What is the Canada Emergency Business Account?
The Government of Canada has recently launched the new Canada Emergency Business Account (CEBA) loan, which has been implemented by eligible financial institutions (the “Lender”) in cooperation with Export Development Canada (EDC).
CEBA is part of the federal government’s loan program for small and medium-sized businesses affected by COVID-19 to ensure businesses have access to the capital they need during these uncertain times.
The $25 billion program will provide interest-free loans of up to $40,000 to small businesses and not-for-profits, to help cover their operating costs during a period where their revenues have been temporarily reduced.
CEBA provides eligible organizations with a loan of $40,000 at 0% interest until December 31, 2022. The remaining balance is then converted to a 3-year term loan at an interest rate of 5% per annum. Repaying the balance of the loan on or before December 31, 2022 will result in loan forgiveness of 25 percent (up to $10,000).
What are the eligibility requirements for CEBA?
According to The Government of Canada, an eligible organization must:
- Be a Canadian operating business in operation as of March 1, 2020;
- Have a federal tax registration;
- Demonstrate it paid between $20,000 and $1,500,000 in total employment income in the 2019 calendar year;
- Have an active business chequing/operating account with the Lender, which is its primary financial institution. This account must have been opened on or prior to March 1, 2020 and was not in arrears on existing borrowing facilities, if applicable, with the Lender by 90 days or more as at March 1, 2020;
- Has not previously used the Program and will not apply for support under the Program at any other financial institution;
- Acknowledge its intention to continue to operate its business or to resume operations; and
- Agree to participate in post-funding surveys conducted by the Government of Canada or any of its agents.
In addition, per the requirements of the CEBA program, each organization must also confirm:
- It is not a government organization or body, or an entity owned by a government organization or body;
- It is not a union, charitable, religious or fraternal organization or entity owned by such an organization or if it is, it is a registered T2 or T3010 corporation that generates a portion of its revenue from the sale of goods or services;
- It is not an entity owned by individual(s) holding political office; and
- It does not promote violence, incite hatred or discriminate on the basis of sex, gender, sexual orientation, race, ethnicity, religion, culture, region, education, age or mental or physical disability.
Are there any restrictions on how I can use CEBA funds?
Funds from the CEBA loan are only allowed to be used by the borrower to pay non-deferrable operating expenses such as payroll, rent, utilities, insurance, property tax and regularly scheduled debt service.
The CEBA loan may not be used to fund any payments or expenses such as prepayment/refinancing of existing indebtedness, payments of dividends, distributions and increases in management compensation
How do I apply?
Eligible organizations must apply online through their primary bank or financial institution.
Applicants should have the following information prepared when applying:
- Legal and operating name(s) of your business;
- Total employment income paid (the amount reported in Box 14 of your 2019 T4SUM);
- Your 15-digit Canada Revenue Agency business number or employer’s account number; and
- Authority to attest and bind your business to the CEBA terms on behalf of your organization.
How Can Crowe Soberman Support You?
In these uncertain times, it is essential to remain agile and proactive as the COVID-19 situation unfolds. Having timely access to financial experts, insights and news as quickly as possible is critical—and that’s where we can help.
We have established a dedicated COVID-19 Resource Hub, highlighting areas of business operations that will likely be impacted by coronavirus. Whether you need to discuss your current financial situation and learn what options are available to you, or you want to be guided through the appropriate cash flow management strategies for your business, our team of experts are ready to help you at every step of the way. Please do not hesitate to reach out to your Crowe Soberman professionals for support during these challenging times.
We are in this together.
This article has been prepared for the general information of our clients. Specific professional advice should be obtained prior to the implementation of any suggestion contained in this article. Please note that this publication should not be considered a substitute for personalized tax advice related to your particular situation.