Considerations when applying for a Canada Emergency Business Account (CEBA)

The Government of Canada has launched various initiatives to assist small businesses with challenges faced due to COVID-19, one of which being the Canada Emergency Business Account (CEBA). The CEBA program provides interest-free (for a period of time) loans up to $40,000 to eligible small businesses, and if the balance of the loan is repaid by December 31, 2022, 25% is forgivable, meaning that up to $10,000 can operate as a non-repayable grant. Businesses can apply for CEBA through their financial institutions, which are administering the program through different avenues, such as term loans, lines of credit or credit cards.

When applying for CEBA, some key considerations for your business are as follows.

• 1. Restrictions on how CEBA can be used: The funds can only be used to cover non-deferrable operating expenses, such as rent, utilities, payroll, etc. The funds cannot be used to pre-pay/refinance existing debt or to increase compensation to owners or management. It is advisable to keep specific records of how the funds have been used.

• 2. The risk of incurring debt: Although unavoidable for some, incurring more debt during this financial crisis may not be the right decision for all businesses. Those applying for CEBA largely in order to take advantage of the 25% grant should be reminded that, if the balance is not repaid by December 31, 2022, 25% is no longer forgivable and the full balance is then converted to a 3-year term loan with a 5% interest rate. 

• 3. Legal authorization: Many banks are only requiring the signature of one signing officer from a corporation applying for CEBA. However, many corporations are organized to require the consent of more than one individual when entering into business agreements, such as loans. Thus, it is advisable to consult with legal counsel to ensure that all corporate requirements are met, such as preparing authorization resolutions, if required.

For more information on CEBA visit https://ceba-cuec.ca/.