CKL BUSINESS OWNERS - HELP AND TIPS TO GET YOUR NEW $40,000 INTEREST-FREE LINE OF CREDIT FROM YOUR BANK - WHAT YOU NEED TO KNOW

Small-and-medium-sized business owners in the City of Kawartha Lakes – an update:

THE CANADA EMERGENCY BUSINESS ACCOUNT (“CEBA”) – A $40,000 OPERATING LINE OF CREDIT:

Eligible businesses will receive a $40,000 line of credit loan for immediate financial support to cover short term operating expenses, payroll and other non-deferrable expenses which are critical to sustain business continuity.

Additional information:

  • it’s a $40,000 government‑guaranteed loan to help eligible businesses pay for operating expenses, payroll and other non-deferrable expenses which are critical to sustain business continuity;
  • until December 31, 2020, the CEBA will be funded as a revolving line of credit for $40,000;
  • after December 31, 2020, any outstanding balance on the revolving $40,000 line of credit will be converted into a non-revolving 5‑year term loan maturing on December 31, 2025, at which time the balance must be paid in full;
  • no interest applies until January 1, 2023;
  • beginning on January 1, 2023, interest accrues on the balance of the term loan at the rate of 5% per annum, payable monthly on the last day of each month;
  • if you pay 75% of the balance of the term loan (as at January 1, 2021), on or before December 31, 2022, the remaining balance of your term loan will be forgiven. For example, if your balance is $40,000 on January 1, 2021 and you repay $30,000 on or before December 31, 2022, the remaining $10,000 will be forgiven; and
  • if you do not repay 75% of the balance of the term loan (as at January 1, 2021) on or before December 31, 2022, the full loan balance and all accrued and unpaid interest will be due and payable on December 31, 2025.

TO QUALIFY FOR CEBA:

To enroll for CEBA through a specific bank:

  • that bank will need to be your primary financial institution; and
  • you will need a business deposit account with that bank.  

To qualify:

  • your business is a registered and operational business on or before March 1, 2020;
  • the person enrolling for the CEBA must have the ability and authority to bind the organization/business;
  • your payroll expense is between $50,000 and $1 million - to confirm this, you will be required to provide the following information:
    • your employer account number, as reported at the top of your 2019 T4 Summary of Remuneration Paid;
    • your employment income reported in Box 14 of your 2019 T4 Summary of Remuneration Paid; and
    • a copy of your 2019 T4 Summary of Remuneration Paid, if requested.
  • you will also need to agree to use funds from this loan to pay for operating costs that cannot be deferred, such as payroll, rent, utilities, insurance, debt payments and property tax.

Note:

The payroll expense above does not appear to restrict pay to the owner(s) of the business, such as wages, dividends, etc. Accordingly, it appears that not only employees, but owners, who are also employees, or who also act as employees, too, may be included to calculate the annual payroll expense. 

Note:

Sole proprietors do not qualify for CEBA. The banks will not facilitate CEBA for an individual; it is only available to business clients who have been a registered operation on or before March 1, 2020 with a business operating account.

More information for sole proprietors (individuals) and additional relief measures can be found here: https://www.canada.ca/en/department-finance/economic-response-plan.html.

ENROLLMENT FOR CEBA:

Your bank will likely require that you enroll online only.

The banks are attempting to accept online enrollments starting in the week of April 6, 2020.

Ask your bank to notify you when online enrollment is available.

You cannot enroll for the CEBA at more than one bank. Businesses must enroll for the CEBA at their primary financial institution, where they have an existing business banking account and cannot apply at more than one financial institution. Doing so may result in legal prosecution by the federal government.

PREPARING FOR YOUR ENROLLMENT:

To prepare for enrolling, you should:

  • update your email and contact information with your bank, which you could do online, if possible; and
  • find your 2019 T4 Summary of Remuneration Paid statement, which you can obtain from the Canada Revenue Agency, if necessary.  

WHEN THE LOANS WILL BE AVAILABLE TO YOU:

This remains uncertain, mostly because it depends on your bank’s ability to process your enrollment and open your revolving line of credit.

Enrollment is likely to be online only, so you should regularly check with your bank for when online application becomes available.

Your bank will contact you when your enrollment process is live. 

MULTIPLE BUSINESSES:

If you own or operate multiples businesses, each business entity may enroll for CEBA.

Each business must individually meet the eligibility criteria.

MULTIPLE OWNERS OF THE BUSINESS:

You must ensure that the person enrolling your organization has the authority to attest on behalf of the organization and bind the organization to the terms of the CEBA loan agreement.

INTEREST ON THE LOAN:

  • until December 31, 2020, the CEBA will likely be funded as a revolving line of credit for $40,000;
  • after December 31, 2020, any outstanding balance on the revolving $40,000 line of credit is likely to be converted into a non-revolving 5‑year term loan maturing on December 31, 2025, at which time the balance must be paid in full;
  • no interest applies until January 1, 2023;
  • commencing on January 1, 2023, interest accrues on the balance of the term loan at the rate of 5% per annum, payable monthly on the last day of each month;
  • if you pay 75% of the balance of the term loan (as at January 1, 2021), on or before December 31, 2022, the remaining balance of your term loan will be forgiven. For example, if your balance is $40,000 on January 1, 2021 and you repay $30,000 on or before December 31, 2022, the remaining $10,000 will be forgiven; and
  • if you do not repay 75% of the balance of the term loan (as at January 1, 2021) on or before December 31, 2022, the full loan balance and all accrued and unpaid interest will be due and payable on December 31, 2025.

WHEN TO START REPAYMENT ON THE LOAN:

You may start repaying the loan in part or in full at any time, but repayment is not required until December 31, 2025 at which time the entire loan and all accrued and unpaid interest is due.

IF YOU RECEIVE OTHER COVID-19 RELIEF:

If you are receiving other COVID-19 relief, such as the CERB, you may still apply for CEBA.

DEFERRING CREDIT CARD PAYMENTS:

Most of the banks, if not all, are accepting requests to temporarily waive the requirement that you pay your minimum payment on your credit card for up to two months. Some banks have set up new, online webforms to do so. If you need relief beyond the two-month period, you should contact your bank advisor for additional deferrals up to a total of six months.

However, requests are not guaranteed.

Deferred payments will not be reported to credit bureaus as missed payments.

During the deferral period, you will continue to accrue interest charges at your current annual interest rates and we will add those charges to your outstanding balance.

This may increase the outstanding balance on your credit card at the end of the deferral period.

Most banks, if not all, will not charge interest on accrued interest.


Thank you for reading this - Jason Ward of WARDS LAWYERS PC.

If you would like to read more, please go to wardlegal.ca/posts.

This WARDS LAWYERS PC blog is for general information only. It is not legal advice, or intended to be. Specific or more information may be necessary before advice could be provided for your circumstances.

More information? We're here to help - jason@wardlegal.ca | www.wardlegal.ca