CEBA Loans Summary for Ontario Based Businesses

What happens to CEBA repayment when corporation is shutting down?

If you took the CEBA Loan against your corporation, you shouldn’t worry about CRA or the Bank you got it through coming knocking on your door. Once your corporation has legitimately declared bankruptcy, and you have the records that show your CEBA Amount went to paying for lease/payroll or other non-deferrable business costs, there’s no problem for you. Your corporation didn’t survive a natural disaster and even CRA, atleast for now, can’t fight nature.

Are people personally liable for the CEBA loan despite being a corporation?

No, by default. If you had a business registered as a corporation, and you took the loan against that business, you are not personally liable for the losses. But if you had signed a personal guarantee with the bank from where you took this loan, it is plausible that they can use that guarantee to come after you for repayments. And if you had the business registered as sole-proprietorship, then too you better be careful. In all other cases, you have nothing to worry about.

Do you need to file for bankruptcy if your corporation has no assets now, just to write off CEBA loan?

No, you don’t need to file for bankruptcy just to write off the CEBA loan. Having said that, it is possible to file for bankruptcy even with no assets. It can stop all collection efforts made by the bank or the government, such as letters and phone calls to your home. So, the answer to this question mostly depends on you asking yourself “how far do I want to go to protect myself from the collection agents”.

What to do if my CEBA Loan was repaid before the deadline but the amount to be forgiven has still been converted into interest-accrued payment

Escalate the issue with your bank and the CRA, specifically the CRA. Write a letter to them explaining what has happened and what you thought would/should happen. Make sure you are heard, use the phone, or contact a liaison officer for Small Business Owners, a free service run by the government. If you qualified for the loan AND you made the payments before 18th January 2024, you could have been simply a victim of paperwork screwup by your local bank. In that case too, approach both CRA and the bank to get this resolved. If the CRA doesn’t give you a satisfactory answer, then you can use our CRA Dispute Resolution Service to get the CEBA Loan resolved, for good.

Statistics of CEBA Loans

1. The applications for CEBA Loan opened in April 2020 and closed in June 2021.
2. The loan offered initially was only for $40,000
3. The loan amount was targeted to be used by small businesses and non-profits to pay for non-deferrable business expenses (lease, payroll etc.)
4. An expansion was then offered enabling small businesses to receive $20,000 more in interest-free loans totally the amount of CEBA Loan to $60,000.
5. The loans were approved for 898,271 businesses, totalling $49.2 billion in federal assistance.
6. 40% of the applying businesses were based in Ontario.
7. The $20,000 received as a grant is considered taxable income.
8. Roughly 200,000 small businesses took on new debt to refinance their CEBA Loans, to access the forgivable portion of the loan.

Businesses have no option now but to repay the loans they owe the government by December 2026. After March 2024, if you took a CEBA loan, it falls into either one of the following 8 buckets. All names and stories below are personally concocted to elaborate how each scenario would roll out in real life.

Sole Proprietorship – Used Forgiveness Plan with $40K

Mark Hanson started his Spa&Salon business in January of 2020. His business was registered as a Sole Proprietorship. He leased the space for his staff to work in and begin operations. In March 2020, everything was closed due to lockdown. The money coming in halted, and he was about to let off staff when the Canadian Government came in to rescue, with the Canada Emergency Business Account (CEBA). He applied for the $40K from the loan program to keep paying the lease and the most-essential staff on Payroll.

The lockdown ended. He was able to restore the cashflow and used the Forgiveness Plan by the government to pay off $30K. 25% was written off by the forgiveness plan. He reported his $10K as revenue on his income statement for the year, and paid $2.5K of taxes on it (Tax Bracket: 25%) The first and perhaps the most simplest form of CEBA Loan ends here.

Sole-Proprietorship – No Forgiveness Used- Bankrupt

Roger Wayback started his Spa&Salon business in January of 2020. His business was registered as a Sole Proprietorship. In March 2020, everything was closed due to lockdown. The money coming in grinded to a halt and he was about to let off staff when he heard of the Canada Emergency Business Account (CEBA). He applied for the $40K from the loan program to keep paying the lease and the most-essential staff on Payroll. To cover more expenses being incurred as the lockdown stretched on and on, he got the expansion for $20K, now owing in total of $60K to the government by the end of 2022. The deadline was then moved to December 2023.

Post-COVID Consumer Market was never the same for Roger’s Spa&Salon. He however couldn’t let go of the staff that he was paying and wanted to keep the business operational, even if it was breaking even. The bank rejected his refinancing application. He then went back, dejected, and decided to ask his relatives. No one was affluent enough at the moment. He dissolved his business, cut his business credit cards in half, resigned as the director, and sold every asset on Facebook marketplace. That money was used to pay his employees payroll for the last month. The CRA came to his home asking for the loan payment. He was personally liable so they sold off his car and his beloved set of La-Z-Boy chairs to get the $60K back. He never expected CRA to be an aggressive lender but hy, that’s how it turned out to be! Roger’s Spa&Salon business ended this way.

Corporation – Used Forgiveness Plan with $60K

Bill Applegate started his Spa&Salon business in January of 2020. His business was incorporated as an LLC. He leased the space for his staff to work in and begin operations. In March 2020, everything was closed due to lockdown. The money coming in grinded to a halt and he was about to let off staff when he heard of the Canada Emergency Business Account (CEBA). He applied for the $40K from the loan program to keep paying the lease and the most-essential staff on Payroll. Bill then applied for an expansion for $20K that brought his total debt to $60K.

He was able to bounce back to his feet once the lockdown ended. His store became the centre of activity for middle-aged men on their evening trips back home. He used the CEBA Forgiveness Plan, paid 40K before December 2023 and 20K was written off as a taxable income. The CEBA Loan story for Bill Applegate ends here.

Corporation – Refinanced CEBA Loan using a Bank Loan

Kristy Evelynn started his Spa&Salon business in January of 2020. Her business was registered as a LLC. She leased the space for his staff to work in and begin operations. In March 2020, everything was closed due to lockdown. The money coming in grinded to a halt and he was about to let off staff when she heard of the Canada Emergency Business Account (CEBA). She applied for the $40K from the loan program to keep paying the lease and the most-essential staff on Payroll. Then she applied for the expansion that brought her total debt to $60K.

Kristy struggled to make ends meet after COVID ended. Her Salon was not populated even during the busy hours in the market and soon, she was losing money. CEBA Forgiveness deadline was looming on her head and even though the deadline was extended for another 18 days until January 18th, there was no way she could pay back $40K from the business income to the bank in lieu of CEBA Loan. Therefore, she went to the bank and got a refinancing loan. It had an 8.25% fixed-interest accrual on it. She was thus able to use the extended deadline and get into the forgiveness plan. Instead of owing 60K with 5% interest per year, now she owed her bank $40K with 8.25% interest. The bank did not ask for any co-signer for the loan. She’ll also pay the tax on $20K forgiven loan and that’s that for Kristy’s Spa&Salon.

Corporation – Refinanced CEBA Loan using an Independent Lender

Grove Turner started his Spa&Salon business in January of 2020. His business was registered as an LLC. He got $50K in loan from his bank as a seed money to and leased the space for his staff to work in and begin operations. In March 2020, everything was closed due to lockdown. The money coming in grinded to a halt and he was about to let off staff when he heard of the Canada Emergency Business Account (CEBA). He applied for the $40K from the loan program to keep paying the lease and the most-essential staff on Payroll. To cover more expenses being incurred as the lockdown stretched on and on, he got the expansion for $20K, now owing in total of $60K to the government and $50K to the bank. The deadline for CEBA Loan repayment was meanwhile moved to December 2023.

Post-COVID Consumer Market was never the same for Grove’s Spa&Salon. He however couldn’t let go of the staff that he was paying and wanted to keep the business operational, even if it was just not breaking even now. The bank, seeing he also had borrowed for the Seed money, rejected his refinancing application. He thus went to an independent lender, who was offering to refinance but on an interest of 20%. He took the loan of $40K from the lender and got his $20K CEBA Loan forgiveness. Now he owes the government nothing except taxes on the income he saved through CEBA Forgiveness Plan ($20K). His business is running as usual. The only worry he has is to make sure he pays off the Independent lender and the Bank as soon as possible.

Corporation – No Forgiveness Used

Peter Welland started his Spa&Salon business in January of 2020. His business was registered as an LLC. He got $50K in loan from his bank as a seed money to and leased the space for his staff to work in and begin operations. In March 2020, everything was closed due to lockdown. The money coming in grinded to a halt and he was about to let off staff when he heard of the Canada Emergency Business Account (CEBA). He applied for the $40K from the loan program to keep paying the lease and the most-essential staff on Payroll. To cover more expenses being incurred as the lockdown stretched on and on, he got the expansion for $20K, now owing in total of $60K to the government by the end of 2022. The deadline was then moved to December 2023.

Post-COVID Consumer Market was never the same for Peter’s Spa&Salon. He however couldn’t let go of the staff that he was paying and wanted to keep the business operational, even if it was not breaking even now. The bank, seeing he also had borrowed for the Seed money, rejected his refinancing application. He then went back, dejected, and decided to ask his relatives. No one was affluent enough at the moment. His original $60K was converted into a loan with 5% interest by Government and the CRA came knocking on his door every 1st of the month from then onwards (even though he never expected the government to be an aggressive lender). He pays them the monthly owed amount and is figuring out a way to return the bank’s $50K seed money. His business is up and running without using the CEBA Forgiveness plan.

Corporation – No Forgiveness Used -Declared Bankruptcy

Frizz Murray started his Spa&Salon business in January of 2020. His business was registered as an LLC. He got $50K in loan from his bank as seed money to and leased the space for his staff to work in and begin operations. In March 2020, everything was closed due to lockdown. The money coming in halted, and he was about to let off staff when he heard of the Canada Emergency Business Account (CEBA). He applied for the $40K from the loan program to keep paying the lease and the most-essential staff on Payroll. To cover more expenses being incurred as the lockdown stretched on and on, he got the expansion for $20K, now owing in total of $60K to the government by the end of 2022. The deadline was then moved to December 2023.

Post-COVID Consumer Market was never the same for Frizz’s Spa&Salon. He, however, couldn’t let go of the staff that he was paying and wanted to keep the business operational, even if it was not breaking even now. The bank, seeing he also had borrowed the Seed money, rejected his refinancing application. He then went back, dejected, and decided to ask his relatives. No one was affluent enough at the time He thus dissolved his business, cut his business credit cards in half, resigned as the director, and sold every asset on Facebook marketplace. That money was used to pay his employees’ payroll for the last month. The CRA came to his home asking for the loan payment but because he wasn’t personally liable, the CRA couldn’t take his personal belongings. The loan will now be paid (most probably) by the government to the bank. Spa&Salon for Frizz ended.

Corporation – Previous Loan with Personal Guarantee – Declared Bankruptcy

Professor Thunberg started his Spa&Salon business in January of 2020. His business was registered as an LLC. He got $50K in loan from his bank as seed money and signed a personal guarantee that he would be personally liable for this, and all future loans that he gets from the bank. Knowing that his business would be a huge success, he signed the paper without giving it a second thought. He leased the space for his staff to work in and begin operations. In March 2020, everything was closed due to lockdown. The money coming in halted, and he was about to let off staff when he heard of the Canada Emergency Business Account (CEBA). He applied for the $40K from the loan program to keep paying the lease and the most-essential staff on Payroll. To cover more expenses being incurred as the lockdown stretched on and on, he got the expansion for $20K, now owing in total of $60K to the government by the end of 2022. The deadline was then moved to December 2023.

Post-COVID Consumer Market was never the same for Thunberg’s Spa&Salon. He, however, couldn’t let go of the staff that he was paying and wanted to keep the business operational, even if it was breaking even now. The bank, seeing he also had borrowed the Seed money, rejected his refinancing application. He then went back, dejected, and decided to ask his relatives. No one was affluent enough at the time. He dissolved his business, cut his business credit cards in half, resigned as the director, and sold every asset on Facebook marketplace. That money was used to pay his employees’ payroll for the last month. The CRA came to his home asking for the loan payment but because he wasn’t personally liable, the CRA couldn’t harm his belongings. The bank could however come asking for payment because of the personal guarantee on the Seed money loan, which extends on to CEBA loan. Professor Thunberg’s Spa&Salon has potentially made him personally liable for all the losses.

Conclusion

The final word from Ottawa is clear, in that they want the money back by December 2026. Will it be collected by banks or by CRA directly? What happens to all the businesses that couldn’t find a viable market for them to succeed despite taking the CEBA Loans, and can’t pay the monthly installments? Will they be written off after December 2026? These are a few of the questions to be decided by the government, the banks and perhaps at some level by the people of Canada.