Upcoming repayment deadline for pandemic business emergency loans

When the pandemic began in the spring of 2020, it wasn’t long before it became apparent that the increasing threat was to both public health and to the economy. In response to the economic threat, the federal government launched a wide range of support programs for both individuals and businesses. Some of those programs were structured as outright grants to replace income lost when workplaces and businesses shut down, while others were structured as loans, to be repaid when the pandemic ended and the economic fortunes of recipients had (hopefully) improved.

One of the largest support programs for businesses was the Canada Emergency Business Account (CEBA). Under the CEBA program, the federal government initially provided eligible businesses with a non-interest-bearing loan of up to $40,000. In December of 2020 the program was expanded and such eligible businesses were able to receive up to an additional $20,000, also structured as a non-interest-bearing loan. While the federal government was the source of the funding, all such loans were administered through Canadian financial institutions.

The popularity of the CEBA program can be measured in statistics issued by Statistics Canada. Almost 1 million (898,271) businesses were approved for initial CEBA loans, and nearly 600,000 (571,851) were approved for additional borrowing under the CEBA expansion. In total, $49.2 billion in CEBA loans were provided.

While the funds provided through the CEBA program were undoubtedly a lifeline for many businesses, that financing was always structured as an interest-free loan which would, ultimately, have to be repaid. That repayment deadline is December 31, 2023.

While the Canada Revenue Agency has made it clear that the December 31 repayment deadline is not subject to negotiation, there is some relief to be provided to businesses which borrowed under the CEBA program. Those borrowers who repay their loans, at least in part, by December 31, 2023 can have some portion of those loan amounts forgiven.

The computation of the loan amount to be forgiven is somewhat complex and depends on the amount originally borrowed and the amount repaid by the December 31, 2023 deadline. The federal government provides the following information (and examples) on its website.

“All applicants that meet CEBA eligibility criteria will 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 December 31, 2023 will result in loan forgiveness of 25 percent (up to $10,000).

• Example 1:
  Maximum Amount Borrowed: $40,000
  Amount Repaid By December 31, 2023: $30,000
  Available Forgiveness: $10,000

• Example 2:
  Maximum Amount Borrowed: $20,000
  Amount Repaid By December 31, 2023: $15,000
  Available Forgiveness: $5,000

• Example 3:
  Maximum Amount Borrowed: $40,000
  Amount Repaid By December 31, 2023: $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 December 31, 2023 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 December 31, 2023. For example, if $60,000 is borrowed, no forgiveness is available unless $40,000 is repaid.

• Example 4:
  Maximum Amount Borrowed: $60,000
  Amount Repaid By December 31, 2023: $40,000
  Available Forgiveness: $20,000 ($40,000 x 25% + $20,000 x 50%)

• Example 5:
  Maximum Amount Borrowed: $50,000
  Amount Repaid By December 31, 2023: $35,000
  Available Forgiveness: $15,000 ($40,000 x 25% + $10,000 x 50%)

• Example 6:
  Maximum Amount Borrowed: $60,000
  Amount Repaid By December 31, 2023: $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 December 31, 2023 will result in loan forgiveness of 50 percent (up to $10,000).

• Example 7:
  Maximum amount Borrowed: $20,000
  Amount Repaid By December 31, 2023: $10,000
  Available Forgiveness: $10,000

• Example 8:
  Maximum amount Borrowed: $20,000
  Amount Repaid By December 31, 2023: $8,000
  Available Forgiveness: $0”

Where a business benefits from loan forgiveness, any forgiven amount will be treated as income, which must be reported on the tax return filed by the business and on which tax must be paid.

Any loan amounts which are not repaid by December 31, 2023 and are not forgiven will be subject to interest starting January 1, 2024, at a rate of 5%. As well, if a loan remains outstanding after the end of 2023, only interest payments will be required until the full principal loan amount outstanding is due on December 31, 2025.

As the repayment deadline for CEBA loans approaches, a number of financial institutions have begun advertising refinancing products for businesses with outstanding CEBA loans, to enable such businesses to meet the December 31, 2023 repayment deadline (and so qualify for any available partial or complete CEBA loan forgiveness). The federal government notes on its website that it does not offer and is not affiliated with any such refinancing products for CEBA loans.

For an individual business which does not have the funds needed to repay CEBA loans by the end of 2023, the question of whether to pursue such refinancing isn’t a straightforward one, as there are a number of factors to consider. Ultimately, each business will have to consider, and evaluate, the loss of any possible loan forgiveness where a CEBA loan is not repaid by the end of 2023, the amount of interest (at a rate of 5%) which will be levied during 2024 and 2025 on outstanding CEBA loan amounts, the amount of tax which would be payable on any forgiven portion of a CEBA loan, and finally, the amount of interest costs which will be payable where CEBA loans are refinanced through a private lender in order for the business to meet the December 31, 2023 repayment deadline.

The federal government has posted detailed information on the repayment obligations of businesses under the CEBA program, and that information is available at https://ceba-cuec.ca/. In addition, businesses which have CEBA loans can obtain information specific to their circumstances from the CEBA Call Centre, which can be reached at 1-888-324-4201, Monday to Friday from 9 a.m. to 6 p.m. Eastern Time.