of rushing to meet the deadline, businesses can let the outstanding balance be converted into a standard two-year term loan. Although this doesn’t give them access to the loan forgiveness, it does allow them time and flexibility to organize their financial affairs without adding undue pressure on resources. The loans were not underwritten based on traditional lending criteria, so businesses that wouldn’t be deemed creditworthy otherwise still have the option of a fairly large low-interest loan.
In other cases, though, credit-worthy businesses would be wise to refinance the loan. Getting up-front financing will allow them to claim the loan forgiveness, as well as take more flexible terms for the remaining balance.
Whichever path is taken by firms in addressing their CEBA loan repayment, it’s crucial that the strategy aligns with their best interests and long-term sustainability as an enterprise.
CEBA Loan Extension 2024
The Canadian Federation of Independent Business (CFIB) and other associations, like Restaurants Canada, are urging the federal government to consider additional financial relief measures to support small businesses reeling from the effects of COVID-19. Among these measures include a proposal for an extended repayment deadline for the Canada Emergency Business Account (CEBA) loan, ideally pushing it to December 2025. Small businesses have been hit hard and many are not yet on a stable recovery path.CFIB feels an extension would significantly alleviate their burdens during this critical period.
Another strategy under consideration by CFIB involves further debt forgiveness; essentially writing off some portion of the CEBA loans. While this may initially appear as way to help buoy struggling companies, potentially saving jobs and stabilizing the economy, the Canadian government’s history of providing emergency financial aid suggests repayment is non-negotiable. Prolonged debt can pose severe risks to economic stability over time, and high levels of public spending carry inflation risks resulting in higher costs. These will disproportionately impact those with lower incomes, while at the same time eroding savings value for Canadians. Furthermore, overextending aid could encourage businesses to rely on government assistance that may not always be available.
CFIB also suggests implementing an appeal process specifically designated for recipients of CEBA loans who were subsequently deemed ineligible. These recipients were not given the benefit of loan forgiveness, and this kind of measure like this would provide more transparency and procedural fairness, especially given that these businesses might otherwise not have taken the loan. In this element of loan forgiveness, the outcome is very much up in the air.
CEBA was essential for both small businesses and the Canadian economy. Although the government has provided several extensions to the program, there may not be further opportunities. Businesses that owe principal on their CEBA loan should consider options for further extension and find other opportunities to claim the loan forgiveness. These opportunities help business owners ease the financial burden of the loan and support continued operations—even after a global pandemic.