Small Business Start Up Loans – The program will now be available to a large number of businesses that are sole proprietors who receive income directly from their business; businesses that rely on contractors; and family-owned corporations that pay employees through dividends rather than wages.
Costs will be verified and reviewed by the Government of Canada. Funds will be provided in collaboration with financial institutions.
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More details, including the launch date for applications under the new criteria, will follow in the coming days.
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Our government will continue to work on solutions to help business owners and entrepreneurs who operate through their personal bank account, as opposed to a business account, or who have not yet submitted a tax form, such as newly established businesses.
The Government of Canada has made $25 billion available to businesses across the country affected by the COVID-19 pandemic through the Business Credit Access Program (BCAP). As part of the BCAP program of business financial assistance programs currently being implemented by the Government of Canada, the following two main lines of emergency business loans will be opened in the coming week:
Eligible businesses can borrow up to $40,000 through the CEBA process. CEBA is a government-sponsored line of credit offered to every eligible business that goes online. CEBA’s online application site is expected to be operational this coming week. Expect posts from all banks once the CEBA portal opens for applications.
Eligibility: CEBA funds will be available to businesses that paid an annual premium of $20,000 to $1,500,000 in 2019. More information to follow.
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CEBA funds will be available to businesses that paid an annual premium of $50,000 to $1,000,000 in 2019. At this time publicly available information suggests the purpose of the funds is to cover non-deferrable costs such as payroll, taxes, insurance, and utilities.
Revolving loan, then 5-year loan: CEBA will be a state-sponsored line of credit until December 31, 2020. At the end of this calendar year it will be converted to a 5-year term loan, due at the end of 2025.
Interest Free Period, then 5% Interest: No interest will be paid in 2020, 2021, or 2022. Interest will begin to apply on any remaining balance at an annual rate of 5%, payable monthly, beginning January 1, 2023 on the remaining balance. period of three years until the end of 2025.
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Payment Deadlines: The remaining balance and applicable interest will mature and be paid in full at the end of 2025. No comments or agreements have been made at this time regarding the outstanding amount at the end of 2025, so businesses should review the terms of the loan agreement carefully. if they care about this timeline, and assume the laws and commercial standards at that time will apply.
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25% Loan Forgiveness: Businesses who pay 75% of the remaining balance on or before the end of 2022 will be forgiven 25% of their loan balance. This is the most beneficial aspect of the CEBA program. For each business that borrows using a CEBA loan this year, the Government will look at the outstanding amount on January 1, 2021, which is the calculation date for the purpose of determining the amount of possible loan forgiveness. To qualify for 25% loan forgiveness, a business must pay off 75% of the amount due on January 1, 2021 between then and December 31, 2022. The maximum amount forgiven will be the greater of (i) $10,000 or ( ii) 25% of the balance on January 1, 2021. To be clear, businesses that do not lend the full $40,000 will not be exempted $10,000, it will be a minimum amount of exemption equal to 25% of their funds. January 1, 2021 total.
The deadline to repay the loan waiver eligibility is the end of 2022. If 75% of the borrowed amount is not repaid by December 31, 2022, the business will not be eligible for any waiver under the law as we know it now. Details regarding eligibility for amnesty appear to be quite different at this time; if 75% is not repaid before the end of 2022 there appears to be no opportunity for forgiveness, meaning that the entire amount of school fees and interest will need to be paid before the end of 2025 and the opportunity for forgiveness will be lost.
Given the interest-free period and the transition from a revolving line to a non-revolving credit at the end of this year, we expect many businesses will plan to increase the amount of borrowed money by December 31, 2020 and plan to wait to pay 75% as close as possible to December 31, 2022 and not early.
We recommend that you continue to monitor the details in this matter, which may change after this article is written. Business owners should review and remember the full terms and conditions when applying and agree if the details change between now or later.
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Preparing to apply online: CEBA applications will be available online only. An officer or director of the company should arrange to register and apply online. This must be a person who can provide legal proof to the business and is authorized to bind the business. It may be wise to ensure that your director and officer files are up to date in case a corporate profile with different references becomes available to the public through the provincial Ministry. This person will be closing the company on the CEBA loan agreement line. At the very least, make sure the right director or officer is authorized by your bank in advance.
The Government of Canada advises that you will need your 2019 Summary of Payments T4 statement when applying. Talk to your accountant or contact the CRA if you need this issued again.
Cash Flow: The basic premise of CEBA is that the Government of Canada provides government-guaranteed interest-free working capital loans to small businesses, but disburses the funds through banks. Your bank is in a good position to verify your business details and help protect against fraud. The Government of Canada is making CEBA funds available to banks so that banks can provide businesses they know in every community with critical access to working capital in times of crisis. Without the CEBA program, applying for new lines of credit or credit from banks would have been time-consuming and futile for many businesses during this period of massive revenue freezes.
By guaranteeing loans and speeding up the application timeline to approval, the Government of Canada has fast-tracked the process and assumed the risk of default in the interest of allowing as many businesses as possible to receive CEBA funds. The federal guarantee of each of these new credit facilities is an important feature – something that has never been available to many private companies in Canada.
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Once approved, the funds available to your business will be sent through your business’s main bank. If you have an account in more than one bank, you should determine your primary bank for CEBA purposes immediately. All banks now recommend that CEBA applicant customers have existing and up-to-date online banking arrangements.
The Government of Canada has also announced the SME Loan and Guarantee Program to be launched next week, which will make large loans available to businesses that need more than $40,000 to survive. These are the business loan facilities that will be modified by EDC and BDC. More information on the sub-streams of this program is coming online daily through the Government of Canada, EDC, and BDC websites, as well as publications from the central bank referring to the SME Loan and Guarantee Program.
The SME Loan and Guarantee Program is designed to help large SMEs maintain liquidity during this difficult period. If your business is interested in these programs, every indication at this time is that you should work through your primary bank, although information is also available through your BDC and/or EDC representatives if you currently work with an EDC or BDC or in a new capacity . BDC customers. If you proceed through your primary bank, your bank will submit the initial information back and forth and will contact the BDC and/or EDC to coordinate eligibility and amounts. These facilities are subject to return of income. They bear interest, have long repayment terms, and do not include a loan waiver (according to current laws). We hear from local banks that they are also taking on new clients for this purpose if you need a new primary bank to handle.
BDC Lending Program. Through this sub-channel, the Business Development Bank of Canada (BDC) will provide a guarantee to a primary commercial bank to lend a business a long-term loan for operating cash flow needs. BDC will take 80% of the risk. The Bank will evaluate, underwrite, approve and finance qualifying SMEs. The loan will be interest-only for the first 12 months, with principal payments starting after the first anniversary. After one year the loan will pay off
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