December 7, 2020 Update – CEBA Canada Emergency Business Account

Canada Emergency Business Account (CEBA) – Be Careful About Applying for the Additional $20,000

On December 4, 2020, the federal government’s expanded CEBA loan Program was launched through Canadian banking institutions.

The expanded CEBA loan program provides for a $60,000 loan, of which $20,000 will be forgiven provided the loan is repaid by December 31, 2022. Businesses that have not yet applied for the original CEBA loan will be required to meet all of the new CEBA loan program criteria in order to qualify. Businesses that have applied for and received the initial $40,000 CEBA loan, have the ability to apply for a further $20,000 in support, of which a further $10,000 will be forgiven provided the recipients adhere to the previously noted repayment deadline.

The CEBA loan expansion criteria differ significantly from the original loan criteria. While similar rules exist requiring the funds to be used for non-deferable expenses, the program now provides significant guidance as to exactly what the funds should and should not be used for. Furthermore, the expanded program requires the signing of an attestation that “knowingly submitting inaccurate information or documentation as part of the Existing Attestation or this Attestation could result in criminal penalties of up to 14 years’ imprisonment, as well as significant fines, and the court-ordered repayment of any monies advanced”.

The expanded CEBA loan defines eligible non-deferable expenses as follows:

1. wages and other employment expenses to independent (arm’s length) third parties;
2. rent or lease payments for real estate used for business purposes;
3. rent or lease payments for capital equipment used for business purposes;
4. payments incurred for insurance related costs;
5. payments incurred for property taxes;
6. payments incurred for business purposes for telephone and utilities in the form of gas, oil, electricity, water and internet;
7. payments for regularly scheduled debt service;
8. payments incurred under agreements with independent contractors and fees required in order to maintain licenses, authorizations or permissions necessary to conduct business by the Borrower;
9. payments incurred for materials consumed to produce a product ordinarily offered for sale by the Borrower; and
10. any other expense in a category other than the above as may be indicated by GOC under the Web Page from time to time as being an Eligible Non-Deferrable Expense for the purpose of the Program.

The expanded CEBA loan precludes funding being utilized for the following purposes, unless they are subject to clause “x” above:

1. prepayment/refinancing of existing indebtedness;
2. payments of dividends;
3. increases in management compensation;
4. increases of the compensation of related parties.

Applicants to the CEBA expansion will be required to attest to the following:

1. that its business is facing ongoing financial hardship (including, for example, a continued decline in revenue or cash reserves, or an increase in operating costs) as a result of the COVID-19 pandemic;
2. that it intends to continue to operate its business or to resume operations;
3. that in response to the COVID-19 pandemic it has made all reasonable efforts to reduce its costs and to otherwise adapt its business to improve its viability; and
4. that it has not used any loan received under the Program to make any payment or pay any expense other than Eligible Non-Deferrable Expenses. Specifically, the Borrower has not used any loan received under the Program to make any prepayment/refinancing of existing indebtedness, any payment of dividends, distributions or increases in management compensation or to increase the compensation of related parties.

Lastly, as previously noted, the CEBA loan documentation requires an attestation that “knowingly submitting inaccurate information or documentation as part of the Existing Attestation or this Attestation could result in criminal penalties of up to 14 years’ imprisonment, as well as significant fines, and the court-ordered repayment of any monies advanced”.

It is evident from the stricter non-deferrable expense definition, additional guidance as to what does and does not qualify as an appropriate use of the program funds, as well as the attestations and threats of prison time/fines for misuse, that the federal government views the CEBA expansion as funding for ONLY those companies most in need. As such it is expected that many businesses that qualified for the initial $40,000 CEBA loan program will not qualify for the $20,000 CEBA expansion program.

You can find more information on the CEBA loan program here:  https://ceba-cuec.ca/