Understanding CEBA Loan Repayment Options
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By Bromwich+Smith Staff | 1667 words | Reading Time: 8 minutes and 20 seconds | Last Update: 2024/03/07
In response to the financial challenges posed by the COVID-19 pandemic, the Canadian government introduced in April of 2020 the Canadian Emergency Business Account (CEBA). This loan forgiveness sought to support small businesses with essential funds to navigate the crisis. The loan was offered as an interest free loan, up to $60,000 with a potential $20,000 in loan forgiveness. With close to 900,000 business being approved it is fair to believe that some will not be able to repay the loan as it comes due. If you were approved, and unable to repay the loan do you know What are the consequences of not repaying a CEBA Loan?
MPORTANT UPDATE FROM THE CANADA REVENUE AGENCY REGARDING REPAYMENT
The most recent communications from the Canada Revenue Agency (CRA) indicate that if you are unable to repay your CEBA loan when it comes due, you will receive a request from your financial institution for a lump sum repayment. If you are unable to make that payment as requested, your financial institution will likely be required to assign your loan to the government’s CEBA Program for collection efforts. If you are unable to repay when requested by the CEBA Program, they will review your circumstances and work with you to establish a payment plan tailored to you.
Program Repayment Deadlines.
Please be aware these dates are accurate as of time of publication. For the most recent information please visit https://ceba-cuec.ca/
The first extended repayment for CEBA loan repayment was December 31, 2023.
The next extended repayment date was January 18, 2024.
CEBA loans that remain outstanding are now considered term loans with full principal repayment due on December 31, 2026.
If your CEBA loan is considered to be in good standing, you submitted a refinancing loan application on or before January 18, 2024, and you require more time for full repayment, you can still qualify for partial loan forgiveness. The outstanding principal of your CEBA loan excluding any forgiven amount must be repaid on or before March 28, 2024.
The Importance of Repayment:
Timely repayment of loans, including CEBA Loans, should be placed on a high priority. By repaying on schedule, you not only fulfill your financial obligations but also maintain a positive relationship with your business and the lender- in this case the Canadian Government. This can prove valuable for future business endeavors and financing needs.
Recently, the Canadian government extended the repayment deadline for its small business pandemic loan program by one year — but businesses will still lose the forgivable portion of the loan if they don't repay in the coming months. The original repayment deadline was the end of 2022. It was later extended to the end of 2023, with any business unable to meet that deadline accruing interest with the balance and all interest needing to be paid in full by the end of 2025. That deadline will now be extended to the end of 2026. All loans will start accruing five per cent interest if not repaid by Jan. 19, 2024.
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What if my business is no longer operating?
Sadly, many Canadian businesses have not been able to recover financially and have been forced into shutting down their operation. If you obtained a CEBA loan and your business has since closed there are important steps to take.
1. File Final Tax Returns: Begin by filing the final corporate tax returns, including the T2 corporate tax return and the final GST and HST returns. On the final corporate tax return make sure to indicate that it is the final return due to dissolution of the company.
2. Notify CRA of the Dissolution Request: Once the returns are filed, the Canada Revenue Agency (CRA) will respond by acknowledging the request to close the corporation's income tax account. In order to finalize the dissolution process, you will be required to submit the articles of dissolution within 7 business days as requested by the CRA.
3. Address Outstanding Debts: It's important to note that a corporation cannot be dissolved if it has outstanding debts, such as a CEBA loan. If the corporation has such debts, we suggest uploading a letter to the CRA explaining that the corporation has closed and holds no assets, and this is the final tax return. Although this is not considered an official dissolution, it helps the CRA understand why the corporation will no longer file tax returns.
4. Communicate with CRA for Outstanding Payment: It is likely that the CRA will contact the corporation for payment of outstanding debt including CEBA. It is crucial to inform the CRA that the final tax return was filed, providing evidence of the corporation's closure. Ultimately, the CRA will determine if they will write off the outstanding CEBA loan, or if they will actively seek collection activities.
5. Close the Corporation's Bank Account: As the corporation is no longer operational, it is recommended to close its bank account. This step ensures that there are no unnecessary monthly bank service charges or additional fees charged to the business through the account.
CEBA Loan Default Consequences:
If you find yourself unable to repay your CEBA Loan, there are several potential consequences to be aware of:
Penalties: Non-repayment usually leads to penalties, including potential interest or fees which will add an extra financial burden.
Legal Actions: The lender in any loan could resort to legal actions to recover their funds, which can damage your business reputation and credibility.
Credit Score Impact: Loan default will always negatively affect your credit score, making it harder to secure future financing.
Options for Those Who Can't Repay:
If repaying your CEBA Loan becomes challenging, you have several options:
Negotiation with Lenders: Open communication lender is key. You may negotiate for revised repayment terms that align with your current financial situation. You may no longer qualify for the loan forgiveness, but the loan will still come due.
Financial Assistance Programs: Explore government or private financial assistance programs designed to help businesses facing difficulties.
Debt Consolidation: Consolidating multiple debts can streamline repayments, making it more manageable.
Navigating Financial Hardship: During challenging times, resources are available to provide financial support:
Financial Help Resources: Research available resources for financial aid and support tailored to businesses.
Government Programs: The government has introduced various programs to assist struggling borrowers, offering temporary relief and financial support.
CEBA loans are considered an unsecured debt and can be included in a personal bankruptcy or consumer proposal. If your business was a sole proprietorship or partnership, you are personally liable for repayment of the CEBA loan. If you are unable to repay your CEBA loan or other small business debts you have the option for your debt to be included in an insolvency proceeding under the Bankruptcy and Insolvency Act in Canada.
If your CEBA loan contract includes a personal guarantee from your financial institution it makes you personally responsible for repaying the loan if your business is unable to cover the outstanding balance. It is crucial to carefully review the terms and conditions and all the fine print in your contract to fully understand your obligations.
Managing Business Finances Effectively: Proactive financial management can prevent repayment issues:
Budgeting: Create a detailed budget that factors in loan repayments, ensuring you allocate funds appropriately.
Cash Flow Management: Maintain a healthy cash flow to meet financial obligations smoothly.
Seeking Professional Financial Advice: In complex financial situations, seeking expert advice is invaluable:
Financial Experts: Consult financial professionals who specialize in business finances and debt management for tailored guidance.
Licensed Insolvency Trustees: An LIT is able to support you with more than just your CEBA debt, and can help you understand all debt relief options available to you.
Legal Advisors: If facing legal actions, legal advisors can provide insights into your rights and options.
Repaying your CEBA Loan responsibly is essential for both your business's financial stability and your reputation as a borrower. By understanding the consequences of non-repayment and exploring available options, you can navigate through financial challenges successfully. Remember, seeking assistance and advice from professionals like an LIT can make a significant difference in finding the best course of action. Stay informed, proactive, and committed to managing your business finances effectively.
For full up to date information regarding your loan, contact the financial institution that provided the loan. Full transparency on your financial situation will allow them to determine options on loan repayment terms. If you find yourself struggling with debt and unable to make payment reach out to a Licensed Insolvency Trustee today. One consultation will offer you answers to your debt relief options and provide you with options on next steps on how to manage your overwhelming debt.
It's important to remember that you are not alone when facing debt related to your business. Bromwich+Smith offers effective debt relief strategies that can help you regain control of your financial situation. We will highlight some of their debt relief strategies and the support they can provide throughout your journey. For a free, compassionate, and personalized consultation, call Bromwich+Smith at 1.855.884.9243, Live Chat or visit bromwichandsmith.com.
CEBA FAQs:
1. What are the consequences of not repaying a CEBA Loan?
If you fail to repay a CEBA Loan, your financial institution will request a lump sum repayment. If you're unable to make this payment, the loan may be assigned to the government's CEBA Program for collection efforts.
2. What if my business is no longer operating?
If your business has closed after obtaining a CEBA loan, file final tax returns, notify the CRA of dissolution, address outstanding debts, communicate with CRA for outstanding payment, and close the corporation's bank account.
3. What options do I have if I can't repay my CEBA Loan?
Options include negotiating with lenders for revised repayment terms, exploring financial assistance programs, and considering debt consolidation.
4. Can CEBA loans be included in insolvency proceedings?
Yes, CEBA loans are considered unsecured debts and can be included in bankruptcy or consumer proposals under the Bankruptcy and Insolvency Act in Canada.
5. What should I do if my CEBA loan contract includes a personal guarantee?
Review the terms carefully and understand your obligations. If your business can't cover the outstanding balance, you'll be personally responsible for repayment. Consider seeking professional advice for guidance