September 28, 2023

What to do if you’re worried about CEBA loan repayment.

CEBA was a lifeline for businesses during the pandemic, but many are struggling to repay. See what to do here if you're a business owner who is worried about CEBA loan repayment.

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What to do if you’re worried about CEBA loan repayment

A small business owner calculates his CEBA loan repayment

Did your small business benefit from the Canada Emergency Business Account (CEBA) during the pandemic? Repayment of the loan is a major headache for businesses who borrowed funds from the program and have been unable to pay it back. It’s a complicated situation and it’s important to know your options. We explain everything you need to know here.  

CEBA was meant to help small businesses survive the pandemic. It was like the highly popular CERB program for individuals. Businesses, not-for-profits, and qualifying self-employed people could take out loans of up to $60,000 with zero interest. These loans were partially forgivable, but the deadline to apply has now passed.

So, what should any small business owner or self-employed person who took out a CEBA loan do if they don’t think – or know for sure – they won’t be able to pay off the loan on time?

What are the current CEBA repayment dates?

As mentioned, the deadline to apply for loan forgiveness, which was January 19, 2024, has passed. Currently the entire loan must be repaid by Dec. 31, 2026.

There are many businesses that are unsure they’ll be able to meet this date though.

“We know there are many small businesses and self-employed people out there that are worried about repaying the loan right now and aren’t sure what to do. They took out this loan because they needed it to survive but repaying up to $60,000 in a couple years may not be feasible for many smaller businesses.”

François Gilbert, a BDO partner and Licensed Insolvency Trustee 

Worried about CEBA debt? We can help.

How many businesses got CEBA but can’t repay? 

How many businesses got CEBA but can’t repay? 

A total of 898,271 businesses were approved for a CEBA loan, according to the government of Canada, totaling $49.2 billion in loans overall.

While a small minority of these businesses have paid back the loan in full already, most CEBA recipients have not even begun to repay the money.

The Canadian Federation of Independent Business (CFIB) surveyed its members and found that “nine in 10 businesses have accessed CEBA loans, but only 10% of them have fully repaid their CEBA loan to date, while 78% have not made any payments yet.”

The CFIB also noted that four out of every 10 CEBA recipients are currently at risk of missing the repayment deadline.

Who qualified for CEBA?

The pandemic reduced revenues for small and medium sized businesses, yet they still had to pay rent, utilities, insurance, taxes and wages. CEBA was originally open to businesses that could demonstrate a drop in revenue. Some businesses are now being told they did not qualify for CEBA and are now expected to pay all the money back.

 CEBA was split into two streams. These were:  

  • Applicants who earned between $20,000 and $1,500,000 (the Payroll Stream)
  • Those who earned $20,000 or less (the Non-Deferrable Expense Stream)

Other conditions that had to be met included:

  • A CRA Business Number that was registered on or before March 1, 2020.
  • They could only apply for CEBA once.
  • Having a business chequing/operating account with a financial institution that offered CEBA.
  • Had to intend to continue operating the business or reopen the business if it was closed due to lockdowns.

How interest now applies to CEBA loans

CEBA loans are no longer be interest-free as of Jan. 19, 2024. A 5% interest fee is being charged on the loan as of that date.

Those who did not meet the deadline for loan forgiveness are now required to make interest payments until Dec. 31, 2026, at which point the entire outstanding loan becomes due.

You can of course – and we highly encourage you to – make more than just interest payments starting right away. This helps pay down the principal of the loan, thus lowering how much you owe at the end of 2026 to a more reasonable amount.

Are there circumstances where you don’t have to pay back the loan?

It is unlikely that you will simply be able to avoid paying back the loan. However, the government of Canada has an FAQ page on CEBA that highlights some scenarios where it advises people to reach out to their financial institution to discuss the terms of the loan.

These scenarios include:

  • If your business has gone bankrupt/insolvent.
  • If the previous owner, who originally took out the loan, is now deceased.
  • If you owned a business and used CEBA – but have since passed on the ownership of the business to someone else.

I can’t afford to pay CEBA back, what should I do?

This is what many small business owners are likely worried about. There are some factors to keep in mind when tackling this question. 

1. First, talk to your financial institution

Your first step should be to reach out to the institution you got the loan through and explain your situation to them. It’s possible they will be able to help you come up with a repayment plan to meet the 2026 deadline.

2. Do you have an incorporated business?

If you have an incorporated business that is insolvent or has closed, you do not need to worry about having to file for personal bankruptcy as the debt is owed by the corporation, not you.

If your incorporated business has company debts, including unpaid CEBA, you can speak to our corporate restructuring team to discuss your options for managing debt and keeping your company in business.

“If someone comes to us and wants to keep operating their business, we do everything we can to help them keep it open. Seeking professional advice from a Licensed Insolvency Trustee can provide valuable insights and tailored solutions.”  

François Gilbert, a BDO partner and Licensed Insolvency Trustee

3. Is your business a sole proprietorship/partnership?

In this case you are personally liable for repayment as the business is in your name, and that of any other owners.

In this case, you want to do what you can to cut costs and put the extra money towards repaying the loan. We know it can be incredibly difficult to find enough savings and you may need to explore some debt relief options.

4. Understand how a consumer proposal works

If your business is a sole proprietorship or partnership, then CEBA can be included as part of a consumer proposal. This is where a Licensed Insolvency Trustee negotiates on your behalf to lower your debt and the overall repayment terms, including lower monthly payments.

Only a Licensed Insolvency Trustee can legally file a consumer proposal on your behalf. A Licensed Insolvency Trustee can evaluate all of your personal and business debts and work to lower them.

“With a consumer proposal, small businesses can avoid bankruptcy and maintain control over their operations. A consumer proposal gives small business owners the potential to alleviate the burden of CEBA debt, and other government debts such as taxes and HST, and pave the way for a stronger financial future."  

François Gilbert, a BDO partner and Licensed Insolvency Trustee

Income taxes, HST remittances, and other financial difficulties

Those who are concerned about CEBA repayment may also be struggling to meet other financial obligations such as income tax and GST/HST remittances.

If you are behind on any taxes, you should contact the CRA or your local tax authority as soon as possible to explain your situation. Taxes do not have to be paid in a lump sum and tax authorities are generally very flexible when it comes to coming up with affordable payment plans.  

Failure to pay back taxes can result in legal action being taken against the business. These include collections actions by the CRA to recover the debt. The CRA can also get a court order to secure any business assets that you own.

If you are unable to pay back your taxes, a Licensed Insolvency Trustee can assess your situation and explain all your options.

If you want to close your business, understand the bankruptcy process

A Licensed Insolvency Trustee can assess the viability of your business and help you decide the best financial course of action to take. If bankruptcy is deemed to be the best option, they will be there to guide you through the entire process. Again, bankruptcy is meant to help you become completely debt free.

Remember there is still time

While you are required to make interest payments on the loan now, the total is not truly due until the end of 2026.

If you’re struggling and worried about how you’ll be able to afford to pay back what you borrowed, a BDO Licensed Insolvency Trustee can assess your situation and lay out all the options available to you during a free consultation.

Speak to a Licensed Insolvency Trustee today.

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September 28, 2023

What to do if you’re worried about CEBA loan repayment.

CEBA was a lifeline for businesses during the pandemic, but many are struggling to repay. See what to do here if you're a business owner who is worried about CEBA loan repayment.

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