Canada Emergency Business Account (CEBA)

Canada Emergency Business Account (CEBA) provides business owners with interest-free loans of up to $40,000 and a chance to have $10,000 of it forgiven. The program was introduced by the Canadian government as a relief measure for COVID-19.

This article will help business owners understand how the program works, who is eligible, and how to apply for a CEBA loan. The information in this article is based on the details that are currently available (April 4th 2020), and may change in the future.

How does CEBA work?

Eligible businesses can receive up to $40,000 as a loan to cover operating expenses as a result of COVID-19. No interest applies to the loan until January 1, 2023. Up to $10,000 of the loan is eligible for forgiveness if the remainder is fully repaid before December 31st, 2022. Otherwise the loan will be converted into a 3-year term loan with an interest rate of 5% per annum.

For example, if you take out a $40,000 loan, and pay back $30,000 by December 31, 2022, then the remaining $10,000 will be forgiven.

Who is eligible for a CEBA loan?

In order to qualify businesses must demonstrate that they spent between $50,000 and $1 million on payroll in 2019 via their T4 Summary of Remuneration Paid. Employers that pay wages to subcontractors or freelancers, where T4 slips are not issued, are not eligible to use those paid wages to qualify for CEBA.

How to apply for a CEBA loan?

The loan applications are accepted by the major Canadian banks through their online business banking portals. Speak to your current financial institution directly to find out the steps to apply for the loan through that institution.

When can I apply for the CEBA loan?

The loan applications are available starting April 6, 2020 at major financial institutions, including the big Canadian banks. It is unclear when business owners that are eligible will actually receive the funding in their bank accounts.

What documents do I need to provide?

You will need your 2019 T4 Summary of Renumeration Paid statement in order to demonstrate that you paid at least $50,000 in payroll in 2019. If you cannot locate this document, contact Canada Revenue Agency (CRA) to have it reissued. Any wages paid to subcontractors that are not reported on T4 Summary of Renumeration Paid cannot be included in the calculation of the 2019 payroll amount.

What is the interest on a CEBA loan?

There is no interest on the loan until January 1, 2023. The portion of the loan that is not paid off by December 31, 2022 will start accruing interest at 5% per annum.

Can I enrol into CEBA at more than one bank?

No. It is not permitted to apply simultaneously through multiple banks. The government recommends that business owners apply for CEBA through your primary financial institutions.

Can I get a CEBA loan if I only have a personal chequing account?

No. You must have a business bank account in order to receive the CEBA loan.

How does the CEBA loan forgiveness provision work?

75% of your loan balance at January 1, 2021 must be paid off by December 31, 2022, in order for the remainder of your loan will be forgiven. For example, if your loan balance at January 1, 2021 is $40,000, and you pay $30,000 of it back by December 31, 2022, then the remaining $10,000 will be forgiven.

When do I have to start repaying the CEBA loan?

You can start repaying the loan anytime. However keep in mind that 5% annual interest will begin accruing starting January 1, 2023.

How can my business use the funds?

As per the program requirements, the funds must be used towards operating costs that cannot be deferred. For example, it can be used towards payroll, rent, utilities, insurance and property tax.

My business utilizes subcontractors and freelancers. Do I still qualify?

Your business can still qualify, however whatever you paid to contractors or freelancers will not be counted towards the minimum $50,000 payroll requirement to be eligible for CEBA. This is because wages paid to freelancers are not reported on T4 slips, the way full time and part time employee wages are. For example, a business that paid $60,000 in T4 wages and $25,000 to subcontractors is eligible. However, a business that spent $45,000 in T4 wages and $100,000 in subcontractor wages will not qualify.

At the time of this article being written, many details are still being revealed about the process of applying and receiving the loan. Check back here often. We will keep up with the developments and update this article as new information becomes available.



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Vlad Sherbatov

Vlad is the President and Co-Founder of Smarter Loans, Canada's original and largest loan comparison website. He is a passionate entrepreneur and business leader in the Canadian financial sector. He was selected as a 2019 Top 25 Leaders in Lending by the Canadian Lenders Association. Vlad is an author at Smarter Loans, and has been featured in publications like the Toronto Star and National Post, among others.