Regularly Scheduled Debt Service

The expanded CEBA loan program, which was first announced in May, now has a revised application process. Many businesses have already accessed the $40,000 interest-free, partially forgivable loan through their main banking partner, which was initially restricted to businesses with payroll between $20,000 and $1,500,000 in 2019. Businesses that pay dividends, contract fees, or self-employment income to their employees and owners were unable to participate in the program when it was first announced. Now, the program has been updated to include an alternative eligibility method that could allow businesses with payroll expenses of $20,000 or less in 2019 to qualify for the same low-interest loan.

Regularly Scheduled Debt Service

Regrettably, the revised eligibility criteria necessitate a more thorough examination of the business's other expenses, and only certain expenses are counted. We've attempted to condense the expanded CEBA information below; please read it carefully to see if your company now qualifies for this valuable program. The official government website can be found at https://ceba-cuec.ca/.

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To qualify, a company (the Borrower) with payroll of $20,000 or less in 2019 must show that it will have net "eligible non-deferrable expenses" (ENDE) of $40,000 to $1,500,000 in 2020. The Borrower's bank initiates the application process, and funding occurs once the Borrower provides the Government with additional information and acceptable documentation for the ENDE. "Electronic/paper copies of Receipts/Invoices/Agreements" that support the 2020 ENDE are listed on the CEBA website as "acceptable documentation," and hopefully more clarity will be released in the future.

The following are the ENDEs listed on the CEBA website and mirrored on bank applications we've seen:

  1. Wages and other employment expenses paid to independent (arm's length) third parties – this appears to exclude wages or salaries paid to the owner or close relatives (parents, children, siblings, spouses) and does not include increased management compensation;
  2. Rent or lease payments for real estate used for business purposes; \sRent or lease payments for capital equipment used for business purposes;
  3. Payments made to cover insurance-related expenses;
  4. Payments made to cover the cost of property taxes;
  5. Payments for telephone and utilities (gas, oil, electricity, water, and internet) incurred for business purposes;
  6. Payments for regularly scheduled debt service – we believe this includes interest and principal payments on loans that were previously scheduled for repayment, but we can't be certain because the term isn't defined. Prepayment/refinancing of debts that have not been scheduled previously do not qualify;
  7. Payments made under agreements with independent contractors, as well as fees paid to maintain licenses, authorizations, or permissions required for the Borrower to conduct business – because the word "independent" for contractors is similar to the wording for wages, we believe this also excludes amounts paid to the owner or their close relatives.

These are the only expenses eligible under the revised criteria at this time, so businesses without significant expenses in these categories are unlikely to qualify for a CEBA loan. The time period for these expenses appears to be the entire year of 2020, so if enough expenses can be supported now, the entire $40,000 loan funding could be received in the near future. Additional ENDE incurred in the remaining months of 2020, however, can be submitted to reach the $40,000 supported expense threshold.

  1. The total of the ENDE above will be reduced by the amounts of any support received, or expected to receive, under the Government of Canada COVID support programs to arrive at the "net" amount when calculating the $40,000 to $1,500,000 thresholds. The following is a list of these programs:
  2. Emergency Wage Subsidy in Canada.
  3. Temporary Wage Subsidy of 10%.
  4. Canada's Regional Relief and Emergency Commercial Rent Assistance
  5. Fund for Reconstruction.
  6. Canada's Futurpreneur.
  7. Northern Business Relief Fund is a non-profit organization that helps small businesses in the
  8. Grant for fish harvesters.
  9. Indigenous business relief measures and a $250 million COVID-19 IRAP (Industrial Research Assistance Program) Subsidy Program.
To be eligible for the CEBA loan, the total amount of the ENDE for 2020, less any amounts under these support programs, must be between $40,000 and $1,500,000.

Any borrowed funds must be used to pay the ENDE of the business as well as other non-deferred operating expenses (even though only the ENDE amounts are eligible to qualify for the CEBA loan).

Other eligibility criteria that must be met under the expanded CEBA criteria, which have not changed from the original, are as follows:

  1. Borrower was a Canadian operating business with a federal tax registration on March 1, 2020.
  2. Borrower had an active business chequing/operating account with the bank to which he or she applies, open prior to March 1, 2020, and was not 90 days or more in arrears on existing borrowing.
  3. Borrower may apply only after confirming that it intends to continue or resume its business operations.
  4. The borrower agrees to take part in post-funding surveys.
  5. Government organizations, entities owned by Federal MPs or Senators, non-profits, charities, unions, and fraternal orders, and entities owned by them, unless the entity carried on an active business in Canada, and organizations that promote hate, violence, or discrimination are all barred from borrowing.
Hopefully, the expanded criteria will allow more businesses to qualify for the CEBA program, thereby assisting them in overcoming the COVID crisis. For businesses that do not meet these expanded criteria, the Regional Recovery and Relief Program may be another option for assistance. We previously emailed information about that program on May 15th, and it is also available from Western Economic Diversification.
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