As part of the Government of Canada’s response to the COVID-19 pandemic, the CEBA program was introduced to provide interest-free loans of up to $40,000 to eligible businesses and non-profit organizations. The CEBA funds are intended to be used to pay for non-deferrable operating expenses including payroll, rent, utilities, insurance, property tax and regularly scheduled debt payments. In addition, provided that 75% of this loan is repaid on or before December 31, 2022, the business may receive loan forgiveness of 25% (i.e.: up to $10,000).

On December 4, 2020, the Department of Finance announced that CEBA loans for eligible businesses facing financial hardship as result of the COVID-19 pandemic would increase from $40,000 to $60,000. Up to 33% (i.e.: $20,000) of this loan will be forgivable if the balance (i.e.: $40,000) is repaid on or before December 31, 2022.

Applicants who have already received the $40,000 CEBA loan may also apply for the $20,000 expansion. In this case, the original terms of the debt forgiveness have changed. Specifically, repaying the outstanding balance of the loan (other than the amount available to be forgiven) on or before December 31, 2022 will result in a single tranche of loan forgiveness up to $20,000 based on a blended rate determined as:

• 25% on the first $40,000; and

• 50% on amounts above $40,000 and up to $60,000.

Therefore, the portion of forgiveness based on the rate of 25% and the portion of forgiveness based on the rate of 50% are combined into a single tranche of forgiveness, which is only available if all other amounts outstanding are repaid by December 31, 2022. Accordingly, if both the $40,000 and $20,000 are borrowed separately, no forgiveness will be available unless a total of $40,000 is repaid by December 31, 2022.

The application for the $20,000 expansion will include a new attestation to certify that the business is facing ongoing financial hardship as a result of the COVID-19 pandemic, intends to continue to operate and has made all reasonable efforts to reduce its costs and to otherwise adapt its business. In addition, the application may include more a more restrictive definition of “eligible non-deferrable expenses”.

Existing applicants should review the new CEBA loan application and attestation form for the $20,000 expansion provided by their financial institution carefully. Since this is a banking document, each financial institution has drafted their own attestation form and they are all slightly different. This new certification may have the impact of revising the terms of the original loan agreement, which could put the organization offside with the eligibility requirements.

All applicants now have until March 31, 2021 to apply for the $60,000 CEBA loan or the $20,000 expansion.

For more information, please visit the Government of Canada CEBA website.

Please contact your Shimmerman Penn advisor for further guidance and to discuss your particular situation.