Navigating the Canada Emergency Business Account (CEBA) Repayment and Loan Forgiveness: A Timely Guide (Updated for the September 14, 2023 extension)

Greetings, readers! As part of GBA-LLP's commitment to providing crucial financial insights to businesses, we bring you an updated guide to the Canada Emergency Business Account (CEBA).

With the loan repayment deadline looming, many businesses are feeling the pressure. The primary question on their minds is: what happens to the loan balance if the non-forgivable portion is not repaid by December 31, 2023? ?Since the original publication of this article, the Prime Minister announced extended deadlines for Canada Emergency Business Account (CEBA) loan repayments, providing an additional year for term loan repayment, and additional flexibilities for loan holders looking to benefit from partial loan forgiveness of up to 33 per cent. ?This announcement was made on September14, 2023.

The repayment deadline for CEBA loans to qualify for partial loan forgiveness of up to 33 per cent is being extended from December 31, 2023, to January 18, 2024. ?

For CEBA loan holders who make a refinancing application with?the financial institution that provided their CEBA loan by January 18, 2024, the repayment deadline to qualify for partial loan forgiveness now includes a refinancing extension until March 28, 2024. This will allow more small businesses and not-for-profits to access relief and give them more time to hear back from their financial institutions on refinancing applications.

CEBA Loan and Its Terms

To provide a quick recap, CEBA offered interest-free loans of up to $60,000 to eligible businesses. A unique feature of this initiative is that 33% of the loan (up to $20,000) is forgivable if the remainder is repaid by the deadline of January 18, 2024 (previously December 31, 2023). For businesses that have outstanding loans on January 19, 2024, these loans would convert to a three-year term loan, with interest at 5% per annum, and these loans will be due in full by December 31, 2026 (previously December 31, 2025).

Loan Forgiveness

The main attraction of the CEBA program is undoubtedly the loan forgiveness clause. For a $40,000 CEBA loan, businesses are required to repay $30,000 by the deadline to have $10,000 forgiven. On a larger $60,000 CEBA loan, repaying $40,000 would lead to $20,000 in loan forgiveness. Repayment of any amount prior to the extended deadline, will result in partial loan forgiveness.

When viewed from an investment perspective, these represent gains of 33% ($10,000 gain on a $30,000 repayment) and 50% ($20,000 gain on a $40,000 repayment), respectively.

What If You Miss The Repayment Deadline?

Missing the repayment deadline will transform the remaining loan into one with a 3-year term and a 5% fixed interest rate per year. Only interest payments are required on a monthly basis with the outstanding principal due in full by?December 31, 2026. ?Given the possible strain on businesses still in recovery, it is advisable to arrange for repayment before the stipulated date.

Calls for Loan Repayment Extension

On September 14, 2023, the Prime Minister announced the current extension. ?Although the extension might be seen as not doing enough, it is likely the last such extension to be announced for the CEBA program.

Pursue Repayment and Loan Forgiveness

Considering the substantial gains from loan forgiveness, it is well worth exploring all available avenues to repay the loan amount. Even borrowing money at current interest rates to repay the CEBA loan could make financial sense.

In Conclusion

The clock is ticking, and time is of the essence. Weigh your options carefully and act swiftly. Repaying the CEBA loan to realize the loan forgiveness can save your business a significant sum.

Remember to keep an eye on this space for more timely and helpful financial insights. At GBA-LLP, we are dedicated to ensuring your financial health and helping you navigate these complex times.

Disclaimer: This blog post is intended for general informational purposes only and does not constitute financial advice. Always consult with a financial advisor or your bank before making any decisions.

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This blog is not meant to provide specific advice or opinions regarding the topic(s) discussed above. Should you have a question about your specific situation, please discuss it with your GBA advisor.

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