The CEBA repayment deadline is approaching - what are your options?

On September 14, 2023, government announced that as of January 18, 2024, any CEBA loans that have not been repaid, will automatically become a 3-year term loan at 5% interest, and access to the forgivable portion will be lost. However, you will have the option to pay only the interest for the term of the loan and will have until December 31^st, 2026, to pay the principal.

For businesses who apply to refinance their CEBA loan with the financial institution that provided it, the deadline to repay and keep the forgivable portion is March 28, 2024, provided the refinancing application is made before January 18, 2024.

This announcement was a big disappointment as it missed the most important issue for many small businesses which is to extend the deadline to keep the forgivable portion. CFIB will continue to fight for an extension to the deadline to keep the forgivable portion and so we have a new petition we would ask you to sign and encourage you to talk to your MP about the impact of this decision on your business. However, while the fight continues, we would also encourage you to start looking at your options should that deadline not be extended.

Many of you may now be wondering whether you should wait to see if government will make further changes to the deadline, refinance the CEBA loan, let the deadline lapse and have it convert to a 3 year term loan at 5% interest, or sell/wind down your business. Unfortunately, the answer isn’t straightforward and will differ with every business’ unique financial situation. You will need to determine what is best for you and your business.

Refinancing Options

We understand that every business has a different financial situation, and that some will need to look at moving now to ensure cash keeps flowing. Before entering into any repayment plan, consider the following forms of financing that may be available to you, and the considerations you should take before entering into any loan/repayment/loan extension program. Be careful and always read the fine print: usually, the easier it is to get the money, the more it will cost in interest payments over the long term:

1. Your Savings – You may want to review your own savings to see if you have some or all of the funds to pay back CEBA.  
2. Your available credit - do you have a line of credit that you can borrow from? 20% of businesses reported using existing available credit to repay the CEBA loan. If you don’t currently have a line of credit, you may find this to be a better option than a loan. Once you sign a term loan, you are locked in, whereas a line of credit will provide more flexible repayment terms. A line of credit may also be easier to manage if the government decides to extend the CEBA deadline. 
3. Friends and family - Often a family member or friend might be willing to help by providing the funds you may need. They may be willing to take an equity stake in the business, or provide more favourable financial terms than you would get at any bank. Sometimes all you have to do is ask.
4. Credit Unions (CU) – CU have consistently polled well with CFIB members. They often have a good sense of the local business environment and will lend where the big banks will not or cannot. Financial officers are empowered at the local level to make lending decisions.
5. Bank/Financial institutions – First speak to the bank with which you have a CEBA loan and have a history with. If you can show them that you have had a good record of on-time payment, they may be willing to work with you on a refinancing plan.
6. Community Futures/Community Business Development Corporations – Local CFs/CBDCs are often a last resort lender to businesses that can show they have a viable plan to recover and repay the loan. CF/CBDCs invest in their local businesses and often are more patient and communicative with small businesses. They try their best to work with businesses and avoid collections agencies.
7. Business Development Bank – BDC has a mandate to help small businesses looking for financing. The BDC can be more flexible than traditional lenders and offer a higher amount of financing. However, they also tend to have higher interest rates as they are more willing to take on riskier loans.
8. Crowdfunding – On-line portals where a large pool of people are willing to give a person or business small amounts of money to support their business/cause. These small amounts can quickly add up.
9. Venture Capital/Angel Investors – Private persons or companies that will loan/invest in small business/startups where the chance of growth is good but often require an equity stake in the business. A business plan to show how you’re going to make money is a must.
10. Factor financing – These companies will lend money and have repayment based on a share of your future receivables. Companies who offer money in return for a percentage of the amount you put through your debit/credit machine fall in this category. While lending can be quick, interest rates can approach/exceed 30% per annum.
11. Fintech/On-line lenders – Many such companies use on-line lending platforms. Be careful. Many are legitimate but the devil is in the detail of the contract signed and they tend to charge higher interest rates.

Regardless of where you get your financing you will be required to sign a contract. It is paramount that you understand what you are signing as it could be very costly to get out of the contract and may even involve litigation. 

Things to be aware of before signing:

• If you are not sure what your obligations are, get a lawyer to review the contract and advise you of any concerns.
• Check the contract for automatic renewal dates.
• Look for clauses that allow increases in interest rate without written notice.
• Check the term of the contract.
• Do not accept verbal changes. Make sure all changes are written into the contract. 

CFIB Advisors are available to help you work through your options when it comes to paying off your CEBA loan and can provide guidance on many other issues. Call 1-833-568-2342 or e-mail cfib@cfib.ca. 

How to prepare

Below we’ve listed items to help you monitor the financial health of your business and better allow you to determine next steps. A small business can view its financial situation by conducting a thorough analysis of its financial statements, tracking key performance indicators (KPIs), and assessing various aspects of its operations. Here are steps to help a small business view its financial situation:

Financial Statements Analysis:

• Balance Sheet – A balance sheet reviews a company's assets, liabilities, and equity. This provides an overview of the business's financial position at a specific point in time.
• Income Statement – Also known as a profit and loss statement, this summarizes revenues, expenses, and net income over a specific period. This helps determine profitability.
• Cash Flow Statement – Used to understand how cash is flowing in and out of the business. This is essential for assessing liquidity and cash management.

Key Performance Indicators (KPIs)

• Identify and track KPIs relevant to the business's industry and goals. Common KPIs include revenue growth, gross profit margin, net profit margin, inventory turnover, and customer acquisition cost (how much a business spends to gain new customers).
• Regularly monitor these KPIs to gauge the business's performance and financial health.

Budget and Forecast

Create a budget or financial forecast to project future income, expenses, and cash flow. This helps in setting financial goals and tracking progress toward them.

Debt and Liabilities Assessment

Evaluate the business's outstanding debts and liabilities. Know when debts are due and what the repayment terms are; this helps in managing debt obligations. Keep track of tax obligations and consider tax planning strategies to minimize tax liabilities.

Revenue Analysis

Analyze the sources of revenue and customer demographics. Identify which products or services are most profitable and which may need adjustments.

Cost Control

Review all expenses and identify areas where cost control measures can be implemented - reducing unnecessary costs can improve profitability.

Inventory and Asset Management

Assess inventory levels and asset utilization. Ensure that inventory turnover is efficient, and assets are being used optimally.

Cash Flow Management

Pay attention to cash flow cycles and ensure that the business has enough working capital to cover operational expenses.

Seek Professional Help

Consider consulting with an accountant or financial advisor who can provide expertise in financial analysis and planning.

Regular Reporting

Establish a routine for financial reporting, both internally and externally if required, to keep stakeholders informed about the business's financial performance.

Do you have a turnaround plan?

What is your situation, problem, actions, what do you still have to do?

• Have you reviewed your financial statements?
• Can you show positive cash flow?
• Do you have cash flow forecasts?
• Do you have a history with debt?
• What are your average accounts receivables?
• What other debts do you hold – what are the interest and priority or negotiability of those loans? Are there personal guarantees?

What do I do if told I’m ineligible to keep my CEBA?

If you are unsure as to why you are ineligible, please call the CEBA call centre (1-888-324-4201) and your Financial Institution to get clarity. If you have a situation that you would like CFIB to highlight in our advocacy work please send us an email at CEBA@cfib.ca