On September 14, 2023, the Canadian government announced that as of January 18, 2024, any CEBA loans that have not been repaid, will automatically become a 3-year term loan at 5% interest, and access to the forgivable portion will be lost. In this scenario, you will have the option to pay only the interest for the term of the loan and will have until December 31st, 2026, to pay the principal.
This announcement was a big disappointment for many small businesses that needed the government to extend the deadline in order for them to keep the forgivable portion.
For businesses who apply to refinance their CEBA loan with the financial institution that provided it, the deadline to repay and keep the forgivable portion is March 28, 2024, provided the refinancing application is submitted to your bank before January 18, 2024.
All business owners who received the CEBA loan need to clearly understand how the details of the repayment terms, the qualifications for partial loan forgiveness and refinancing options applies to them and take action now.
Frequently Asked Questions
about the CEBA loan repayment deadline and partial loan forgiveness.
Am I eligible for the January 18, 2024 repayment deadline to qualify for partial loan forgiveness?
Loan holders that met CEBA eligibility criteria and are in good standing are eligible for the January 18, 2024 repayment deadline to qualify for partial loan forgiveness.
- Loan holders that were contacted by their financial institution in late 2022 informing them that they qualify for a repayment deadline of December 31, 2023 to qualify for partial loan forgiveness will now benefit from an extended repayment deadline of January 18, 2024 to qualify for partial loan forgiveness.
- Loan holders should have been contacted by their financial institution to confirm their eligibility for the January 18, 2024 repayment deadline to qualify for partial loan forgiveness.
CEBA eligibility criteria validations have been completed for all loan holders and the results of these validations are final. These validations were conducted in partnership with the Canada Revenue Agency (CRA) and revalidated periodically since the launch of CEBA in April 2020 to ensure an accurate reflection of the information in CRA records.
What are the requirements for a refinancing application on or before January 18, 2024 to qualify for the extended forgiveness deadline of March 28, 2024?
If you are an eligible loan holder in good standing and you apply to refinance your CEBA loan at the same financial institution that originally provided your CEBA loan on or before January 18, 2024, you can qualify for partial loan forgiveness if the outstanding principal of your CEBA loan (other than the amount available to be forgiven) is repaid on or before March 28, 2024.
- This does not prevent you from also applying for refinancing with other lenders—as long as you applied for refinancing at the same financial institution that originally provided your CEBA loan and your CEBA loan is repaid by March 28, 2024, you can qualify for partial loan forgiveness.
To submit a refinancing application, please contact the financial institution that provided your CEBA loan for more details on the refinancing options available to you and their application processes.
In order to provide you with flexibility to find the most suitable refinancing solution for your situation, the CEBA Program does not limit the loan type or terms that qualify as a refinancing application.
- As such, a range of potential refinancing solutions may be offered by your financial institution, including applying for or requesting new credit or making or requesting changes to an existing credit facility for the purpose of repaying your CEBA loan.
- Refinancing products provided by financial institutions are conventional loans between you and your financial institution. They are underwritten using the standard lending practices of your financial institution and are not affiliated with the CEBA Program or the Government of Canada.
PLEASE NOTE that if your CEBA loan is outstanding on January 19, 2024, interest at a rate of 5% per annum will commence
- Even if you applied for refinancing on or before January 18, 2024
- And are waiting for your refinancing application to be reviewed
- Or the proceeds of an approved refinancing loan to be funded or applied to your CEBA loan balance.
If you are considering applying for refinancing, don’t leave it to the last minute. Financial institutions are likely to receive a large volume of CEBA refinancing applications. Make sure you apply on or before January 18, 2024.
What are the repayment terms for the $40,000 and $60,000 loan and the $20,000 expansion?
Eligible CEBA loan holders in good standing have the following repayment terms
Interest:
- 0% per annum interest until January 18, 2024.
- 5% per annum interest starting on January 19, 2024; interest payment frequency may vary by financial institution.
Repayments & Maturity:
- No principal repayment required before January 18, 2024.
- If the loan remains outstanding on January 19, 2024, it will convert to a non-amortizing term loan with full principal repayment due on December 31, 2026.
Debt Forgiveness:
- If the outstanding principal, other than the amount of potential debt forgiveness, is repaid by January 18, 2024, the remaining principal amount will be forgiven
- If you have submitted a refinancing loan application to the financial institution that provided your CEBA loan by January 18, 2024- but require a grace period in order to finalize the payout of your CEBA loan, you can still qualify for partial loan forgiveness if the outstanding principal of your CEBA loan, other than the amount of potential debt forgiveness, is repaid by March 28, 2024.
What are the terms of the forgiveness?
Eligible CEBA loan holders in good standing have the following terms of forgiveness:
If you borrowed $40,000 or less:
Repaying the outstanding balance of the loan (other than the amount available to be forgiven) on or before January 18, 2024 will result in loan forgiveness of 25 percent (up to $10,000).
Example 1:
Maximum Amount Borrowed: $40,000
Amount Repaid By January 18, 2024: $30,000
Available Forgiveness: $10,000
Example 2:
Maximum Amount Borrowed: $20,000
Amount Repaid By January 18, 2024: $15,000
Available Forgiveness: $5,000
Example 3:
Maximum Amount Borrowed: $40,000
Amount Repaid By January 18, 2024: $25,000
Available Forgiveness: $0
If you borrowed more than $40,000 and up to $60,000:
If you received a $40,000 loan and subsequently received the $20,000 expansion, the terms of your forgiveness have changed and are described here.
Repaying the outstanding balance of the loan (other than the amount available to be forgiven) on or before January 18, 2024 will result in a single tranche of loan forgiveness up to $20,000 based on a blended rate:
- 25 percent on the first $40,000; plus
- 50 percent on amounts above $40,000 and up to $60,000.
For clarity, the portion of forgiveness based on a rate of 25% and the portion of forgiveness based on a rate of 50% are combined into a single tranche of forgiveness, which is only available if all other amounts outstanding are repaid by January 18, 2024.
- For example, if $60,000 is borrowed, no forgiveness is available unless $40,000 is repaid.
Note: some financial institutions may record your $40,000 loan and $20,000 expansion as two separate loans. For the purposes of loan forgiveness, borrowings and repayments on both loans will be aggregated.
Example 4:
Maximum Amount Borrowed: $60,000
Amount Repaid By January 18, 2024: $40,000
Available Forgiveness: $20,000 ($40,000 x 25% + $20,000 x 50%)
Example 5:
Maximum Amount Borrowed: $50,000
Amount Repaid By January 18, 2024: $35,000
Available Forgiveness: $15,000 ($40,000 x 25% + $10,000 x 50%)
Example 6:
Maximum Amount Borrowed: $60,000
Amount Repaid By January 18, 2024: $35,000
Available Forgiveness: $0
If you fully repaid your original $40,000 loan, claimed forgiveness, and thereafter received the $20,000 expansion:
Repaying the outstanding balance of the $20,000 expansion (other than the amount available to be forgiven) on or before January 18, 2024 will result in loan forgiveness of 50 percent (up to $10,000).
Example 7:
Maximum amount Borrowed: $20,000
Amount Repaid By January 18, 2024: $10,000
Available Forgiveness: $10,000
Example 8:
Maximum amount Borrowed: $20,000
Amount Repaid By January 18, 2024: $8,000
Available Forgiveness: $0
No, the extension of the repayment deadline to qualify for forgiveness to January 18, 2024 does not apply to loan holders that are not eligible for forgiveness. If your business has been informed that it is not eligible for loan forgiveness and is required to repay its CEBA loan in full by December 31, 2023, your repayment deadline has not changed.
What happens if I cannot repay my loan by the deadline provided in my repayment terms?
Loan holders that are not in good standing are in default of their CEBA loan.
- If this situation applies to you and you do not repay your loan by the deadline provided in the repayment terms provided by your financial institution, you will be contacted by your financial institution regarding next steps.
- Additionally, depending on the reason that your loan is not in good standing, you may not be entitled to receive loan forgiveness.
For loan holders that met CEBA eligibility criteria and are in good standing, if you do not repay your loan by January 18, 2024, your CEBA loan will convert to a term loan with full principal repayment due on December 31, 2026.
- During the period of January 19, 2024 to December 31, 2026, interest at a rate of 5% per annum will apply to the outstanding balance of your CEBA loan.
For any additional information regarding interest applicable to your CEBA loan, please contact your financial institution.
If I am about to close my business, do I still have to repay my CEBA loan?
Yes, all CEBA loan holders are required to repay their loan in accordance with the repayment terms of their respective loans. Please refer to the repayment terms provided to you by your financial institution for details regarding your repayment deadline and forgiveness of the loan. For all questions pertaining to the details of your loan (i.e., the loan balance, process for repayment, or other loan account details), please contact your financial institution.
Does CEBA loan forgiveness need to be reported in my income tax filing? If so, when?
The forgiveness portion of your CEBA loan is taxable. For any other taxation questions relating to your CEBA loan, please contact the Canada Revenue Agency (CRA) or your accountant for further information.
Refinancing Options to consider before entering into a finance plan
Consider the following forms of financing that may be available to you, and the considerations you should take before entering into any loan/repayment/loan extension program. Be careful and always read the fine print: usually, the easier it is to get the money, the more it will cost in interest payments over the long term:
- Your Savings – You may want to review your own savings to see if you have some or all of the funds to pay back CEBA.
- Your available credit – do you have a line of credit that you can borrow from? 20% of businesses reported using existing available credit to repay the CEBA loan. If you don’t currently have a line of credit, you may find this to be a better option than a loan. Once you sign a term loan, you are locked in, whereas a line of credit will provide more flexible repayment terms. A line of credit may also be easier to manage if the government decides to extend the CEBA deadline.
- Friends and family – Often a family member or friend might be willing to help by providing the funds you may need. They may be willing to take an equity stake in the business, or provide more favourable financial terms than you would get at any bank. Sometimes all you have to do is ask.
- Credit Unions (CU) – CU have consistently polled well with CFIB members. They often have a good sense of the local business environment and will lend where the big banks will not or cannot. Financial officers are empowered at the local level to make lending decisions.
- Bank/Financial institutions – First speak to the bank with which you have a CEBA loan and have a history with. If you can show them that you have had a good record of on-time payment, they may be willing to work with you on a refinancing plan.
- Community Futures/Community Business Development Corporations – Local CFs/CBDCs are often a last resort lender to businesses that can show they have a viable plan to recover and repay the loan. CF/CBDCs invest in their local businesses and often are more patient and communicative with small businesses. They try their best to work with businesses and avoid collections agencies.
- Business Development Bank – BDC has a mandate to help small businesses looking for financing. The BDC can be more flexible than traditional lenders and offer a higher amount of financing. However, they also tend to have higher interest rates as they are more willing to take on riskier loans.
- Crowdfunding – On-line portals where a large pool of people are willing to give a person or business small amounts of money to support their business/cause. These small amounts can quickly add up.
- Venture Capital/Angel Investors – Private persons or companies that will loan/invest in small business/startups where the chance of growth is good but often require an equity stake in the business. A business plan to show how you’re going to make money is a must.
- Factor financing – These companies will lend money and have repayment based on a share of your future receivables. Companies who offer money in return for a percentage of the amount you put through your debit/credit machine fall in this category. While lending can be quick, interest rates can approach/exceed 30% per annum.
- Fintech/On-line lenders – Many such companies use on-line lending platforms. Be careful. Many are legitimate but the devil is in the detail of the contract signed and they tend to charge higher interest rates.
Regardless of where you get your financing you will be required to sign a contract. It is paramount that you understand what you are signing as it could be very costly to get out of the contract and may even involve litigation.
Things to be aware of before signing:
- If you are not sure what your obligations are, get a lawyer to review the contract and advise you of any concerns.
- Check the contract for automatic renewal dates.
- Look for clauses that allow increases in interest rate without written notice.
- Check the term of the contract.
- Do not accept verbal changes. Make sure all changes are written into the contract.
PFG Financial Advisors are available to help you work through your options when it comes to paying off your CEBA loan, help you monitor the financial health of your business and better allow you to determine next steps and can provide guidance on many other issues. Call 1-905-686-8787 or contact us here.
