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What is CEBA
CEBA is a $ 55 billion program that provides interest-free loans of up to $ 40,000 to small and non-profit businesses. The borrowed funds are to help cover operating costs during a period when revenues have been temporarily reduced. The loan will better position the entities to quickly resume service delivery and job creation.
On May 19, 2020, the federal government announced an expansion of the CEBA eligibility criteria, making it accessible to more small Canadian businesses, including:
- Sole proprietors who receive income directly from their businesses;
- Businesses that depend on entrepreneurs; and
- Family businesses that pay their employees in the form of dividends.
Who is eligible for CEBA
There are two qualifying streams for the CEBA.
1. The borrower’s total employment income paid in calendar year 2019 is between $ 20,000 and $ 1.5 million.
2. The borrower’s total employment income paid in calendar year 2019 is less than $ 20,000.
To qualify for the loan, all applicants must:
- Have a business operating in Canada as of March 1, 2020;
- Have a federal tax registration (or business number);
- Have an active chequing / business operating account with a primary financial institution. This account was opened no later than March 1, 2020 and was not 90 days or more overdue on existing borrowing facilities with the financial institution as of March 1, 2020;
- have never used the program and will not seek program support from another financial institution;
- Acknowledge their intention to continue to operate their business or to resume their activities; and
- Agree to participate in post-funding surveys conducted by the Government of Canada or one of its agents.
Applicants with a payroll of less than $ 20,000 will also need:
- A business number from the Canada Revenue Agency and have filed a 2018 or 2019 income tax return; and
- Eligible non-carry-forward expenses between $ 40,000 and $ 1.5 million. Eligible non-deferral expenses could include costs such as rent, property taxes, utilities and insurance.
Who is excluded from the CEBA?
The following entities are not eligible to borrow under the CEBA program:
1. Government organizations or agencies, or entities 100% owned by a government organization or body.
2. A non-profit organization, registered charity, union or fraternal society or association, or an entity owned by such an organization, unless the entity is actively carrying on business in Canada ( including a related business in the case of a registered charity) that earns income from the regular provision of goods / goods or services.
3. An entity owned by a Member of Parliament or a Senator.
4. An entity promoting violence, inciting hatred or discrimination on the basis of sex, gender identity or expression, sexual orientation, color, race, gender, ethnic or national origin, religion, age or mental or physical disability, contrary to applicable laws.
How can I apply?
Small businesses and nonprofits should contact their financial institution to apply for these loans. There are currently 233 financial institutions participating in the CEBA program, find the full list here.
What do i need to apply?
Eligible businesses will need to contact their primary financial institution to apply for CEBA loans. There are two application streams:
1. Payroll flow: for businesses whose total employment income paid to employees in 2019 is greater than $ 20,000 and less than $ 1,500,000.
Payroll CEBA applications will be completed directly through the financial institution where your business has its primary chequing / operating account.
Once you have completed your application, the Government of Canada will assess the application and notify your financial institution of the loan approval or denial. If approved, your financial institution will transfer the funds to your chequing / business operating account.
Financial institutions provide application information to the Government of Canada to confirm eligibility. If successful, the Government of Canada will notify your financial institution and provide funding for your CEBA loan.
2. Component of non-carry-forward expenses: for businesses with total employment income paid to employees in 2019 of $ 20,000 or less and eligible non-deferral expenses in 2020 (subject to adjustments for support or grants under other programs) Government of Canada COVID Response) greater than $ 40,000 and less than $ 1,500,000.
CEBA applications under the 2020 eligible non-carry-forward expenditure stream will follow a two-step process:
Step 1: Businesses will initiate claims directly to their primary financial institution where they hold their primary chequing / operating account. The financial institution will then direct applicants to step 2 of the application process.
2nd step: After the initial application through your financial institution, applicants will be directed to a CEBA website to provide supporting documentation for eligible non-carry-forward expenses for 2020 and to complete the application.
The Government of Canada will assess the application information submitted by financial institutions in Step 1 along with the supporting documents and information provided in Step 2. If successful, the Government of Canada will notify your financial institution and provide the financing your CEBA loan.
When will I receive my funding?
Once you have applied to your primary financial institution, uploaded all the necessary supporting documents, and if the validation of pre-finance eligibility is successful, you should expect funding within 10-15 business days.
Are there any restrictions on how I use the CEBA
Yes, the borrowed funds can only be used by the borrower to pay the borrower’s non-deferral operating expenses, including, without limitation, salaries, rent, utilities, insurance, property taxes and regularly scheduled debt service.
The funds may NOT be used to finance payments or expenses such as prepayment / refinancing of existing debt, dividend payments, distributions and increases in executive compensation.
What documents are required for the non-carry-forward expenditure component?
Three main pieces of information are needed to complete the request:
- Name of the financial institution where you submitted your request;
- Your nine-digit business number (the same number you used in your request to your financial institution); and
- Electronic or hard copies of receipts / invoices / agreements to be uploaded as proof of your eligible non-carry-forward expenses for 2020
What are the categories of eligible non-carry-forward expenses?
The categories of eligible expenses that cannot be carried forward are as follows:
- Salaries and other employment expenses for independent third parties (at arm’s length)
- Rent or lease payments for real estate used for business purposes
- Rent or lease payments for capital goods used for business purposes
- Payments incurred for insurance costs
- Payments incurred for property taxes
- Payments incurred for business purposes for telephone and utilities in the form of gas, oil, electricity, water and the Internet
- Regularly scheduled debt service payments
- Payments incurred under agreements with independent contractors and fees required to maintain any licenses, authorizations or authorizations necessary for the conduct of business by the Borrower
What other federal COVID response programs will result in adjustments to the amount of eligible non-deferral expenses for 2020 that can be claimed?
Other Government of Canada COVID response programs include:
- Canada Emergency Wage Subsidy
- 10% temporary wage subsidy
- Emergency Assistance from Canada for Commercial Rent, Regional Relief and Recovery Fund
- Northern Business Assistance Fund
- relief measures for Aboriginal businesses
- $ 250 million IRAP (Industrial Research Assistance Program) COVID-19 Grant Program
If I am applying through the Payroll stream, what should I do if I have more than one Canada Revenue Agency (CRA) payroll program account?
Applicants must add up all 2019 T4SUM statements and compare this total amount to the CEBA eligible payroll range, which is a payroll amount greater than $ 20,000 and less than $ 1,500,000.
For example, a business with the following two payroll numbers would have a total amount of $ 35,000, which is within the allowable range:
Payroll number 1 (… RP0001)
Payroll number 2 (… RP0002)
Total 2019 T4SUM = $ 35,000
What if I run more than one business?
Each eligible business must have a unique nine-digit Canada Revenue Agency (CRA) business number. Each eligible business is limited to one CEBA loan.
What if I run my business from a personal bank account?
Businesses that manage their banking transactions through a personal bank account are not eligible for the CEBA loan.
Only chequing / business operating accounts opened on or before March 1, 2020 and not past due on existing borrowing facilities, if applicable with the lender for 90 days or more from March 1, 2020 are eligible for the CEBA program.
How to reimburse the CEBA
The loan can be repaid at any time without penalty.
$ 10,000 (25%) of the $ 40,000 loan is eligible for full forgiveness if $ 30,000 is repaid by December 31, 2022.
If the loan is not repaid by December 31, 2022, it will be extended into a three-year term loan with an interest rate of 5% per annum.
Originally posted by Crowe MacKay, Jun 2020
The content of this article is intended to provide a general guide on the subject. Specialist advice should be sought regarding your particular situation.