COVID-19 Crisis has posed an existential threat to small and medium-sized businesses in particular. Small businesses are seeing significantly lower revenues if not completely zero. The government has announced a series of benefits for small and medium businesses to help them through this crisis. There is a lot of confusion and misinformation going around the availability of loans for small businesses in Canada due to COVID-19.
We are not updating this post anymore. If you have any questions, your best source of information is your bank.
| Read: CEBA Loans and T4 Requirement
Many small businesses are facing cash flow issues and a severe liquidity crunch. Broadly, two major loan programs giving SMEs access to credit are explained below.
Canada Emergency Business Account
(a) What is Canada Emergency Business Account (CEBA)?
The government has announced Canada Emergency Business Account (CEBA). It is a loan guaranteed by the government of Canada.
Important features of Canada Emergency Business Account (CEBA) are:
- Instant access to a loan of $40,000
- One by fourth of this loan can be forgiven.
- CEBA loan is interest-free for the first year.
- CEBA will be a revolving line of credit until December 31, 2020
- Businesses can use CEBA loans to cover their operational costs, particularly payroll.
(b) Who are eligible to get Canada Emergency Business Account (CEBA) loan?
Businesses must demonstrate that their total payroll cost for 2019 was between $50,000 and $1 million.
Some of the common questions surrounding CEBA are:
- What is the payroll threshold for CEBA eligibility? A business must be having a payroll account with the Canada Revenue Agency (CRA). During 2019, the business must have paid wages and salaries between
$50,000 and $1 million.Updated payroll range for eligibility (April 16, 2020): businesses must have paid the payroll between $20,000 and $1.5million in 2019.
- I pay subcontractors and issue T4A, is my small business eligible to get CEBA loan? No, you are an eligible business only if you pay salaries and issue T4s.
- I pay myself a salary from my corporation, am I eligible for a CEBA loan? It depends! If you have paid yourself a salary and a total of this salary is more than $50,000, yes your business is eligible to get this line of credit. Note dividends are different from salary.
- I am a home-based business (unincorporated) and I made more than $50,000 in 2019, am I eligible to get this business loan? No, you are self-employed. Self-employment income is not a payroll cost. If you have employees and you meet the payroll threshold, you are eligible.
- How to check what is the total payroll for our business in 2019? You can check it on T4 Information return for 2019 and look for Box 14.
(c) Are CEBA loans interest-free for small businesses?
Yes, CEBA loans are interest-free until January 1, 2023. You need to contact your bank.
(d) How can I get $10,000 waiver on CEBA loans?
25% of the loan can be waived off. If the loan is paid off by Dec 31, 2022, there is no interest and 25% will be waived off. (Date might change as a result of new rules, please always check).
(e) How can I apply for Canada Emergency Business Account?
You need to get in touch with your financial institutions. Your bank is the best place to contact.
Other Credit Options to Small businesses due to COVID-19 Crisis
Payroll condition has made access to CEBA difficult for businesses such as owner-managers and self-employed. There are other programs that the government has announced. BDC and EDC are both working with financial institutions to provide credit to small businesses. Details can be found here.
How can you get more information?
Please contact your bank and ask for the information.
The above post is an attempt to simplify it for the general public and we do not provide any kind of consultation and advice on this specific topic.
Do you need a business plan or financial projections to get loan from your bank? Are you behind your corporate income tax filings and need to file back taxes? Contact us and let us help you!
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