COVID 19 BUSINESS SUPPORT: CANADA EMERGENCY BUSINESS ACCOUNT REVIEW

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The Ira Smith Team is totally operational and both Ira and Brandon Smith are here for a telephone consultation, conference calls and virtual meetings. 

Keep healthy and safe everybody.

Introduction

The full information about the Canada emergency business account (CEBA) is now revealed. The Canada emergency business account application form, full details and the online-only application procedure appeared on April 9, 2020. Prime Minister Trudeau announced that this new program as part of the federal government’s overall program to provide COVID 19 business support.  This program will see financial institutions supplying $40,000 in a loan guaranteed by the federal government.  The loans are being processed and administered by the Canadian banks. The CEBA is really not a business account. It is a government-guaranteed loan of $40,000 that is interest-free till December 31, 2022.

In Brandon’s Blog, I will describe who qualifies for a CEBA and how it works.  I will also point out some issues, which from what I can tell, have not yet been reported in the media.

The Ira Smith Team family hopes you and your loved ones are staying secure, healthy and balanced. We pray for every person that has been affected either through inconvenience or tragedy.

If you need our assistance, rest assured that Ira or Brandon can still assist you. We, of course, are not meeting anyone face to face.  Telephone consultations and/or online meetings are available for anybody who has any questions or concerns they wish to discuss, either in a personal or business scenario.

The Canada emergency business account program

The CEBA has actually been specifically created by the Canadian government to provide COVID 19 business support to small and medium enterprises (SMEs) and non-profit organizations (NPOs) with their most immediate cash requirements during the COVID-19 crisis. The federal government will provide as much as $25 Billion to finance the CEBA program. The CEBA is a federal government assured funding to each qualified business of $40,000 that is interest-free up until December 31, 2022.

Loans under the CEBA will be interest-free for the first year and a half.  As well, 25% of the loan, or $10,000, will be forgiven if the other 75% is repaid by the end of 2022.

“Don’t worry ’bout a thing, cause every little thing’s gonna be alright.” – Bob Marley

Canada emergency business account requirements

So who qualifies for the $40K CEBA?  The requirements in order to qualify for a CEBA are not hard to meet.  The CEBA is only available to incorporated companies and NPOs who have a registered federal business number that was operational on or before March 1, 2020.  The CEBA is open to SMEs and NPOs with a total 2019 payroll between $50,000 and $1 million. 

The CEBA COVID-19 business support plan is made to supply much-needed relief for Canadian SMEs and NPOs.  It helps them to take care of and sustain them through this tough time. The CEBA is not available to proprietorships or partnerships. Therefore it is not available to the self-employed who did not set up their business through a corporation.

On the one hand, this might exclude an important group of businesses in Canada.  On the other hand, when you think about it further, it makes sense. Given the extent of the underground economy in Canada, I doubt there are any unincorporated businesses in Canada with employees that in 2019 have run a payroll account, taken deductions and remitted them to Canada Revenue Agency.  More than likely any unincorporated business in Canada that does have employees operates on a cash basis!

COVID 19 business support through small business relief

I have seen the CEBA described in the press as a federal program that will provide a $40,000 line of credit to qualified businesses at 0% interest until Dec. 2022.  The CEBA is actually a one-time loan. It is not a revolving line of credit. What that means is that if approved, the SME or NPO gets the COVID 19 business support and receives the full $40,000 loan in one tranche upon approval.  It then gets repaid according to its terms (further discussed below).  

A traditional line of credit lets you borrow what you need up to your authorized amount.  Then, when you deposit money into the account associated with the line of credit, the line automatically goes down by that amount.  That then gives more borrowing room equal to the amount of your deposit. The CEBA does not work that way. It is a term loan, with specific repayment and default provisions.  Once you make a partial payment against the loan, you cannot borrow against it further.

“Keep calm and carry on,” – British government WWII posters

The Canada emergency business account how to apply

The CEBA application process for COVID-19 business support is done all online.  You apply through your bank where your corporation or non-profit keeps a business account.  The application process is very simple. The best way is to show you.

So this is the application for the CEBA form.  As you can see there are just a few steps you have to do to apply.  You have to attest that:

• you have the authority to bind the corporation
• it is an operating business since March 1st 2020; and 
• that you have a federal tax registration number

You need to supply:

• your CRA business number; and
• that total employment income paid in 2019 is between $50,000 and $1 million.

You need to know that you can prove that amount by providing the 2019 T4 summary.

You have to have an active business and a business chequing operating account with the lender you are applying through for 90 days or more.  You can only apply for the program once. Once approved, you cannot apply again through a different financial institution.

You must acknowledge that:

• you might have to answer some surveys;
• you have to not be a government organization or union that generates a portion of its revenue carrying on active business;
• the owner doesn’t hold political office and
• that your business does not promote violence, hatred, discrimination.

Then you have to click the box to certify you are in agreement with those conditions and that the information you provided is true and correct.  Then you need to fill in the:

• legal business name;
• phone number;
• email address;
• bank branch and account numbers;
• the business account number;
• The business address; and then
• your information as the business owner

You should read the loan agreement and the privacy agreement.  Once completed, you click the checkbox to acknowledge that you read those documents, you agree to the terms and then click the submit button which will open up after you put in all the information and check the required boxes.

“The only thing we have to fear is fear itself” – President Franklin Roosevelt’s 1933 inaugural address

Canada emergency business account details important to know

There are some details in the loan agreement that everyone applying needs to know.  Nothing I am going to tell you is meant to say do not apply for this COVID 19 business support.  The opposite is true.  Every business that needs this government-assisted loan should apply.  I just want to provide value to you by pointing out some issues not publicized in the media.

The loan agreement is relatively simple.  It sets out the terms and conditions of the loan being made.  Here are the details:

1. Loan amount:  $40,000
2. Initial term date:  December 31, 2022
3. Extended term date:  December 31, 2025
4. Interest rate:  0% per annum during the initial term.  5% per annum during the extended term
5. First interest payment date:  January 31, 2023
6. Frequency of interest payments:  monthly

At any time during the term of the loan, you may prepay all or any portion of it without penalty.  If you have repaid at least 75% of the loan amount on or prior to December 31, 2022, the bank will forgive the remaining balance of the loan amount provided that an event of default has not occurred (more on that soon).

“A life lived in fear is a life half lived,” – Baz Luhrmann, director and co-writer of the 1992 Australian film “Strictly Ballroom”

Canada emergency business account – apply carefully

Now, the details that I am going to tell you will show you that you have to be careful which bank where your SME or NPO has a bank account you apply to.  The $40,000 loan is deposited into your business account. Your business account will continue to operate in the normal course.  

If there is a negative balance in your business account, as a result of an overdraft facility or otherwise, the proceeds of the loan will automatically repay the amount outstanding up to the loan amount.  

So, if you are running an overdraft, first, the bank gets paid off.  So in that case, you don’t get the full $40,000 to put into your business.  This is obviously a perk to the banks provided by the federal government.

Next is the events of default.  It is pretty simple. The bank may require you to repay

the loan, upon the occurrence of any one of the following events of default:

1. you default in paying any amount due under the CEBA loan;
2. you default in paying any other loan to the bank;
3. you fail to comply with any of the provisions of the CEBA agreement (which are not onerous), you make any false or misleading representation to the bank, including without limitation, in your CEBA application;
4. The SME or NPO commits an act of bankruptcy or becomes insolvent; or
5. a receiver is appointed for the business or any part of its property.

So this is why I say that if you have a business account at more than one bank for at least 90 days before March 1, 2020, you need to choose wisely which bank you apply through.  As I already said, if you are running an overdraft at the bank, the first proceeds of the CEBA loan will go to pay off that overdraft. Second, if you choose a bank where you have other loans, if you default on any loan with that bank, not only is it an event of default on that loan, it is also an event of default under the CEBA loan.

“Worry is like a rocking chair: It gives you something to do but never gets you anywhere,” – Erma Bombeck

Although the CEBA is an unsecured loan, the bank has been given the right to call a default under the CEBA if you have done something unrelated to cause a default in another loan product.  So, for example, if you have an event of default under your operating or capital term loan, that will cause a default in the CEBA also.

The loan is not personally guaranteed by the person applying on behalf of the SME or NPO.  However, the loan agreement reads that it is binding “…on you, your heirs, your successors and personal representatives – including executors and administrators”.  Now the words “You”, “Your” and “Yours” are defined in the loan agreement to mean the recipient of the loan under the CEBA agreement.  

As far as I can tell, the applicant is the SME or NPO.  I am not sure how those legal entities can have executors.  Also, how could the agreement be binding on me personally or my heirs?  Does that mean anyone who applies on behalf of their SME or NPO has personally guaranteed the CEBA loan?  It looks that way, however, there is no express provision that the loan is personally guaranteed, other than for the wording I have shown you.

So that is what CEBA COVID-19 business support is all about.  I applaud the federal government for this initiative.  Whether it will be enough, along with the wage support that I previously wrote about, only time will tell.

“Nothing in life is to be feared, it is only to be understood. Now is the time to understand more, so that we may fear less.” – physicist Marie Curie

Summary

The Ira Smith Team family hopes you and your family are staying safe, healthy and well-balanced. Our hearts go out to every person who has been affected either through inconvenience or personal family tragedy.

We are all citizens of Canada and we have to coordinate our efforts to stop the spread of the coronavirus. Social distancing and self-quarantining are sacrifices that are not optional. Family members are literally separated from each other. We look forward to the time when things can return to something close to normal and we can all be together again physically.

Ira Smith Trustee & Receiver Inc. has always employed clean and safe habits in our professional practice and continues to do so.

Revenue and cash flow shortages are critical issues facing entrepreneurs and their companies and businesses.  Should you take advantage of the CEBA? I say a resounding YES!. I just wanted to highlight all of the issues that you should consider. 

If anyone needs our assistance, feel confident that Ira or Brandon can still assist you. Telephone consultations and/or virtual conferences are readily available for anyone feeling the need to discuss their personal or company situation.

Are you now worried just how you or your business are going to survive? Those concerns are obviously on your mind.  This pandemic situation has made everyone scared.

“Don’t worry, be happy” – Bobby McFerrin

The Ira Smith Team understands these concerns. More significantly, we know the requirements of the business owner or the individual that has way too much financial debt. You are trying to manage these difficult financial problems and you are understandably anxious.

It is not your fault you can’t fix this problem on your own.  The pandemic has thrown everyone a curveball. We have not been trained to deal with this.  You have only been taught the old ways. The old ways do not work anymore. The Ira Smith Team makes use of new contemporary ways to get you out of your debt problems while avoiding bankruptcy. We can get you debt relief now.

We look at your whole circumstance and design a strategy that is as distinct as you are. We take the load off of your shoulders as part of the debt settlement strategy we will draft just for you.

We understand that people facing money problems require a lifeline. That is why we can establish a restructuring procedure for you and end the discomfort you feel.

Call us now for a no-cost consultation. We will listen to the unique issues facing you and provide you with practical and actionable ideas you can implement right away to end the pain points in your life, Starting Over, Starting Now.

The Ira Smith Team is totally operational and both Ira and Brandon Smith are here for a telephone consultation, conference calls and virtual meetings. 

Keep healthy and safe everybody.

“Things could always be better, but things could always be worse,” – Marla Gibbs