How Government Help Small Business – The program will now be available to a larger number of businesses that are sole proprietors who receive income directly from their business; Companies that rely on contractors; and family businesses that pay employees with dividends rather than wages.
Expenditures will be verified and audited by the Government of Canada. Financing is provided in cooperation with financial institutions.
How Government Help Small Business
More details, including the start 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 do business through their personal bank account instead of a business account, or who still need to file a tax return, such as start-ups.
The Government of Canada has provided US$25 billion to businesses across the country affected by the COVID-19 pandemic through the umbrella Business Credit Availability Program (BCAP). As part of the suite of BCAP financial assistance programs for businesses now being rolled out by the Government of Canada, the following two main streams of emergency business loans will open next week:
Eligible businesses can borrow up to $40,000 through the CEBA facility. A CEBA is a federally funded revolving line of credit available to all eligible businesses that apply online. The CEBA online application portal(s) is expected to go live this week. Expect announcements from all banks when the CEBA portal(s) open for applications.
Eligibility: CEBA funds will be available in 2019 to businesses with an annual payroll of $20,000 to $1,500,000. More details to follow.
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CEBA funds will be available to companies that paid an annual payroll of $50,000 to $1,000,000 in 2019. Insurance and utilities.
Revolving loan, then 5-year loan: CEBA will be a federally funded revolving line of credit until December 31, 2020. At the end of this calendar year, it will be converted into a 5-year loan that will expire 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 be paid on all outstanding balances at an annual rate of 5% per month, beginning January 1, 2023 for the remainder. three-year term until the end of 2025.
Repayment Term: The outstanding amount and applicable interest will mature and be paid in full by the end of 2025. There have been no comments or concessions regarding the outstanding amount at the end of 2025 at this time, so companies should carefully review the terms of the loan agreement. if they are concerned about that timeline, assuming commercial terms and prices apply then.
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25% loan forgiveness: Companies that repay 75% of the outstanding amount on or before the end of 2022 will have the remaining 25% of the loan amount forgiven. This is the most beneficial aspect of the CEBA program. For any business that borrows on its CEBA line of credit this year, the government will check the amount on January 1, 2021, which is the calculation date to determine the amount of any loan forgiveness. To be eligible for the 25% loan forgiveness, between then and December 31, 2022, the company must repay 75% of the balance on January 1, 2021. (ii) 25% of the balance on January 1, 2021. To be clear, companies, who do not borrow the full $40,000 will not have $10,000 forgiven, it will be a lower forgiveness amount equal to 25% of their total on January 1, 2021.
The repayment deadline for the loan forgiveness is the end of 2022. If 75% of the borrowed amount is not repaid before December 31, 2022, the company will not be eligible for forgiveness under the rules as we know them now. The details of eligibility for a pardon seem pretty binary at the moment; if 75% is not repaid before the end of 2022, it appears that there is no possibility of forgiveness, meaning that the full amount of principal and interest must be paid before the end of 2025 and the opportunity for forgiveness will be missed.
Due to the interest-free period and the conversion of the revolving line loan to a non-revolving loan at the end of this year, we expect that many companies intend to increase the amount of the borrowed amount by December 31, 2020 and intend to wait for the repayment of 75% as reasonably possible until December 31, 2022 and not before.
We recommend that you continue to monitor the details regarding this, which may change after this article is written. Business owners should check and be aware of the exact terms and conditions when applying and agree if the details change or become more nuanced during that time.
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Preparation for online application: CEBA applications are available online only. The officer or director of the company should schedule the online registration and application. This must be a person who is able to issue legal certificates for the company and is authorized to bind the company. It may be wise to ensure that your directors’ and officers’ documents are up to date if company profiles are made public by government officials through the Department of Lands. This person binds the company to the CEBA credit agreement. At the very least, make sure that the right director(s) and officer(s) are pre-authorized with your bank.
The Government of Canada advises that you will need a 2019 T4 Payment Summary Statement when you apply. Talk to your accountant or contact the CRA if you want to reissue this.
Flow of Funds: The concept of CEBA is that the Canadian government provides federally guaranteed interest-free working capital loans to small businesses, but releases the funds through banks. Your bank is in a good position to verify your business information and help protect against fraud. The Government of Canada makes CEBA funds available to banks so that banks can provide critical access to working capital during a crisis to businesses they know in each community. Without the CEBA program, applying for a new line of credit or loan from a bank would be time-consuming and impractical for many businesses during this period of major revenue stagnation.
By guaranteeing the loans and speeding up the timeline from application to approval, the Government of Canada has accelerated the process and assumed the risk of default in the interest of as many companies receiving CEBA funds as possible. A federal guarantee for each of these new credit facilities is a key element – something that has never been available to most private companies in Canada.
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Once approved, the funds available to your company will be deposited by your company’s primary bank. If you have an account with more than one bank, you must immediately designate your primary bank for CEBA purposes. All banks now recommend that customers applying for CEBA have online banking in place and up to date.
The Canadian government also announced a loan and guarantee program for SMEs that will be launched next week and will provide larger loans to businesses that need much more than $40,000 to survive. These are business loans backed by EDC and BDC. More details on the sub-streams of this program are available online daily through the Government of Canada, EDC and BDC websites, as well as major bank publications related to the SME Loans and Guarantees Program.
The SME Loans and Guarantees Program is designed to help larger SMEs maintain liquidity during this crisis period. If your business is interested in these programs, at this point it appears that you should work through your primary bank, although information is also available through your BDC and/or EDC representative if you currently work with an EDC or BDC or for new potential BDC customers. If you proceed through your primary bank, your bank will go back and forth with the initial information and contact the BDC and/or EDC to reconcile eligibility and amount. These capabilities are based on revenue recovery. They bear interest, have longer possible repayment periods and do not include the element of loan forgiveness (according to the applicable rules). We have heard from local banks that they also accept new clients for this purpose if you need a new primary bank to work with.
BDC Co-Lending Program. Through this sub-flow, the Business Development Bank of Canada (BDC) provides a guarantee to the company’s primary bank to lend a term loan to the company for operating cash flow needs. The BDC assumes 80% of the risk. The bank will assess, underwrite, approve and finance a qualified SME. The loan is charged only with interest for the first 12 months, and repayment of the principal begins on the first anniversary. After one year, the loan will be paid
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