Small Business Start Up Government Loans – The program will now be available to more businesses that are sole proprietors and receive income directly from their business; enterprises owned by contractors; and family-owned corporations that pay employees through dividends rather than wages.
Expenditures are subject to review and audit by the Government of Canada. Funding will be provided in partnership with financial institutions.
Small Business Start Up Government Loans
More details, including the launch date for applications under the new criteria, will be available in the coming days.
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Our government will continue to work on solutions to help business owners and entrepreneurs who operate through a personal bank account rather than a business account, or who have not yet filed a tax return, such as start-ups.
The Government of Canada has made available $25 billion to businesses across the country affected by the COVID-19 pandemic through the Business Credit Umbrella Program (BCAP). As part of the BCAP package of 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. CEBA is a federally funded revolving line of credit available to every eligible business that applies online. The CEBA online application portal(s) is expected to go live next week. Expect postings from all banks as soon as the CEBA portal(s) open for applications.
Eligibility: CEBA funds will be available to businesses that paid an annual payroll between $20,000 and $1,500,000 in 2019. More detailed information.
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CEBA funds will be available to businesses that paid between $50,000 and $1,000,000 in annual payroll in 2019. Currently, publicly available information indicates that these funds are intended to cover non-delayed expenses such as wages, rent, insurance and utilities.
Revolving loan, then 5-year loan: The CEBA will be a federally funded revolving line of credit until December 31, 2020. At the end of this calendar year, it will convert to a 5-year loan with a maturity date of late 2025.
Interest Free Period, then 5% Interest: No interest is payable in 2020, 2021 and 2022. Interest will begin to accrue on any outstanding balance at an annual rate of 5%, monthly, beginning January 1, 2023, for the remainder of the three-year term through the end of 2025.
Maturity: The outstanding debt and applicable interest are due and payable in full at the end of 2025. At this time, no comments or concessions have been made regarding the amounts outstanding at the end of 2025, so businesses should carefully review the with the terms of the loan agreement. if they are concerned about this term and assume that the commercial terms and rates at that time will apply.
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25% Loan Forgiveness: Companies that repay 75% of their debt on or before the end of 2022 will have the remaining 25% of their loan forgiven. This is the most beneficial aspect of the CEBA program. For each business borrowing a CEBA line of credit this year, the government will look at the amount owed on January 1, 2021, which is the calculation date to determine the amount of potential loan forgiveness. In order to qualify for the 25% loan forgiveness, the company must repay 75% of the amount on January 1, 2021 between then and December 31, 2022. The maximum amount that will be forgiven will be the greater of (i) $10,000 or (ii) 25% of the balance on 1 January 2021. To be clear, businesses that do not borrow the full $40,000 will not be forgiven $10,000, it will be a lesser forgiven amount equal to 25% of their Total as of January 1, 2021.
The loan forgiveness deadline is the end of 2022. If 75% of the loan is not repaid by December 31, 2022, the business will not be eligible for forgiveness under the rules as we know them now. The details surrounding the right to pardon currently seem rather binary; if 75% is not repaid by the end of 2022, it appears that there will be no opportunity for forgiveness, meaning that the entire amount of principal and interest will have to be paid by the end of 2025, and the opportunity for forgiveness will be lost.
Given the interest-free period and the transition from revolving to non-revolving at the end of this year, we expect that many businesses plan to maximize the amount borrowed by December 31, 2020, and plan to wait to repay 75% as close to December 31, 2022 as possible. and not before.
We encourage you to continue to monitor the details in this regard, which may change after the writing of this article. Business owners should review and remember the exact terms and conditions at the time of application and approval in case the details change from there or are more nuanced.
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Preparation for Online Application: CEBA applications will be available online only. An officer or director of the company must schedule the registration and submit the application online. This must be a person capable of providing legal evidence for the business and authorized to make commitments. It may be wise to ensure that your directors and officers’ documents are up to date in case government officials refer to the corporate profiles available through the provincial ministry. This person will link the company to the CEBA line of credit agreement. At a minimum, ensure that your bank has the correct director(s) and officer(s) authorized in advance.
The Government of Canada advises that you will need a T4 Summary of Remuneration Paid for 2019 when you apply. Talk to your accountant or contact the CRA if you need a re-clearance.
Fund Flow: The tentative concept of CEBA is that the Government of Canada would provide interest-free, federally guaranteed working capital loans to small businesses, but would disburse the funds through banks. Your bank is well equipped to verify your business information and protect against fraud. The Government of Canada provides CEBA funds to banks so that banks can provide businesses they know in every community with critical access to working capital during a crisis. Without the CEBA program, applying for a new line of credit or bank loan would be time-consuming and useless for many businesses during this period of significant revenue suspension.
By guaranteeing the loans and speeding up the time from application to approval, the Government of Canada has accelerated the process and assumed the risk of default in the interests of as many businesses as possible receiving CEBA funds. The federal guarantee of each of these new lending institutions is a critical element – something that has never been available to most private companies in Canada.
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Once approved, the funds available for your business will be routed through your business’s primary bank. If you have accounts with more than one bank, you should immediately identify your primary bank for CEBA purposes. All banks now recommend that CEBA applicant customers have online banking arrangements in place and up to date.
The Canadian government also announced the launch of the Small and Medium Business Loan and Guarantee Program next week, which will make larger loans available to businesses that need well over $40,000 to survive. These are business loans that will be backed by EDCs and BDCs. More information about the sub-streams of this program is available online daily through the Government of Canada, EDC and BDC websites, as well as in publications from major banks that refer to the SME Loan and Guarantee Program.
The SME Loan and Guarantee Program is designed to help large SMEs maintain liquidity during this crisis period. If your company is interested in these programs, currently all indications are that you should work through your primary bank, although information can also be obtained through BDC and/or EDC representatives if you are currently working with an EDC or BDC or for new potential clients. BDC. When going through your primary bank, your bank will send the initial information back and forth and contact the BDC and/or EDC to coordinate eligibility and amounts. These facilities are designed to return revenue. They are interest-bearing, have longer potential repayment terms and do not include a loan forgiveness element (as per current regulations). We hear from local banks that they are also accepting 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) will provide a guarantee to the main business bank to jointly provide a term loan to the business to meet its operating cash flow requirements. The BDC will assume 80% of the risk. The Bank will evaluate, guarantee, approve and finance qualifying SMEs. The interest on the loan will be only during the first 12 months, repayment of the principal debt begins after the first anniversary. After a year, the loan will be brought
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