Canada Emergency Business Account Loan: All You Need to Know

* This blog was updated on April 23, 2021.

If you are a small business struggling to stay afloat during the COVID-19 pandemic, a new federal program may offer some relief.

On March 27, the government announced a new business loan to help small businesses meet operating costs over the next few months. Under the Canada Emergency Business Account (CEBA), small businesses can apply for an interest-free loan of up to $40,000 to cover expenses such as payroll, utilities, rent and property tax, insurance or debt service. 

As of December 4, 2020, CEBA loans for eligible businesses have increased from $40,000 to $60,000. If you have received the $40,000 CEBA loan, you may apply for the $20,000 expansion, which gives you an additional $20,000 in financing.

The deadline for eligible applicants to apply for $60,000 CEBA loan or the $20,000 expansion is June 30, 2021.

Once your financial institution starts offering the $60,000 loan, applicants may no longer apply for $40,000.

If you have already repaid your original CEBA loan, you can still apply for the $20,000 expansion at the financial institution that provided you with your original CEBA loan. However, you will need to submit a new application.

How does the Canada Emergency Business Account loan work?

You can apply for this business loan through your bank.

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, 2022, will result in loan forgiveness of 25% (up to $10,000).

If you borrowed more than $40,000 and up to $60,000, repaying the outstanding balance of the loan (other than the amount available to be forgiven) on or before December 31, 2022 will result in loan forgiveness up to $20,000 based on a blended rate (25% on the first $40,000 + 50% on amounts above $40,000 and up to $60,000).

For example, if you borrowed $60,000 and repaid $40,000 by December 31, 2022, the available loan forgiveness would be $20,000 ($40,000 x 25% + $20,000 x 50%)

Applicants can check the status of their CEBA Loan online, 5 to 7 business days after finalizing their application.

How do I know if I am eligible?

CEBA applicants can apply through one of the two streams:

The Payroll Stream
Applicants with employment income paid in the 2019 calendar year between $20,000 and $1,500,000

The Non-Deferrable Expense Stream
Applicants with $20,000 or less in total employment income paid in the 2019 calendar year

All applicants must meet the following criteria:

  • You have an active CRA Business Number (BN) with an effective date of registration on or prior to March 1, 2020
  • You have an active business chequing/operating account with the lender at the time of applying for CEBA. If you don't currently have a business chequing/operating account, you must create one at your primary financial institution before applying for CEBA.
  • You have not already applied for this loan, and you will not apply for it through more than one financial institution
  • You must acknowledge that you plan to stay operational or resume business

For those applying through the Payroll Stream:

Once you complete the application with your financial institution, the Government of Canada will assess the application and inform your financial institution whether the loan has been approved or declined. If approved, your financial institution will provide the funds into your business chequing /operating account.

If you come under the Non-Deferrable Expenses Stream, you must also meet the following criteria:

  • You have eligible non-deferrable expenses between $40,000 and $1,500,000. Eligible non-deferrable expenses could include costs such as rent, property taxes, utilities, and insurance. (Expenses will be subject to verification and audit by the Government of Canada.)
  • You have filed an income tax return with the CRA with a tax year ending in 2019 or, if its tax return for 2019 has not yet been submitted, 2018.

Applications submitted under the 2020 Eligible Non-Deferrable Expenses Stream follows a three-step process:

Step 1: Complete the online Pre-Screen Tool. The purpose of this Tool is to provide a non-binding indication of eligibility to inform your decision of whether you should open a business account and apply for CEBA. If you are declined at this step you can still apply for CEBA. You can do so through Step 2.

Step 2: Businesses can apply for CEBA loans directly at their primary financial institution where they have a primary business chequing /operating account. The financial institution will guide applicants to Step 3.

Step 3: Applicants will be directed to the CEBA website to provide supporting documentation of the 2020 Eligible Non-Deferrable Expenses and to complete the application.

The Government of Canada will review application information submitted via financial institutions along with supporting documentation. If approved, the Government of Canada will notify your financial institution and provide funding for your CEBA loan.

Are there any restrictions on how I may use this loan?

Yes. The government has made it clear that you can use these funds only to pay for critical operational expenses, such as rent, employee salaries, etc. You cannot spend this money on expenses such as refinancing existing debts, paying dividends or increasing management compensation.

Need support navigating business issues related to the COVID-19 pandemic?

Whether you are straining to sustain cash flow or update HR policies, we can help you get through this crisis. To get advice on how to maintain your business during the COVID-19 pandemic, call our experts today: 1 (833) 247-3652.

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