June 28, 2020

The Government of Canada has launched the Canada Emergency Business Account (CEBA), which has been implemented by eligible financial institutions in cooperation with Export Development Canada (EDC).

This program provides interest-free loans of up to $40,000 to small businesses and not-for-profits, to help cover their operating costs during a period where their revenues have been temporarily reduced, due to the economic impacts of the COVID-19 virus.

Repaying the balance of the loan on or before December 31, 2022 will result in loan forgiveness of 25 percent (up to $10,000).

How to Apply

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

Eligibility requirements for the CEBA

  • The Borrower is a Canadian operating business in operation as of March 1, 2020.
  • The Borrower has a federal tax registration.
  • One of the following two criteria:
  • The Borrower’s total employment income paid in the 2019 calendar year was between Cdn.$20,000 and Cdn.$1,500,000, or
  • 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.

Which Borrowers are excluded from the CEBA

Per the requirements of the Program, as set out by the Government of Canada, the Borrower confirms that:

  1. It is not a government organization or body, or an entity wholly owned by a government organization or body;
  2. 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;
  3. It is not an entity owned by any Federal Member of Parliament or Senator;
  4. 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.

Restriction on use of the CEBA funds

The funds from this loan shall only be used by the Borrower to pay non-deferrable operating expenses of the Borrower including, without limitation, payroll, rent, utilities, insurance, property tax and regularly scheduled debt service, and may not be used to fund any payments or expenses such as prepayment/refinancing of existing indebtedness, payments of dividends, distributions and increases in management compensation.

Streams under which you can be Eligible for the CEBA

Payroll Stream: for businesses with total employment income paid to employees in 2019 greater than $20,000 and less than $1,500,000.

CEBA applications under the Payroll Stream will be completed directly through the financial institution in which your business holds its primary business chequing / operating account.

Once you will have completed your application, the Government of Canada will assess the application and inform your financial institution of the approval or decline of the loan. If approved, your Financial Institution will provide the funds into your business chequing / operating account.

Financial institutions provide application information to the Government of Canada to confirm eligibility. If successful, the Government of Canada will notify your financial institution and provide funding for your CEBA loan.

Non-Deferrable Expenses Stream: for businesses with total employment income paid to employees in 2019 of $20,000 or less and 2020 Eligible Non-Deferrable Expenses (subject to adjustments for support or subsidies under other Government of Canada COVID response programs) greater than $40,000 and less than $1,500,000.

CEBA applications under the 2020 Eligible Non-Deferrable Expenses Stream will follow a two-step process:

Step 1: Businesses will initiate applications directly at their primary financial institution where they hold their primary business chequing / operating account. The financial institution will then direct applicants to Step 2 of the application process.

Step 2: Following the initial application through your financial institution, applicants will be directed to a CEBA website to provide supporting documentation of the 2020 Eligible Non-Deferrable Expenses and to complete the application.

The Government of Canada will assess application information submitted via financial institutions in Step 1 together with the supporting documentation and information provided in Step 2. If successful, the Government of Canada will notify your financial institution and provide funding for your CEBA loan.

Documents needed for the Non-Deferrable Expenses Stream

For the non-deferrable expenses stream, 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 numberyou 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.

Eligible Non-Deferrable expense categories

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.

If applying through the Payroll Stream, what do you do if you have more than one Canada Revenue Agency (CRA) Payroll Program Account

Applicants should add together all 2019 T4SUM statements and compare that total amount against the CEBA eligible payroll range, which is a payroll amount greater than $20,000 and less than $1,500,000.

For example, a business with the following two payroll numbers would have a total payroll amount of $35,000, which is within the eligible range:

  • Payroll number 1 (…RP0001)
    • 2019 T4SUM = $15,000
  • Payroll number 2 (…RP0002)
    • 2019 T4SUM = $20,000
  • Total 2019 T4SUM = $35,000

What if you run more than one business

Each qualifying business must have a unique 9-digit Canada Revenue Agency (CRA) Business Number. Each qualifying business is limited to one CEBA loan.

What if you run your business out of a Personal Bank Account

Businesses which choose to do their banking through a personal bank account are not eligible to apply for a CEBA loan. Only Business chequing/operating accounts opened on or prior to March 1, 2020 and not in arrears on existing borrowing facilities, if applicable, with the Lender by 90 days or more as at March 1, 2020 are eligible for the CEBA Program.

How long will it take to process the application and when can you expect to receive funding

When the expanded eligibility criteria become effective, and once you have applied at your primary financial institution, uploaded all necessary supporting documents, and if pre-funding eligibility validation is successful, you should expect to receive funding within 10-15 business days.

The processing time starts when your application form and all required supporting documentation is received by the Government of Canada. Your application and supporting documentation must be properly completed to start the pre-funding eligibility validation process.

What do you do if your business is declined

All declined applicants will be notified directly by their financial institution, along with a reason for the decline. An applicant may re-apply if there is a need to provide additional information or make a correction.

The pre-funding eligibility validation is based on the criteria established by the Government of Canada. No organization involved in administering the CEBA program has the authority to grant exceptions, including your financial institution.

For further information and advice, please contact your KB advisor.

Disclaimer:  The COVID-19 Canadian tax policies in the above article are changing rapidly as the governments introduce new measures. Certain details have yet to be published. We will aim to update them as soon as they are available.