Don’t miss the January 18, 2024 repayment deadline to qualify for partial Canada Emergency Business Account (CEBA) loan forgiveness.
Eligible CEBA loan holders in good standing will now have until January 18, 2024 (extended from December 31, 2023) to repay the loan (less the amount to be forgiven) to qualify for partial loan forgiveness. Alternatively, if a business applies for refinancing by January 18, 2024 with the financial institution that issued the loan, they should still qualify for the partial loan forgiveness if they repay the loan and any outstanding interest by March 28, 2024.
If a business can’t meet their loan forgiveness repayment deadline, the loan will automatically convert into a three-year term loan with 5% annual interest on January 19, 2024, and must be fully paid by December 31, 2026 (extended from December 31, 2025).
The federal government announced these deadline extensions on September 14, 2023.
Background
As part of the federal government’s pandemic relief initiatives, CEBA initially offered interest-free loans of up to $40,000, to eligible small businesses or not-for-profit organizations. Eligible CEBA loan holders were later offered an expansion of up to $20,000 (i.e., for a total CEBA loan of up to $60,000). CEBA offers certain borrowers partial loan forgiveness if the loan is repaid by a specific deadline set by the government. The government has since extended related deadlines twice.
How much is the partial loan forgiveness?
If you qualify, the forgiven amount would be:
- 25% of the borrowed amount if you borrowed $40,000 or less (e.g., $10,000 if you borrowed $40,000); or
- 25% on the first $40,000 and 50% of the remainder if you borrowed over $40,000 (e.g., $20,000 if you borrowed $60,000)
What are the repayment terms?
Here’s a summary of the repayment terms under different scenarios, assuming your CEBA loan is in good standing:
1. You repay your CEBA loan by January 18, 2024
- You should qualify for partial loan forgiveness
- If you borrowed $40,000 or less, you only need to repay 75% of the loan by January 18, 2024. For example, if you borrowed $40,000, you would only need to repay $30,000 (75%x $40,000).
- If you borrowed more than $40,000 and up to $60,000, you only need to repay 75% on the first $40,000 plus 50% on the amount above $40,000. For example, if you borrowed $60,000, you only need to repay $40,000 (75% x $40,000 + 50% x $20,000).
- Interest will not accrue on the loan.
2. You apply for refinancing by January 18, 2024, and repay your CEBA loan and interest by March 28, 2024
- An additional extension is available if you apply for refinancing with the financial institution that granted the CEBA loan by January 18, 2024, but require a grace period for the application to be processed.
- You should still qualify for partial loan forgiveness as explained above if the loan (less the amount to be forgiven) and interest is paid by March 18, 2024.
- Interest at a rate of 5% per annum will accrue from January 19, 2024, until the repayment date.
3. You don't meet either partial debt forgiveness deadline
- Partial loan forgiveness isn’t available.
- Outstanding loan will automatically convert to a three-year non-amortizing term loan on January 19, 2024.
- Interest at a rate of 5% per annum will accrue from January 19, 2024, until the repayment date.
- You’ll have until December 31, 2026, to fully repay any remaining balance of your loan plus and accrued interest.
Takeaway
Plan ahead to determine whether you’re able to repay the loan, less the forgivable amount, by January 18, 2024. Otherwise, speak with your financial institution to consider refinancing options.
For more details on this measure, see the federal government’s news release and CEBA overview.
Disclaimer
The information contained herein is general in nature and is based on proposals that are subject to change. It is not, and should not be construed as, accounting, legal or tax advice or an opinion provided by Doane Grant Thornton LLP to the reader. This material may not be applicable to, or suitable for, specific circumstances or needs and may require consideration of other factors not described herein.
