Many Canadian businesses have already applied for the Canada Emergency Business Account (CEBA) loan since applications began being accepted by the federal government on April 9, 2020. The CEBA loan was announced as a relief measure in response to the COVID-19 pandemic. The loan of up to $40,000 is interest free and up to 25% ($10,000) can be forgiven if repaid by December 31, 2022 provided that certain other conditions are met.
The eligibility criteria are intended to capture most Canadian small businesses (see additional details for eligibility criteria on our blog on Overview of COVID-19 Benefits and Other Relief Measures) and many small businesses have already begun to receive the funding.
For those businesses that have received or are expecting to receive CEBA funding, it will be important to keep in mind the restrictions that apply on use of CEBA funds. The criteria for use of CEBA funds specifically requires that the funds be used to fund non-deferrable operating costs of the businesess. It is important to know that the CEBA loan program may be subject to review by the government at a later date to ensure compliance, i.e. CRA Review or Audit. Businesses that are found to have not used the funding for eligible purposes may risk losing access to the 0% rate of interest or forgiveness components of the loan.
In order to ensure that your business is utilizing it’s CEBA funding for eligible purposes, keep in mind the following “Do’s” and “Don’ts” (this list may be expanded as additional information comes in):
- Do not use the funds to invest in a GIC, savings or trading accounts.
- Do not use the funds to loan money to someone else, including another company that you may own or control.
- Do not use the funds to pay additional dividends or additional management salary.
- Do not use the funds to re-finance or prepay an existing loan, i.e. make an extra payment.
- Do not use the funds to purchase capital property or assets.
It may not look good if the day or week after you receive the CEBA loan, you go out and purchase a new truck and pay cash…!
- Use the funds to pay regular operating expenses (Insurance, Utilities, Rent, Property Taxes, Waste Removal, etc.)
- Use the funds for regular payroll obligations and source deductions (in consideration of amounts that would normally have been paid before COVID-19).
- Use the funds for regular scheduled loan payments.