The financial burdens which the COVID-19 pandemic put upon Canadians was especially felt by Canadian businesses and their owners. The unprecedented level of decreased revenue led many business owners to consider the stark possibility of closing for good when the most basic of expenses and employee wages suddenly became unmanageable.
To address these effects on the cash flow of small businesses, the Canadian government began instituting financial relief programs. The Canada Emergency Business Account (CEBA) was one such program designed to alleviate economic tension.
If you are a CEBA loan holder, then you likely enjoyed the much-needed benefits of the program during the pandemic’s difficult economic climate. However, the deadline to repay the principal and any interest charges incurred is quickly approaching.
Developing a CEBA Repayment Plan
It is wise to build a repayment plan as soon as possible, especially if you’re not completely confident in your understanding of your CEBA loan’s conditions. A repayment plan is especially crucial if you borrowed an amount approaching the upper limit of $60,000.
Repayment of the loan is required in full by December 31, 2023 (this deadline was extended beyond the initial deadline of December 31, 2022). Within the updated 2023 deadline, your repayment won’t accrue any interest so your payment strategy can be somewhat flexible. There’s also no prepayment deadline, whether you pay back the principal in-full or in-part. As we approach the deadline, you can align your repayment strategy with your cash flow and budget.
Finding the Money to Meet the December 31, 2023 Deadline
The harsh reality of today’s economic climate is that many businesses still don’t have the means to pay their CEBA loan by the end of the year. Factoring is a great solution for businesses who fall into this category. At J D Factors, we offer these businesses our factoring services in which a percentage of each invoice factored is kept in reserve until there is enough to pay back the CEBA loan by the December 31, 2023, deadline. The advantage of meeting this CEBA deadline is that your company can keep the forgiveness portion of the loan (see details below).
It is important to note that the terms of CEBA will change following the December 31, 2023, deadline. The terms of repaying CEBA after the December 2023 deadline should be considered when deciding when to repay the CEBA loan.
Repayment After the Deadline
After the December 31, 2023, deadline, the CEBA loan becomes a two-year loan and begins accruing interest at a rate of 5% on January 1, 2024 (the interest must be paid monthly). The principal of the loan must be repaid in full by December 31, 2025. If this is still impossible for you, then it is in your best interest to evaluate your eligibility for loan forgiveness.
CEBA Loan Forgiveness
If you borrowed less than the initial maximum loan amount of $40,000, you are eligible to claim 25% of the loan as forgiveness. If the economic conditions of the pandemic caused you to borrow more than $40,000 and up to the maximum of $60,000 then you can claim 25% of the initial $40,000 as forgiveness and 50% on the additional amount. To guarantee qualification for loan forgiveness, 75% of the initial loan and 50% of the subsequent amount must be repaid by the December 31, 2023, deadline. If you do qualify, the maximum forgivable amount for borrowing the full $60,000 limit is $20,000.
Healthy Cash Flow, Healthy Repayment Strategy
To avoid further financial stress associated with the repercussions of COVID-19 and the CEBA loan, it may be wise to add invoice factoring to your strategy. Factoring will help you maintain a healthy cash flow so that you can draft a CEBA repayment plan with less anxiety. An invoice factoring company can pay any of your invoices immediately and collect payment from your clients later. With a steady cash flow, you’ll be better able to save for repayment or make monthly interest payments. Learn more about J D factors to see how invoice factoring can help you repay your loans.