At this point in 2020, it is likely that most businesses have either heard of the CEBA benefit, taken advantage of it or are in the process of completing their applications.
In April of this year, the Canadian Government announced that the Canada Emergency Business Account (also known as CEBA) would be available to support businesses by providing financing for their expenses that cannot be avoided or deferred during the shutdown caused by COVID-19. Many businesses applied for the $40,000 interest-free loans and were delighted to learn up to 25% ($10,000) could be forgiven if the loan were repaid in full by December 31st, 2022.
According to CRA’s website, your financial institution will be notified of whether your organization was approved or denied when your application is assessed. If you were approved to receive the funding, your bank or financial institution would move the funds into your operating account. Some banks were concerned about their client’s lending room and helped them set up a line of credit to put the $40,000 CEBA benefit on. This benefit allows businesses to hold the funds in reserve if they did not immediately need to draw from it.
It all sounds straight forward and simple. You apply, and the money arrives in your account; then, you use it when required. That is until we read the fine print. According to CRA, to qualify for the 25% loan forgiveness, the funds must go into your operating account by December 31, 2020 (note that if you were only to draw $10,000 on the LOC by this date, you would only be eligible for $2,500 in debt forgiveness). If the funds do not hit your chequing or operating account, you technically have not received the funds and may not be eligible for the loan forgiveness.
If your business has received the CEBA and are concerned you may be facing this situation; we invite you to contact an accountant directly or speak with your bank for clarification.