The CEBA deadline for payment in full (except the portion eligible for forgiveness) was originally December 31, 2022, but thankfully, the federal government extended it to December 31, 2023. You can pay it off earlier without incurring any prepayment penalties. 

CEBA loans don’t accrue interest during this period, so they’re effectively interest-free…if you pay it off in time.

 

In that case, your CEBA loan converts to a two-year loan with a fixed interest rate of 5%. Interest charges begin accruing on your balance starting January 1, 2024, which you’ll need to pay monthly. Then, by the end of the 2-year term, the entire balance of the principal will be due on December 31, 2025.

But what happens if you still can’t pay it? Luckily, you may be eligible for forgiveness on what remains.

 

The portion of your CEBA loan eligible for forgiveness will vary depending on the amount you received and your outstanding balance on December 31, 2023.

If you borrowed $40k or less, the maximum amount you can claim as forgiveness is $25% of the loan. In other words, to qualify for loan forgiveness, you must repay 75% of the loan balance by December 31, 2023.

If you borrowed more than $40k and up to $60k, the maximum amount you can claim as forgiveness is:

•   25% on the first $40k; and
•   50% on the amount above $40k

Thus, to ensure you qualify for loan forgiveness, you must repay 75% of the initial loan and 50% of the additional loan by December 31, 2023.

In any case, the maximum amount available for forgiveness is $20k (assuming you borrowed the maximum amount of $60k).  The math:  $40k x 25% + $20k x 50%.

Here are some examples to illustrate how the CEBA loan forgiveness works.

 

In this scenario, you must repay 75% of your loan by December 31, 2023 for the balance to qualify for forgiveness.

EXAMPLE 1

Amount Borrowed: $40k

Amount Repaid by Dec 31: $30k 

Amount Eligible For Forgiveness: $10k ($40k x 25%)

EXAMPLE 2

Amount Borrowed: $40k

Amount Repaid by Dec 31: $25k 

Amount Eligible For Forgiveness: $0

EXAMPLE 3

Amount Borrowed: $30k

Amount Repaid by Dec 31: $22.5k 

Amount Eligible For Forgiveness: $7.5k ($30k x 25%)

 

In this scenario, you must first repay 75% of the initial $40k loan, then 50% of the additional loan above $40k. 

EXAMPLE 1

Amount Borrowed: $60k

Amount Repaid by Dec 31: $40k 

Amount Eligible For Forgiveness: $20k ($40k x 25% + $20k x 50%)

EXAMPLE 2

Amount Borrowed: $60k

Amount Repaid by Dec 31: $30k 

Amount Eligible For Forgiveness: $0

EXAMPLE 3

Amount Borrowed: $55k

Amount Repaid by Dec 31: $37.5k 

Amount Eligible For Forgiveness: $17.5k ($40k x 25% + $15k x 50%)

 

In this scenario, you must repay 50% of the additional $20k you borrowed to be eligible to claim forgiveness on the remaining balance.

EXAMPLE 1

Amount Borrowed: $20k

Amount Repaid by Dec 31: $10k 

Amount Eligible For Forgiveness: $10k ($20k x 50%)

EXAMPLE 2

Amount Borrowed: $20k

Amount Repaid by Dec 31: $7k 

Amount Eligible For Forgiveness: $0

 

The forgivable portion of your CEBA is subject to income tax. You must include this amount in your income in the year you receive your CEBA loan, but not when you become eligible for forgiveness. If you subsequently fail to qualify for forgiveness for this amount, you can claim it as a deduction on your tax return once you repay your loan.

 

Suppose you operate your business as a corporation and receive a CEBA loan. In that case, your corporation will be responsible for the repayment of the principal. The financial institution that loaned you the funds cannot legally seize your personal assets to cover any shortfall due to corporate bankruptcy.

However, this isn’t the case if your financial institution includes a personal guarantee in your CEBA loan contract. This clause effectively holds you personally liable for the debt should your corporation fail to cover the balance. If you’re unsure of your exact obligations, carefully review the terms and conditions of your contract. Otherwise, you could find yourself scrambling for cash to pay off your CEBA balance.

Let’s say you received CEBA financing while operating as a sole proprietor. Under this scenario, the responsibility for repayment rests solely on you. From a legal perspective, there’s no distinction between your assets and your business’ assets. As a result, your personal assets, such as your home, car, and investment accounts, are at risk of being seized to cover any outstanding balance.

 

As the CEBA repayment deadline looms, it’s crucial to assess how your business is holding up financially. In doing so, you can gauge your ability to repay your loan.

Let’s assume your business made a solid recovery since the pandemic subsided: revenue is steadily rising, and cash flow has stabilized. In that case, it’s prudent to retire your CEBA loan by making periodic payments. And to take advantage of the forgiveness provision.

However, let’s say your business is still struggling after the pandemic. Sales are weak, cash flow is tight, and customer demand is plunging. As a result, the CEBA loan on your balance sheet can quickly become a financial burden.

 

Is your CEBA loan causing you financial stress? If so, there’s no shame in asking for advice from a qualified professional who can help you develop a solid plan to tackle it. Don’t simply rush to raid your RRSP account or take out a second mortgage on your home.

Our experts here at PFG Financial can review your financial situation and recommend a solution to eliminate the debt. They can help you explore a wide range of options – some of which you may not have known were available to you in the first place.

If you’re looking for financing, SEE WHAT YOU QUALIFY FOR IN 2 MINUTES!