Can’t Pay Your CEBA Loan? CEBA Loan Repayment & Forgiveness
As a Licensed Insolvency Trustee (LIT) office, we are experiencing an increase in the number of small business owners who are inquiring about their options regarding their CEBA (Canada Emergency Business Account) loans as they are overwhelmed by their debt. They are concerned about their ability to repay the CEBA loans.
During the Covid 19 Pandemic the Canadian Federal Government issued nearly 900,000 CEBA loans to businesses across Canada. At last report by the Canada Revenue Agency only 176,353 businesses have been able to repay the loan. With the loan forgiveness deadline of January 18, 2024 quickly nearing, this blog will look at what options are available for you if you can’t pay your CEBA loan.
What is a CEBA loan and will it be forgiven?
The CEBA program was offered by the federal government as a way to help small businesses navigate the difficulties of the Covid 19 Pandemic. CEBA loans were made available at most banks and credit unions across Canada. Originally the deadline to repay the loan was December 31, 2022 however this was moved to December 31, 2023 and then finally to January 18, 2024 as the government attempted to ease the burden on many of the businesses.
For businesses that borrowed $60,000 there is a forgiveness of $20,000 should the business be able to repay the $40,000 by the January 18th deadline. For business that borrowed only $40,000 there is a forgiveness of $10,000 should the business be able to repay the $30,000 by the January 18th deadline.
What if I can’t make the repayment by the deadline?
If you are unable to repay the CEBA loan by January 18th, you will not qualify for any forgiveness of the loan and you will be required to pay interest at a rate of 5% per year. You will need to contact the financial institution that funds were borrowed from to discuss a payment structure for the loan.
The bank is asking me to refinance. Is this the right choice for me?
This is a very difficult question to answer as every business is unique and there is no ‘one size fits all’ solution. It is best to contact a financial professional such as an Accountant or a Licensed Insolvency Trustee to discuss your business and it is right for you to refinance.
A rule of thumb is typically if your company is cash flow positive and profitable and can afford to make payments on the refinanced debt then it might be beneficial in order to qualify for the $20,000.00 forgiveness. If however, your company is not profitable and making the payments would prove to be difficult then this might not be the option for you.
Protip: Before agreeing to refinance your CEBA check with the bank to see if they require you to sign a personal guarantee on the debt. It is best to avoid signing personal guarantees whenever possible.
If your bank is asking you to sign a personal guarantee on any refinancing for your CEBA be forewarned that will now make you personally responsible for the debt. In most cases CEBA loans that were advanced were not personally guaranteed by shareholders or directors. To date we have seen very little indication that the government will take the position that an individual such as a director or shareholder would be personally liable for a defaulted corporate loan.
If you personally own assets such as investments, a car, or a house you may want to reconsider granting a personal guarantee as the bank will be able to garnish you personally or attach to your property should you be unable to make any of the payments in the future.
What are my other options?
A first step would be to talk to a Licensed Insolvency Trustee (LIT) who will discuss your unique situation with you. A LIT will review the current situation of your business and discuss the different options that are available. Options could include the following:
- Developing a repayment plan
- No longer operating the Company
- Filing for a Notice of Intention to File a Proposal
- Filing for Bankruptcy or Proposal
At Chase and Associates We understand that having an unpaid CEBA loan hanging over you can cause stress and anxiety. That is why we recommend always talking to a professional, such as a LIT to clarify where you’re at and get a handle on what your options are in such a situation.
We offer a no cost initial consultation where we will go over your options. Please feel free to reach out to one of our convenient offices in order to discuss what options are available in your situation.
