The Canada Emergency Business Account (CEBA)

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On April 9, 2020, the Government announced the Canada Emergency Business Account (“CEBA”).  The CEBA provides zero-interest, partially forgivable loans of up to $40,000 to small businesses that have experienced diminished revenues due to COVID-19 but face ongoing non-deferrable costs, such as rent, utilities, insurance, taxes and employment costs.  If the balance of the loan is repaid on or before December 31, 2022, 25 percent of the loan will be forgiven (i.e. up to $10,000).

When first launched, the CEBA was available to businesses with 2019 payroll between $50,000 and $1 million. The government then expanded the eligibility parameters of the program, by increasing the payroll eligibility range to between $20,000 and $1.5 million.  However, because eligibility was based on 2019 payroll, many business were not able to qualify for the CEBA (e.g. new businesses, owner-managed businesses that pay dividends instead of salary, etc.).   On May 19, 2020, Prime Minister Trudeau announced that new eligibility criteria would be introduced to allow more business to participate in the CEBA program.

“If you are the sole owner-operator of a business, if your business relies on contractors, or if you have a family-owned business and you pay employees through dividends, you will now qualify.”

On June 15, 2020, the Minister of Finance announced that applications for the CEBA under the expanded eligibility criteria would be accepted starting June 19, 2020. 

EXPANDED ELIGIBILITY CRITERIA

The expanded eligibility criteria are as follows:

  • The Borrower is a Canadian operating business in operation as of March 1, 2020.

  • The Borrower has a federal tax registration.

  • The Borrower’s total employment income paid in the 2019 calendar year was between Cdn.$20,000 and Cdn.$1,500,000.

  • For applicants with Cdn.$20,000 or less in total employment income paid in the 2019 calendar year:

    • The Borrower has a Canada Revenue Agency business number and has filed a 2018 or 2019 tax return.

    • The Borrower has eligible non-deferrable expenses between Cdn.$40,000 and Cdn.$1,500,000. Eligible non-deferrable expenses could include costs such as rent, property taxes, utilities, and insurance. Expenses will be subject to verification and audit by the Government of Canada.

  • The Borrower has an active business chequing/operating account with the Lender, which is its primary financial institution. This account was opened on or prior to March 1, 2020 and was not in arrears on existing borrowing facilities, if applicable, with the Lender by 90 days or more as at March 1, 2020.

  • The Borrower has not previously used the Program and will not apply for support under the Program at any other financial institution.

  • The Borrower acknowledges its intention to continue to operate its business or to resume operations.

  • The Borrower agrees to participate in post-funding surveys conducted by the Government of Canada or any of its agents.

It is not clear over what time period the borrower’s eligible non-deferable expenses are to be measured.  Eligibility under the payroll stream is based on calendar 2019 payroll, so maybe eligibility under the ENDE stream is also based on calendar 2019 expenses.   

It appears that if a business has eligible non-deferrable expenses in excess of $1.5M that they are not a small business and are not eligible for the program.  This is not explicitly stated anywhere, but the program is intended for small businesses.

Note that there is no legislation (draft or otherwise) for the CEBA yet ,and there is no guidance on these issues.

BUSINESSES EXCLUDED FROM THE CEBA

Certain businesses / organization are not eligible for the CEBA.  Per the requirements of the Program, as set out by the Government of Canada, the Borrower must confirm that:

  • It is not a government organization or body, or an entity wholly owned by a government organization or body;

  • It is not a non-profit organization, registered charity, union, or a fraternal benefit society or order, or an entity owned by such an organization, unless the entity is actively carrying on a business in Canada (including a related business in the case of a registered charity) that earns revenue from the regular supply of property/goods or services;

  • It is not an entity owned by any Federal Member of Parliament or Senator;

  • It does not promote violence, incite hatred or discriminate on the basis of sex, gender identity or expression, sexual orientation, colour, race, ethnic or national origin, religion, age, or mental or physical disability, contrary to applicable laws.

ELIGIBLE NON-DEFERRABLE EXPENSES

The Eligible Non-Deferrable Expense categories are the following:

  • Wages and other employment expenses to independent (arm’s length) third parties;

  • Rent or lease payments for real estate used for business purposes;

  • Rent or lease payments for capital equipment used for business purposes;

  • Payments incurred for insurance related costs;

  • Payments incurred for property taxes;

  • Payments incurred for business purposes for telephone and utilities in the form of gas, oil, electricity, water and internet;

  • Payments for regularly scheduled debt service;

  • Payments incurred under agreements with independent contractors and fees required in order to maintain licenses, authorizations or permissions necessary to conduct business by the Borrower.

APPLYING FOR THE CEBA

Small businesses and not-for-profits should contact their financial institution to apply for these loans.

Once the expanded eligibility criteria become effective, you will need three main pieces of information to complete the application:

  • The name of the financial institution where you submitted your application; and

  • Your 9-digit business number (same number you used in your application with your financial institution); and

  • Electronic or paper copies of Receipts / Invoices / Agreements to be uploaded as evidence of your 2020 Eligible Non-Deferrable Expenses.