Did you get an interest-free loan from the Government of Canada? Here are some tips on how to make the most of your Canada Emergency Business Account (CEBA) funds.
Dec 04 20206 minute read
More than 750,000 Canadian businesses have received interest-free loans through the Canada Emergency Business Account (CEBA) program — this is part of the government of Canada’s COVID-19 Economic Response Plan.
Since December 4, 2020, business owners have been able to increase their original $40,000 CEBA loan by an additional $20,000 as part of the new CEBA program. With these increased funds also comes an increased forgiveness benefit, along with an increased importance for business owners to use these funds strategically as they plot a course through challenging times.
As you continue to work towards restoring stability to your business, having a plan to make the most of your loan is important. If you’re not sure where to start, we can help.
How to access your CEBA funds
Your CEBA loan will be deposited directly to your existing CIBC Business Operating account. Make sure you can easily access your account so you can use your money right away. Similarly, your additional $20,000 CEBA loan will be deposited in the same business account where you received your original CEBA loan.
You may also want to consider applying for CIBC SmartBanking™ For Business. It’s a digital banking solution that can help you manage day-to-day deposits, payments and reporting activities for your business — particularly if you need to pay suppliers through electronic funds transfer (EFT) or wire payments.
Assess your cash flow first
Before you start paying expenses with your CEBA funds, consider your business' cash flow. Are you using quick turnaround methods, like credit cards, to collect payments from customers? Could a rebate or incentive encourage customers to make more up-front payments instead of smaller ones over longer periods of time? You should take all reasonable measures to firm up your cash inflows before dipping into your CEBA loan.
Use your CEBA loan for non-deferrable expenses
Make a prioritized list of your non-deferrable operating expenses. This will help you figure out how to distribute the funds from your loan. You’ll want to use these funds to cover large expenses that are at risk of incurring fees, or to pre-pay expenses with early-payment discounts or rebates. Smaller, less urgent costs can be covered with free cashflow or a Business Credit Card. A credit card gives you some flexibility because you have an extra 30 days to pay off your purchases.
Repaying your CEBA loan
Business debt can be a source of anxiety, especially in a turbulent economy, but the CEBA loan gives you some breathing room. Before you rush into paying back your loan, review the repayment terms:
Your loan is interest free before December 31, 2022, and principal payments are not required.
If the loan isn’t repaid by January 1, 2023, the loan becomes a 3-year term with a 5% fixed interest rate per year. Only interest payments are required on a monthly basis with the outstanding principal due in full by December 31, 2025.
Depending on the amount of your CEBA loan, the amount that is eligible for forgiveness will vary. The forgiveness benefit allows a portion of your loan to not require repayment:
If you received a $40,000 CEBA loan, you can repay 75 percent of the total amount ($30,000) by December 31, 2022 and the remaining 25 percent ($10,000) is eligible for a loan forgiveness benefit.
If you received a $60,000 CEBA loan, you can repay 66 percent of the total amount ($40,000) by December 31, 2022 and the remaining 34 percent ($20,000) is eligible for a loan forgiveness benefit.
The forgivable portion of the CEBA loan, $10,000 or $20,000, is taxable in the year in which the loan is received. It may be a good idea to create a repayment plan, one that helps you stay on track to pay back the repayable portion of your loan in time, so you can take advantage of the forgiveness benefit.
You can take advantage of the forgiveness benefit as soon as your CEBA loan is eligible for repayment:
Loans approved before September 26, 2020 are eligible for repayment starting October 1, 2020.
If your loan application was approved on or after September 26, 2020 and before December 4 2020, you can start principal repayments any time after January 1, 2021.
If your loan application was approved, or increased by $20,000 to $60,000, on or after December 4, 2020, you can begin or resume making principal repayments any time after April 1, 2021.
Talk to an advisor or accounting professional for financial advice
Whenever you make changes to your finances, it’s always important to consult a trusted advisor who understands your unique business needs. If you need help managing your business cashflow or information about the different financial assistance programs available to you, contact your CIBC Advisor or request a call from a business expert.
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