The revised application process became available today for the expanded CEBA loan program initially announced in May. The initial loan eligibility criteria was restricted to businesses with payroll between $20,000 and $1,500,000 in 2019 and many businesses have already accessed the $40,000 interest-free, partially forgivable loan through their main banking partner. Businesses that remunerate their employees and owners by means other than salary (such as dividends, contract fees or self-employment income) were not able to access the program as initially announced. Now, the program has been revised to provide an alternative eligibility method that will potentially allow businesses with 2019 payroll expenses of $20,000 or less to qualify for the same attractive loan.
Unfortunately, the revised eligibility criteria require a more detailed look at the other expenses incurred by the business and only certain expenses are being counted. We have attempted to distill the expanded CEBA information below, please review closely to determine if your business might now qualify for this beneficial program. Click here for the official government website https://ceba-cuec.ca/
In order for a business (the Borrower) with $20,000 or less of 2019 payroll to qualify, they will need to demonstrate having net “eligible non-deferrable expenses” (ENDE) of $40,000 to $1,500,000 in 2020. The application process begins at the Borrower’s bank, and funding occurs when the Borrower provides additional information and acceptable documentation for the ENDE to the Government. The “acceptable documentation” listed on the CEBA website are “electronic/paper copies of Receipts/Invoice/Agreements” that support the 2020 ENDE and hopefully more clarity will be released in the future.
The ENDE listed on the CEBA website, and mirrored on the bank applications we have seen, are:
- Wages and other employment expenses to independent (arm’s length) third parties – this appears to exclude any wages or salaries paid to the owner or their close relatives (parents, kids, siblings, spouses) and does not include increased management compensation;
- 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 – we believe this means both interest and principal payments on loans previously scheduled for repayment, but cannot be sure as it is not defined. Prepayment/refinancing of debts not previously scheduled would NOT qualify;
- 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 – the use of the word “independent” for contractors mirrors the wording for wages, so we believe this also excludes amounts paid to the owner or their close relatives.
These are the only expenses eligible at this time under the revised criteria, so businesses that do not have significant expenses in these categories will likely not be eligible for the CEBA loan. The time period for these expenses appears to be all of 2020, so if sufficient expenses can be supported now then the entire $40,000 loan funding may be received in the short term. However, additional ENDE that are incurred in the remaining months of 2020 can also be submitted to reach the $40,000 threshold of supported expenses.
In the calculation of the $40,000 to $1,500,000 thresholds, the total of the ENDE above will be reduced by the amounts of any support received, or expected to be received, under the Government of Canada COVID support programs to arrive at the “net” amount. The listing of these programs are:
- Canada Emergency Wage Subsidy,
- 10% Temporary Wage Subsidy,
- Canada Emergency Commercial Rent Assistance, Regional Relief and Recovery Fund,
- Futurpreneur Canada,
- Northern Business Relief Fund,
- Fish Harvester Grant,
- Relief measures for Indigenous businesses, and
- $250 million COVID-19 IRAP (Industrial Research Assistance Program) Subsidy Program
The total amount of the ENDE for 2020 less any amounts under these support programs must be between $40,000 and $1,500,000 to be eligible for the CEBA loan. Any Borrowed funds received must be used for payment of the ENDE of the business and for payment of other non-deferrable operating expenses (even though only the ENDE amounts are eligible to qualify for the CEBA loan).
Other eligibility criteria that must be met under that expanded CEBA criteria that have not changed from the original are:
- Borrower was a Canadian operating business at March 1, 2020 with a federal tax registration
- Borrower had an active business chequing/operating account with the bank it applies at, open prior to March 1, 2020 and not in arrears by 90 days or more on existing borrowing
- Borrower can only apply once
- Borrower acknowledges that it intends to continue, or resume, its business operations
- Borrower agrees to participate in post-funding surveys
- Certain Borrowers are excluded – government organization; entities owned by Federal MPs or Senators; non-profits, charities, unions and fraternal orders and entities owned by them, unless the entity carried on an active business in Canada; and organizations that promote hate, violence or discrimination.
Hopefully, this expanded criteria will allow more businesses to qualify for the CEBA program and help them through the COVID crisis. For businesses that still do not qualify under these expended criteria, the Regional Recovery and Relief Program may be another avenue to explore for support. We had previously emailed information on that program on May 15th, or information is available here from Western Economic Diversification (https://www.wd-deo.gc.ca/eng/20059.asp).