Details of the Canada Emergency Business Account (CEBA Loan)

Last week, I reviewed some of the steps we can take to build our financial immunity to economic shocks. The Covid-19 pandemic is the most recent crisis. There will be more. Fortunately for many, governments have been providing a second chance for those who were caught swimming naked when the tide went out. Even those with less stimulating swimwear can take advantage of some of the fiscal stimulus being tossed out of helicopters as life support for the economy. The Canadian Emergency Business Account (CEBA) is a gift for most small businesses with a payroll, whether adversely impacted by Covid-19 or not.

Note: For CERB, check the CRA site as the inclusions seem to expand frequently.

This post will examine the CEBA with some detailed notes about applying and how it is actually being operationalized by different banks. I will do the same for CEWS and SBWS in a future post.

Disclaimer: I have done my best to be accurate. This is a fluid situation and how things are being done can change. Do your own due diligence and consult the appropriate professionals for your specific case. If you find something inaccurate or that has changed, please let me know. I plan to update this post as a living document.

Requirements for Canadian Emergency Business Account (CEBA)

#1 You need a business number.

They will ask for your 15 digit number. It is actually a combination of numbers and letters. For example, 1234560789RC001. You should be able to find this on any CRA correspondence to your company or on your business tax return. Self-employed that simply get T4A income are out of luck for CEBA, but if receiving no income at all they may be able to apply for CERB.

#2 You must have paid out salary between $20K and $1.5MM in 2019 or meet other criteria if <$20K/yr.

Update: Those who just paid out dividends from their CCPC were initially SOL, but they can now qualify if they meet other criteria (see above flow chart). The government is spewing money everywhere, but I keep harping on this one. Salary with CPP and an RRSP is politically favored because it is understood by, and available to, the unwashed masses. It diversifies against legislative risk and is a politically more difficult target. Plus, it is usually better in the long run than putting all of your eggs in the CCPC basket anyway. This theme is recurrent!

For those using dividends only or <$20K/yr payroll, you also need to have filed 2018 or 2019 business tax return and have non-deferrable operating expenses (like rent, utilities, etc) between $40K-$1.5M/yr.

You will need the amount from Box 14 on your business’ 2019 T4Sum for the application.

#3 You must have had a business account at the bank and been in operation prior to March 1, 2020.

It will ask for your branch and account number. This can be found on one of your statements. One of the problems people have had is that the branch number needs to be 4 digits. So, if it is branch 10 you need to enter 0010 in the application or it will get rejected. If you look on a cheque, there may be a 5 digit transit number and the branch is the first 4 digits of that.

#4 You need to attest that you will use it as intended.

“Per the requirements of the Canada Emergency Business Account Program (the “Program“), as set out by the Government of Canada, the undersigned acknowledges that the funds from this loan shall only be used by the Borrower to pay non-deferrable operating expenses of the Borrower including, without limitation, payroll, rent, utilities, insurance, property tax and regularly scheduled debt service, and may not be used to fund any payments or expenses such as prepayment/refinancing of existing indebtedness, payments of dividends, distributions and increases in management compensation.” -TD Website Application Attestation

CEBA Forgiveness: Pay it back on time and get free money.

Actually, it is free money right away. You get forty thousand dollars within a few days. It is a revolving line of credit which means there are no minimum payments until Dec 31, 2020 at which point it converts to a regular line of credit. Even though payments become due, there is still no interest until Dec 31, 2023. So, why would you pay it back sooner?

Well, there is more free money. A quarter of the loan is forgivable. How that works is a bit complicated. Your balance as of January 1, 2021 is the baseline. If you pay off 75% of that before December 31, 2022 then the remaining is forgiven. [Update July, 2020: The reference to January 21, 2021 as baseline has now disappeared from the literature and replaced with a a more broad “Repaying the balance of the loan on or before December 31, 2022 will result in loan forgiveness of 25 percent (up to $10,000)” on both CRA and various banking sites. Speaking with one bank representative, it now appears no problem if you re-pay early. However, you should speak to your own bank to confirm if you are thinking of repaying before Jan 1, 2021 for some reason.]

To summarize: Get $40K loan. Probably don’t pay it back before January 1, 2021 unless you must. Then pay $30K back before Dec 31, 2022.

Two main ways that CEBA is being operationalized.

This isn’t an exhaustive list and if you know of other details for other banks, please add them in the comments section. However, there are two ways that I have heard of how this is being implemented.

One is to deposit $40K into the business account associated with the application.

This is how TD, BMO, National, and CIBC are doing it. The money will appear as a deposit about 5 days after the application is submitted.

For BMO, the money is put in the business account as a cash advance from a newly created Mastercard account. You’d pay the Mastercard account back to pay back the loan. Some people have gotten the Mastercard letter in the mail and then had to call to have it linked to their online account.

For TD, the money is put in the business account. A Demand Loan with a $40K balance to pay back will appear on the online banking page. This took a few days to show up for me, but it may be faster now. Still no option to repay (no hurry as outlined above).

It is still unclear is how to pay the loan back for CIBC or National. Presumably, there will be an explicit payment to be made that distinguishes paying for this loan separately from the usual flow of money into and out of a business account.

The second method is creation of a VISA account.

This is how Scotiabank and RBC have operationalized the line of credit. You can use this to pay for salaries and the intended expenses. That is nice and clean for fulfilling the “use as intended” condition. If you pay money into the VISA account, you cannot get it back out. Do not pay off the VISA account until after Jan 1st, 2021 if you want to get the grant component of CEBA.

Does taking CEBA restrict how your business invests?

If you have an interest-free loan and don’t really need the money, then one way to use that money is to invest it. Any profit would be money you would not otherwise have. This seems an attractive use for those who get CEBA even though they don’t need it. However, I see a couple of problems.

Some may not feel right using this money when they didn’t need it.

Others may rationalize it as money that is being given to everyone and everyone who makes income will be paying for it in the future. Those who make more income, even more so. It also seems unfair that those who saved enough to weather a downturn are just stuck with paying the future bill while those who did not get bailed out. That will be a personal opinion.

Whatever your opinion, there is a risk of getting taken to task if you are aggressive. The attestation part of the application could come back to haunt you if CRA comes calling.

Does taking CEBA restrict how you pay yourself?

Part of the CEBA attestation is that it is meant to pay for salary and other fixed expenses. It also specifies that the loan will not be used to pay for dividends or distributions. Further, it cannot be used to increase management’s compensation.

How will that work for a CCPC that pays some dividends?

I don’t think anyone knows the answer to that yet. I would talk to my accountant before giving myself any dividends if using this program. I did speak to mine and his opinion was that you should not increase your salary. However, if you pay your salary, payroll expenses, rent, and other fixed overhead for a few months, then that would also consume the $40K pretty quickly for most of us.

What happens after that is still unclear to me. Could you then pay dividends if needed or do you need to pay the loan back fully first? Paying it back before Jan 1, 2021 means you lose the $10K grant portion. Would a shareholder loan be an alternative way to get the money you need to live off or does that count as a distribution? Again, I would consult your accountant about it. If I get more clarity, I will also update this post.

Update: On May 19th, they expanded CEBA to allow business that pay their owners via dividends only to qualify. The details aren’t released, but it would also be contradictory to then not allow dividends. The criteria seem to emphasize using the loan for operating expenses.

What happens if you default?

We all hope that this is a temporary downturn from which our businesses will recover. That is highly likely for those of us in fields like medicine. However, it is less of a certainty for other small businesses. Even more so if there is a structural change to their industry (could happen) or this drags on for a long time (likely to some degree).

As pointed out in one of the comments below, even though this is a business loan, you need to back it personally. So, default would have consequences for your personal finances and credit situation and not be insulated by the business structure. That means a careful weighing of risk/benefit for precarious businesses. That is very unfortunate since those are also the businesses that need CEBA the most!

Where do I find the Application for CEBA?

Applications are found on the website of the bank at which your business account is held:

TD CEBA Application

BMO Application

CIBC CEBA Application

Scotiabank CEBA Application

RBC CEBA Application

National Bank CEBA Application

There are also some other smaller banks that are offering this. They may not have info readily available, but may come up with something if you persist. For example, one of my readers was apply to apply via his Manulife Financial account after some persistence! Manulife

What if I have business accounts at more than one bank?

You can choose whichever one suits your style (deposit in account vs VISA). Another factor to consider is that if you have overdraft or an outstanding line of credit, the money may be applied against that before you get access to it.

52 comments

  1. wow thanks for the update. the rules have changed so often that I stopped checking.

    what do you think about the phrase “to help cover their operating costs during a period where their revenues have been temporarily reduced”. Does this make a reduced income a requirement?

    i read the details more than once and it seems to me the loan could be distributed gradually over the year if expenses are low. Does this make sense? I’ll give my accountant a call tomorrow.

    1. Hey Phil. I don’t think CEBA has the explicit reduced income requirements like CEWS does. The horse is out of the barn anyway. I agree that it looks like you can use it over time to cover expenses – will take longer if expenses are lower. What I am still unsure of is what the effect on the ability to give dividends and distributions is. Curious to hear your accountant’s take. I think everyone is just trying to figure it out.
      -LD

      1. So CEBA, 10% wage subsidy ago. Be careful with how the funds are used, keep to business as normal standards. Any more detail is beyond me, maybe someone else can add.

  2. You left out the most important attribute of all, atm it requires a personal guarantee.

    This is directly off of the internal RBC FAQ on CEBA:

    28. Do clients need to sign personal guarantees to enroll in CEBA?

    The VISA Credit Line for Small Business card facility (CLSB) is being used to support CEBA. The CLSB has a personal guarantee included up to $40,000. We have escalated this to the Government of Canada to determine if it can be removed. Please continue to visit this FAQ for an update.

    29. Will CEBA enrollments impact a client’s personal credit bureau rating/credit score?

    No. CEBA enrollment will have no impact on a client’s personal credit score/credit bureau rating.

    30. Are CEBA funds showing up under some clients’ personal banking profiles?

    We are aware of situations where CEBA funds are showing up under some clients’ personal profiles.

    It is important to note that CEBA funds are administered to clients using the Credit Line for Small Business (CLSB) product. This product was chosen specifically to guarantee clients timely access to needed funds, and for its ability to accommodate flexible repayments. Due to the nature of this product, approved funds may appear under both business and personal banking profiles.

    1. Part of the CEBA attestation is that it is meant to pay for salary and other fixed expenses. It also specifies that the loan will not be used to pay for dividends or distributions. Further, it cannot be used to increase management’s compensation.

      I have a question here. I’m the only employee of my company. I fall into >20k payroll category. Can I use this loan to pay myself a salary same as last year?

      1. Hi Dabangg. From the wording, you could pay yourself the same salary as the previous year (but not a raise). Paying dividends on top of that is not something I have been able to find a straight answer. Some people pay dividends as part of their regular compensation package, but dividends are disallowed in the attestation. It is also inconsistent that they then expanded the qualification criteria to those who pay themselves dividends only, but have expenses. Very confusing.
        -LD

  3. Great article as always and great to see you back.

    I am wondering about the structure of payments to yourself as I am with RBC and thinking that I should take out money in amounts that clearly cover costs as they come up as opposed to taking in the lump sum all at once.

    I also am between a rock and a hard place, as I need to increase my personal cash flow and it seems that if I take the CEBA – then there is no way to increase personal cash flow from the corporation in the coming months – which seems much too restrictive. You can’t increase salary or take a dividend.

    The pay increase also is for “management” so I am not sure how this will be defined and policed – especially for a one person organization. I agree that if you don’t need the extra cash personally – then don’t risk it. I decided to increase it a bit as necessary but am fully prepared to pay back the forgivable $10,000 if they ask for it.

    1. Hey Bari Doc. Your rock and a hard place is part of what motivated me to look into this as I face the same dilemma. I talked to my accountant and although no one really knows, the approach of clearly using the money to pay operating expenses is wise. I am also going to delay extra distributions if I can and keep them below my historical compensation. I am debating making them shareholder loans instead of dividends (also not sure if that will make a difference). I think this is going to be an evolving story and I also think it would be really hard for them to police it. In that type of situation, the main thing is to not be an outlier.
      -LD

      1. My accountant is operating under the assumption that we can still distribute dividends as long as it is within past practice. He also thinks that exact amounts used from the loan for expenses will not be required. I know I was thinking about removing the exact $ value of expenses from the loan as they occur but it seems that it would be unreasonable to expect such exacting standards for small businesses considering the situation. It seems to be more about maintaining operations.

        It’s unfortunate that these rules and regulations are constantly changing.

        1. Hey Phil. That is my sense also. There are practical difficulties to going into granular enforcement of all of this. The main thing I think is to not be egregious and flag yourself as an outlier. That means delaying distributions if possible and not increasing beyond previous. Only time will tell, but they have rolled out so much so fast. All of the interventions seemed aimed to be a three month bridge to maintain operations. It will be interesting to see what happens after that.
          -LD

  4. Thank you for your informative posting.
    I too am with RBC and received my 40 k in a VISA account which they appended to my Business account.
    I too will need some $ for salary and operational expenses.

    If I wanted to only use a portion and repay the 30K and keep the 10K as a grant, how exactly would i do that? Would I transfer 10 k from the VISA account to my business account and leave the 30K in the visa account?

    1. Hi Charles. The mechanics for each bank will vary, but the principle is to spend the full $40K on operating expenses. Have that $40K owing on Jan 1, 2021. Pay back $30K some time after Jan 1,2021 but before Dec 31, 2022 to get forgiven the other $10K. My guess in your case (I am not at RBC) is take $40K from the VISA to your business account (and spend it). That should have you owing the full $40K. Pay back $30K to the VISA after Jan 1, 2021. Someone who uses RBC can correct me if I am wrong. Does that make sense?
      -LD

  5. Hi all, we decided to just take the CERB, since it just so happens last FY year we didn’t pay out enough to meet the payroll req. Note for the CERB, dividends count towards the $5k, so it’s not just T4 amounts:

    If I am in receipt of dividends am I eligible for the CERB?
    Yes as long as the dividends are non-eligible dividends (generally those paid out of corporate income taxed at the small business rate) and you meet the eligibility criteria.

    Non-eligible dividends count towards the minimum $5000 in income required for eligibility. Non-eligible dividends also count toward the $1000 income threshold for a benefit period.

    So if you don’t want to deal with the paperwork, just consider the CERB like the rest of the unwashed masses lol

  6. Hi LD,
    By looking at your first diagram, one could think that CEWS and SBWS are mutually exclusive. They’re not, in fact. My company qualifies for both and, when submitting the CEWS application this week, I had to reduce the amount I was asking for by the SBWS amount applicable to my business.

    For employers that are eligible for both the CEWS and the 10% Temporary Wage Subsidy for a period, any benefit from the Temporary 10% Wage Subsidy for remuneration paid in a specific period will generally reduce the amount available to be claimed under the CEWS in that same period.

    Source: link, under the CEWS section.

    Thanks!

  7. Hi LD,

    I believe the SBWS is what the Canada’s website refers to as “Temporary 10% Wage Subsidy”.

    By looking at your first diagram, one could think that CEWS and SBWS are mutually exclusive. They’re not, in fact. My company qualifies for both and, when submitting the CEWS application this week, I had to reduce the amount I was asking for by the SBWS amount applicable to my business.

    For employers that are eligible for both the CEWS and the 10% Temporary Wage Subsidy for a period, any benefit from the Temporary 10% Wage Subsidy for remuneration paid in a specific period will generally reduce the amount available to be claimed under the CEWS in that same period.

    Source: link, under the CEWS section.

    Thanks!

  8. Thanks as always for the post. I am also curious if the restriction on dividends extends to or past the Dec 31, 2022/3 date. If you still have $10,000 in outstanding loan hoping it will be forgiven when can you feel comfortable taking a dividend? I know this question doesn’t have an answer yet, just thinking about how this may play out. I appreciate Bari Docs comment about paying back the full amount if they ask for it, I guess that’s the worst case scenario

  9. Ok Question for TD if they deposit the $40,000 in your account how will they track if you use the entire amount as our accounts go up and down thru the month… I understand with TD there is a seperate loan set up as $40,000 so does that mean it automatically assumes you used the entire amount… Then you just don’t pay any of it back until after Jan 2021? Can you use it to cover other expenses as well for example I have an inventory bill that is due but we don’t have the sales coming in because as a supplier most of our retailers have been forced to close… can I use it to help pay that?

    1. Hi Deb,

      I have the same set up. They must assume that you use the full thing and if you don’t, you “pay it back” to the loan. I wouldn’t do that until Jan 2021. It was meant to cover non-deferrable items. An outstanding bill would fit that and so would usual costs of business, I believe. It isn’t elective like a pay raise, dividend, or buying a new computer etc.
      -LD

  10. Thanks for another great read.

    Is there a reference for the comment on not repaying before January 2021?

    I am curious as to why you lose the grant money if repaid too soon – and I haven’t seen any literature on this requirement.

    1. Hi Brad,

      It is described in multiple explanations from banks and accountants (not always easy to find though). Here is one from an accountant. Here is one from Scotiabank. I suspect the logic is that if you can pay it back before then, you don’t “need” the grant. Subjective.
      -LD

  11. Hello
    I can’t find any information regarding paying back the 30K and the requirements CRA will have. Some sites advises people to open a different account only for this 40K with the purpose of keep track of how and where are you using this money. Does this mean CRA will ask borrowers at the time to pay back to show proof of payments? What happens if people uses part of this money to cover debts non associated with their business (ei: home renovations and upgrades, children credit cards, car loans).
    Scares to see people jumping into conclusions and borrowing this huge amount of money without thinking and planning consequences

    Thank you
    Cecilia

    1. Hi Cecilia. It is unclear how usage of the money will be tracked. Personally, I would use it for the usual business expenses like salary, rent, etc. before making more elective business purchases. We’d account for that with our regular book-keeping for our business account. People that use business money for personal items are asking for a world of hurt from CRA whether CEBA or not. That is easily identified and a big no-no in any environment. Personal and business should always be kept separate and increasing your personal pay is also easily identified and against the rules.
      -LD

  12. Hello! I have a practical (and slight ethical) question about the CEBA. I applied for it and was granted the loan through RBC, which comes as a Visa line of credit. I applied as I wasn’t sure how my finances would pan out through covid. Luckily, although my income has been reduced, I have been able to just cover my salary and expenses thus far through what I am paid from MOH. I also had a slight cushion in my corp to help. So I have not needed to use the money from the CEBA yet. So If you have money in your corporation, won’t it look unusual to use the CEBA to pay these “necessary expenses”? I suppose my question is, will there be repercussions if you use the CEBA, are audited, and had money in your corporation to cover the costs you used it for? Thoughts?

    1. Hi Libby,

      I don’t think it is an issue. Money in a corp is not just for running the business with some cushion, but also saving for larger plans in the future. That could be retirement, but it could also be a major expansion. Giving yourself a raise would be against the spirit (and rules). Buying a corporate Ferrari would also be dicey. However, I don’t think it is reasonable to expect only borderline bankrupt corps to use CEBA and that is not the rules. That is why there are not conditions about your business balance in the qualifying criteria. Should only businesses that have not saved for the future because they paid out most of their profits to the owners get bailed out while those who responsibly saved some cushion just end up footing the eventual bill (we will all pay for CEBA through taxes some day)? That actually seems unjust/unfair/unequal.

      In terms of audit, I think those who break the rules are vulnerable (as they should be). There are no rules about emptying your corp before spending CEBA. Not concerned about that. Giving dividends is also prohibited. However, how that is operationalized is not clear. I would spend the CEBA amount on operating expense before considering dividends for myself (that is only a few months of payroll/overhead for me) and I would not increase my dividends above my usual amount. That is just my opinion/guess.
      -LD

  13. I’m curious as to whether the CEBA funds can be used to “repay” shareholder/personal loans which I had lended to my corporation over the years and/or repaying an operational line of credit, since it doesn’t have a specific repayment schedule. The posted CEBA rules note that regularly scheduled debt payments can be an acceptable use of CEBA funds, however I’m in a dilemma on what to do with our operational line of credit since there isn’t a scheduled payment plan, and it has always been a “pay back when is feasible” type scenario. I also don’t think this would be considered to be an actual “refinance” of existing debt, as there isn’t a previously set up amortization schedule.

    1. Hey Raymond. That is a good question. I don’t know the answer, but I suspect the “not regularly scheduled” aspect could be a bone of contention. I think the intention is for non-deferrable expenses. However, it becomes fuzzy when you also consider that using CEBA funds for those expenses frees up more of the corp’s operational dollars to pay other debt etc. It seems like “mental accounting”.
      -LD

  14. Hi there, anyone know what if business goes under in year from now for example. How that will work with debt of 40 000

    1. That is a big question. One of the devils in the details is that you PERSONALLY garauntee the loan. So, it may not end with the business. I know there were objections to this and advocacy going on, but have not heard of changed.
      -LD

  15. Hi there,

    Thank you for the summary:

    I am wondering if I would qualify either under the old or new CEBA requirements?

    Here is my Info:

    For the year 2019: I had Income (T4) $16,600, Dividends (T5) $11,875, Total Administrative Expenses $36,712 and Fees from services (T4A) $4,400.

    Also, under the new CEBA requirements, It mentioned Tax year 2018 and 2019 for expenses. Does that mean I would qualify if my expenses are over $40K if I combine my expenses that I had for year 2018 and 2019?

    Please advise.

    Thank you kindly

  16. My company year end July 31 2020 for Income Tax filing.
    I have the CEBA I put in the liability account , is accounting for expenses as usual? Do I need special accounting entries to show those expenses are from CEBA ? What if I did not use up full $40,000 loan
    and I just pay back $30,000 at end of year. How CRA calculate what expenses qualify for the loan and
    if it is less than $10,000? Will CRA ask me to pay back the $10,000 forgiveness portion of the loan.

    Please advise.

  17. I would like to know where on the government website does it say that you will be forgiven 25% of the loan balance outstanding on Jan. 1, 2021. You are indicating that you should not start paying prior to Jan. 1 or you will not be forgiven the full 25% of the loan taken. All of the loan documentation says that the forgiveness will be on the full amount if paid prior to Dec. 2022.

    1. Yes. They changed the language to now be more vague. So, it may have changed. Or it may not. Either way, if you have an interest-free loan. Then, why pay it back before your need to? If you Google or otherwise search CEBA Jan 1,2021 you will see a bunch of pages referencing that is the date for the forgiveness calculation. However, it has now disappeared from any official literature I can find.
      -LD

    1. I have mine at TD. Money went into account and there is a separate Demand Loan shown in my easyweb. Haven’t figured out a way to pay it back yet. I wonder if there won’t be an online option to repay until Jan, 2021. Curious if others have found a way.
      -LD

  18. Once the CEBA becomes a term loan. Will funds still be available to use if you didn’t use 40,000. So let’s say so far I’ve used 20,000 up to Dec 2020, and if I still need it, will the other 20,000 still be available after Jan 2021?

    1. That is an excellent question. I don’t know the answer and it may depend on how your financial institution has operationalized the loan. Mine just put the full $40K in my business account and it is repaid separately. Others use a line of credit type set-up. Worth asking your bank. Alternatively, you could also take the money in Dec 2020 and if not needed, pay it back before Dec 2021. It is still interest-free in that time period.
      -LD

  19. I have a debt under my name that was consolidated of numerous items prior ( some personal and some business purchases ). What is considered regular debt service ? Can I pay the payment of 1141.00 per month as regular debt service even though the loan is in my name vs personal ? So confusing.
    As well, for utilities and taxes, if I run a home office do I pay my home utilities and taxes or do they need to be in the corporations name ?

    1. Hi Kim. This is definitely in the realm of what I would talk to your accountant about. For CEBA only business related debt servicing would count. In fact, having personal and business finances mixed together is a no no. They really must be separated for everything (not just this) and having clear separate accounts is the simplest way to do that. There are also specific criteria for a home office to actually count as a business expense and if so, then that portion of utilites etc is deductible. However, that can also have implications for loss of part of the principle residence tax exemption when you sell. Definitely something I talk with my accountant about.
      -LD

    1. Thanks DadMD. It will be interesting to see what the attestation criteria are to receive the expanded CEBA loan.

      I have also heard that CRA is doing test audits of the CEWS. Some accountants were quite taken aback by how much information (often irrelevant) that they were asking for. The CRA’s response to the concern was that they were figuring it out and that their full nine page questionnaire was not meant to be used that way. However, we’ll see.
      https://www.advisor.ca/tax/tax-news/cews-audit-requests-daunting-say-tax-pros/
      -LD

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