UPDATE to the CEBA Loan repayment terms (Canada Emergency Business Account).
On September 14, 2023, the Government of Canada announced changes to the Canada Emergency Business Account (CEBA) repayment terms.
Here’s a summary of the key changes:
Repayment Deadline Extension:
Previously, CEBA loan holders had until December 31, 2023, to repay their loans in order to qualify for partial loan forgiveness of up to 33 percent.
The government noted that businesses will be busy on December 31, so they extended this deadline to January 18, 2024. The 2.5-week extension may make a difference for some businesses who are waiting to collect December invoices or business owners who are finishing Christmas vacations. For most business owners who intend to repay their full CEBA balance by December 31, it will make no difference at all.
As you’ll recall the initial deadline for repayment was December 31, 2022, was extended by 1-year, and now a further 2.5 weeks.
Refinancing Extension:
For CEBA loan holders who initiate a refinancing application with the financial institution that provided their CEBA loan by January 18, 2024, the repayment deadline to qualify for partial loan forgiveness has been extended to March 28, 2024.
This extension provides more businesses and not-for-profits with additional time (nearly 3 extra months) to hear back from their financial institutions regarding their refinancing applications.
IMPORTANT NOTE: If you intend to refinance your CEBA loan, make sure you initiate the refinancing application on, or before, January 18, 2024 at the financial institution you received the CEBA loan from in order to receive forgiveness (for refinancing loans secured before March 28). If they have declined the loan, or offered you a rate that is higher than market, you can go to a different lender as long as the loan is in place on or before March 28, 2024.
Three-Year Term Loans (Previously Two-Year Term Loans):
Starting from January 19, 2024, any outstanding CEBA loans, including those covered by the refinancing extension, will automatically convert to three-year term loans. These term loans will be subject to an interest rate of five percent (5%) per annum, with the term loan repayment date extended by an additional year from December 31, 2025, to December 31, 2026.
In practical terms, this means that small businesses and not-for-profits will have access to a three-year, low-interest loan of up to $60,000 if they have not repaid or refinanced their loan. This extension offers relief to those who may be struggling to secure refinancing or generate sufficient cash flow to repay their loans by the forgiveness deadline.
Loan Forgiveness Amounts:
Repaying the loan on or before the new deadline of January 18, 2024 (or by March 28, 2024 for those who submitted a refinancing application before January 18, 2024) will result in loan forgiveness.
Specifically, those with a $40,000 loan will receive $10,000 in loan forgiveness, while those with a $60,000 will benefit from $20,000 in loan forgiveness.
Tax Treatment of Loan Forgiveness Amounts:
As a reminder, businesses were required to include the ‘forgiven amount’ as income in their corporate tax returns when they first received their CEBA loan. If a business does not qualify for loan forgiveness, they can make an offsetting deduction on their corporate tax return when they actually repay the loan.
Examples of How Loan Holders Can Benefit (directly from the Backgrounder):
- Sarah and Nick: They owe $40,000 but can’t repay in full by January 18, 2024. Their loan converts to a three-year term with 5 percent interest. They’ll make monthly interest payments of around $167 and only pay the principal just before the term loan repayment deadline of December 31, 2026.
- Doug: He applies for $40,000 in financing from his bank to pay off his $60,000 CEBA loan but doesn’t receive a response by January 18, 2024. With the refinancing extension, he has until March 28, 2024, to secure new financing and benefit from $20,000 in partial loan forgiveness.
IMPORTANT NOTE: While the Government’s backgrounder indicates that Financial institutions will directly contact CEBA loan holders regarding their loans, we remain skeptical about this actually occurring in 100% of cases. We encourage you to call your bank and speak with them about it.
These changes also apply to CEBA-equivalent lending through the Regional Relief and Recovery Fund.
Link to the CRA’s backgrounder: Canada Emergency Business Account: Government extends repayment and partial loan forgiveness deadlines – Canada.ca