Tag: canada emergency business account (ceba)

CEBA UPDATE TODAY: OUR SIMPLE HAPPY GUIDE TO CEBA LOAN TERMS

Post author By Brandon Smith
Post date April 28, 2021

We hope that you and your family are safe, healthy and secure during this COVID-19 pandemic. Ira Smith Trustee & Receiver Inc. is absolutely operational and Ira, in addition to Brandon Smith, is readily available for a telephone consultation or video meeting.

ceba update

Canada Emergency Business Account (CEBA)

The CEBA is a unique program established by the federal government to help Canadian businesses adversely impacted by the lockdowns and other business interruptions produced by the COVID-19 pandemic. The program was originally developed to help companies and non-profits that need additional funding and some business relief. Absent this Canada Emergency Business Account program, the funding that might be available from financial institutions would not address the Canadian business realities of then or unfortunately, still now.

In my April 13, 2020, Brandon Blog “COVID-19 BUSINESS SUPPORT: CANADA EMERGENCY BUSINESS ACCOUNT REVIEW“, I described the CEBA program. Since then there has been a CEBA update or two. As most of us understand, the economic situation is still refraining from doing much better. I am currently being contacted by companies who got CEBA funds yet still are insolvent and feel they will either need financial restructuring or bankruptcy. The CEBA funds were valuable yet were insufficient now that we are in the 14th month of this health and wellness pandemic.

In this CEBA update Brandon Blog, I want to go over the most up-to-date upgrade on CEBA and answer several of the more typical inquiries I am now being asked when business owners consider an insolvency filing for their company.

The easiest way to answer what the CEBA update is will be to start fresh and describe what the program was back when first announced and what it is today after the CEBA changes.

CEBA update: Original CEBA eligibility requirements

The original CEBA loan requirements went like this. The CEBA online application process showed up on April 9, 2020. PM Trudeau introduced this brand-new program as part of the federal government’s general program to supply COVID-19 business operations assistance to Canadian companies. At that time, the program saw financial institutions providing $40,000 in financing to each qualifying company, guaranteed by the federal government.

The loans were processed and financed by the Canadian chartered banks. Despite its name, the Canada Emergency Business Account is actually not a business account. It is a non-revolving term loan. It is government-guaranteed lending of $40,000, The CEBA are interest-free loans that are not due for repayment until December 31, 2022. If not repaid by then, interest will then accrue.

The CEBA was developed by the Canadian government to supply COVID-19 business operations assistance to small and medium companies and also non-profit organizations with their most immediate cash requirements during the COVID-19 dilemma. The process was all online. The online application process included a CEBA pre-screen tool. The applicant went through the questions and submitted the required information. The system then:

provided a CEBA pre-screen tool reference number;
told you that the application was submitted through your bank;
said your bank really has nothing to do with the application process; and
confirmed that you will get an answer within 7 to 10 business days.

The requirements for approval for the $40K CEBA were not difficult to meet. The CEBA was readily available to incorporated companies and non-profits who relied upon their respective CRA Business Numbers and had an operational Canada Revenue Agency Business Number (BN) on or before March 1, 2020. The company or non-profit also needed to be businesses with payroll and have a total 2019 payroll filed under the Canada Revenue Agency Business Payroll Number (BN), between $50,000 and $1 million.

CEBA update: Is my business eligible for CEBA and its expansion?

The program requirements have since been amended since the original CEBA came out. The maximum loan balance, other program details and eligibility criteria have changed. To qualify as one of the eligible businesses for a $60,000 CEBA the applicant needs to be an operating company that is a proprietorship, partnership or a Canadian-controlled private corporation that was in operation in Canada on March 1, 2020.

Other types of entities are not qualified for the $60,000 CEBA or $20,000 Canada Emergency Business Account expansion financing. If you previously were approved for the original $40,000 CEBA, you know that you can qualify now for the $20,000 CEBA expansion from the initial $40K amount already funded. So now sole proprietors operating a sole proprietorship and partners in business partnerships also qualify. Family-owned corporations always did and continue to qualify. It seems that the non-profit enterprises do not for the CEBA update program.

The CEBA update application process now adheres to 1 of 2 streams: (i) the Payroll Stream (To be considered as eligible businesses, applicants that are businesses with payroll paid under the Canada Revenue Agency Business Payroll Number (BN), in the 2019 fiscal year between a lower limit of $20,000 to a maximum limit of $1,500,000) or (ii) the Non-Deferrable Expense Stream (Applicants who are businesses with payroll paid under the Canada Revenue Agency Business Payroll Number (BN), of $20,000 or less in the 2019 calendar year).

The actual wording in the program requirements is expressed in a funny way. It talks about having paid employment income, rather than a payroll expense as I have described it above. I guess Parliament wanted to emphasize the fact that the money should be used to including employing Canadians so that they will earn the employment income being paid by the business payroll!

Every applicant needs to meet the following eligibility criteria:

CRA Business Numbers – has an active business account with a CRA Business Number (BN) registered on or before March 1, 2020.
Has an open business chequing/operating account with the proposed lending institution they are applying through at the time the application process is put into play. Examples would be a CIBC Business Operating Account, an RBC Business Deposit Account, or a similar account at any of the other Canadian chartered banks. If you have a Canadian operating business, it should not be too hard to meet this qualification of having an active business chequing account.
Those making an application for the complete $60,000 CEBA, have not previously utilized the Canada Emergency Business Account Program and also will not request support under the CEBA Program at any other financial institution.
Plans to stay open or to go back to opening up as soon as restrictions are lifted.

CEBA update: Non-deferrable expense stream eligibility

If you are applying under the Non-Deferrable expenditures stream, you have to, in addition, comply with some extra eligibility criteria as follows:

Having verifiable non-deferrable expenses between $40,000 and $1,500,000. Eligible non-deferrable expenses can consist of operating costs like property rental fees, real estate tax, insurance policy protection, and utilities. The government says that expenditures for such non-deferrable operating expenses will certainly undergo confirmation and audit, presumably by Canada Revenue Agency.
Submitted an income tax return with the CRA with a tax year ending in 2019 or, if its tax return for fiscal 2019 is not yet due for filing, 2018.

As always, as soon as you have actually finished the online application via your bank, the Government of Canada will examine the application as well as alert you and your bank of the approval or decline of the funding. Your financial institution will put the funds right into your business chequing/ operating account if you are successful.

So this is how the CEBA expansion has changed the eligibility requirements resulting from the CEBA update. It is obvious that the government wants to help businesses have the necessary cash on favourable terms to make necessary expenses for business purposes.

The CEBA update has also extended the CEBA Application Period. The CEBA update also has now extended the to receive applications from businesses to June 30, 2021, (proposed in the recent Budget to be extended to the Fall of 2021) to request a $60,000 CEBA or the $20,000 expansion at their financial institution. Unless the government announces an extension to this date, time is running out.

CEBA update: How many businesses have applied for CEBA?

Here are the statistics of the use of the CEBA program during this difficult time as of this date:

866,750 businesses were approved for CEBA loans;
532,899 businesses were approved for the CEBA update expansion; and
funds were loaned as a result of the above total $46.56 billion.

What are the CEBA loan terms and is there any CEBA event of default?

The most well-known CEBA term loan provisions are:

The CEBA program supplies access to a $60,000 business loan.
0% interest till December 31, 2022.
No principal payments until after December 31, 2022.
The loan is fully open so, all or part of the non-forgiven portion can be repaid prior to January 1, 2023.
Full repayment by December 31, 2022, will only require the borrower to repay $40,000 of the total $60,000 loan for it to be considered fully repaid. Therefore, there is loan forgiveness of $20,000 if repaid by the end of 2022. The federal government is actually calling this loan forgiveness for early repayment.
The interest rate on any outstanding balance after December 31, 2022, is 5% per annum during the “Extended Term”. The Extended Term runs until December 31, 2025. So after the interest-free period, the Extended Term converts it to a 3-year term loan after December 31, 2022, the Initial Term Date. During the Extended Term, monthly interest payments are required. The full principal balance of $60,000 is due no later than December 31, 2025.

There are some CEBA update loan events of default as follows:

The events of default are quite simple. The bank may need you to pay back the loan, upon the incident of any kind of among the following events of default:

you fail in paying any amount due under the CEBA funding;
you don’t pay according to its terms any other non-CEBA financing outstanding to that same financial institution;
you fail to comply with any one of the terms of the CEBA agreement (which really revolves around interest and repayment), you make any false or deceptive statements to the bank, including without restriction, in your CEBA application;
the business commits an act of bankruptcy or becomes insolvent; or
the business is placed in receivership.

It would appear that the only remedy for the bank upon the default of the borrower is to advise that full repayment is due immediately. There are no other specifics in the CEBA loan agreement providing the lender with any other powers.

There is no personal guarantee attached to this CEBA loan. However, there is some language that speaks to the CEBA agreement being binding on “your heirs, your successors and personal representatives – including executors and administrators”. This language did not make any sense when only corporations could apply in the beginning. The language now makes sense because the CEBA update created the CEBA expansion to include sole proprietors and partners, who of course, are people, not companies.

I have received some calls from entrepreneurs who applied for and obtained the CEBA $60K loan expansion funds. Their company is still in financial trouble; it was just able to hang on longer. The business owners want to know if their company has to enter into an insolvency proceeding, what is their risk as it relates to the CEBA repayment?

To date, I have advised them of my understanding of the CEBA loan terms and CEBA loan events of default as outlined above. I also caution entrepreneurs that the company books and records should be able to show both the receipt of the CEBA interest-free loan and that the funds were used for appropriate business purposes.

CEBA update summary

I hope you enjoyed this CEBA update Brandon Blog post on the current rules for the Canada Emergency Business Account. This is one of several government programs to hopefully allow business continuity to survive.

Are you worried because you or your business are dealing with substantial debt challenges and you assume bankruptcy is your only option? Call me. It is not your fault that you remain in this way. You have actually been only shown the old ways to try to deal with financial issues. These old ways do not work anymore.

The Ira Smith Team utilizes new modern-day ways to get you out of your debt difficulties while avoiding bankruptcy. We can get you the relief you need and so deserve.

The tension put upon you is big. We know your discomfort factors. We will check out your entire situation and design a new approach that is as unique as you and your problems; financial and emotional. We will take the weight off of your shoulders and blow away the dark cloud hanging over you. We will design a debt settlement strategy for you. We know that we can help you now.

We understand that people and businesses facing financial issues need a realistic lifeline. There is no “one solution fits all” method with the Ira Smith Team. Not everyone has to file bankruptcy in Canada. The majority of our clients never do. We help many people and companies stay clear of bankruptcy.

That is why we can establish a new restructuring procedure for paying down debt that will be built just for you. It will be as one-of-a-kind as the economic issues and discomfort you are encountering. If any one of these seems familiar to you and you are serious about getting the solution you need, contact the Ira Smith Trustee & Receiver Inc. group today.

Call us now for a no-cost consultation.

We will get you or your business back up driving to healthy and balanced trouble-free operations and get rid of the discomfort factors in your life, Starting Over, Starting Now.

Brandon Blog Post

SMALL BUSINESSES IN CANADA ACCUMULATE MASSIVE DEBT DUE TO COVID-19

Post author By Brandon Smith
Post date March 1, 2021

We hope that you and your family are safe, healthy and secure during this coronavirus pandemic.

Ira Smith Trustee & Receiver Inc. is absolutely operational and Ira, in addition to Brandon Smith, is readily available for a telephone consultation or video meeting.

If you would prefer to listen to the audio version of this small businesses in Canada Brandon Blog, please scroll to the bottom and click play on the podcast.

Small businesses in Canada introduction

Did you know that since the start of the COVID-19 outbreak 1 year ago that small businesses in Canada racked up $135 billion worth of debt to stay afloat? Seven in 10 small businesses in Canada have actually borrowed money because of COVID-19. The average is almost $170,000 per business, according to a new survey released by the Canadian Federation of Independent Business (CFIB). In total, small businesses in Canada currently owe a cumulative $135 billion.

Out of these businesses that have increased their debt, 76% say it will take them over a year to pay it off. Eleven percent of respondents worry that they might not have the ability to repay their COVID-19 associated financial obligations ever! As far as returning to normal profitability (before the additional COVID-19 debt repayment), 40% are hoping to see it in 1 year’s time, but they really worry that it will take longer.

The purpose of this small businesses in Canada Brandon Blog is to discuss how important small business really is to the Canadian economy and what options exist for businesses and companies facing insurmountable debt challenges. Sometimes I will refer to small businesses in Canada as SMEs.

Contribution of SMEs to Canadian business

The best way to describe the contribution of SMEs to the Canadian economy is by looking at the most recent facts about small businesses in Canada reported by Statistics Canada.

How many businesses in Canada are small businesses?

The widely held definition of a small business corporation is a company that employs no more than 500 people and that has a total asset value of less than $15 million. Most of us have heard that a “small business” is one that employs fewer than 50 people — and that a “big business” has more than 500 employees. But what about businesses that fall in the middle? They are not quite small, but they’re not quite big either; they all fall into the category of SMEs.

In Canada, 91 percent of businesses fall into this in-between category, and there are roughly 3.5 million businesses in total. That’s a lot of businesses to keep up with.

What is the contribution of SMEs to exports in Canada?

Small businesses in Canada are not just small versions of large companies. They are different beasts altogether, and their individual contributions to the Canadian economy are just as important as those of their larger counterparts. In fact, SMEs contribute almost 50% of the country’s exports, and if they were taken out of the picture, exports would fall by almost 40%.

In 2018, exports of items were valued at $522.8 billion, of which 41.1 percent was attributable to SMEs. More than 50,000 Canadian companies exported goods, the huge majority of which were SMEs (97.4 percent).

How many people were employed in Canada in 2019?

In 2019, roughly 16.1 million people were employed in Canada. Private sector businesses employed 76.2% of the total number. The public sector employed the balance of 23.8%.

The definition of small businesses in Canada ranked by firm size using the number of employees are:

Small companies (1 – 99 workers)
Medium-sized businesses (100 − 499 workers)
SMEs (1 − 499 employees)
Large companies (500+ workers).

What is the distribution of employment across the private sector?

The variety of people employed defined by the business size of the employer varies significantly between the private and public sectors. In 2019, 88.5% of employed individuals in the economic sector worked for small businesses in Canada, compared with 76.2 percent of those used by public companies of the same dimension.

For the five-year period 2014-2019, Canadian employment ranks had a net gain of 1,076,100. Just over 70% of this increase is attributed to the private sector employment and less than 30% to the public sector.

How many businesses appear and disappear each year?

From these statistics, we see that the contribution of SMEs to economic growth is huge. These small and medium-sized businesses make up the majority of businesses in Canada. These key small business statistics show just how important these Canadian businesses are to the survival of the Canadian economy.

An increase or decrease in the number of businesses is the net result of the appearance or disappearance of businesses over a given period. This is often referred to as “creative destruction.” Between 2001 and 2016, the business birth rate was greater than those that died, except for two: in 2013 and in 2016, when more businesses disappeared (97,151 and 95,889) than were created (95,326 and 95,176),

There are more business births each year than those that disappear, other than for 2 years; 2013 and 2016. According to a Business Development Canada report from the Business Development Bank of Canada, there are more than a quarter of a million businesses in the country at any one time each year. More than 40,000 disappear.

The report was based on data from Statistics Canada’s Business Demography Statistics, which tracks businesses based on the number of active and inactive corporations, and Entrepreneurship in Canada, which tracks self-employed and “indeterminate” businesses. The Statistics Canada information is that business formation is on the rise, and the rate of business deaths has decreased.

This variation between the average birth rate for these two sectors can be explained by the entry cost and different levels of competition. If this is, indeed, the case, higher birth rates would be observed in sectors with a lower entry cost or with a higher level of competition than other sectors.

So more small businesses in Canada appear than disappear every year according to these findings. These statistics of course were from time periods all before the coronavirus pandemic.

What proportion of new businesses survive the first 15 years?

Every year, an average of 128,000 new businesses are started in Canada. According to the CFIB, about 10% of these new businesses close their doors within the first year. By year 10, that number has risen to 25%. Those are pretty alarming statistics, no matter how you look at them.

What this means is that most new businesses are doomed to fail in their first year, and many of the rest will only survive a few years beyond that. Here are some more alarming statistics on the percent of SMEs enterprise survival rate:

there is a 45.8% chance that a business will survive for one year;
a 32.3% chance that it will survive for two years;
an 18.3% chance that it will survive for three years; and
a 9.5% chance that it will survive for five years.

How many small businesses in Canada could close permanently amid a pandemic

The number of small businesses in Canada that survive for ten years (and beyond) is quite low, so it is important to recognize those that are able to make it. So two essential business owner characteristics have to be eternal optimism and being a solid business planner when starting a new business because of the high failure rate.

Now take those long odds for a business survival rate and layer a global pandemic on top of that. The COVID-19 pandemic is nerve-wracking enough to the general public, but for many small business owners, it is downright terrifying. According to the CFIB, close to half of the country’s small businesses could close permanently. The CFIB‘s findings were based on responses from 1,800 small business owners. The CFIB called for the government to provide small business owners with the tools they need to protect themselves and keep their businesses afloat.

The Public Health Agency of Canada reported an even scarier estimate. It felt that up to 70% of small businesses in Canada could close permanently amid a pandemic. The reason? Employees and customers won’t show up. The industry sectors that will be affected the most are the ones whose employees and customers are the most mobile and those whose employees have to work in crowds, like cabs, the hospitality industry, food and beverage, and theatres.

From what we have seen so far, they are correct.

The need for government assistance for Canadian business

Given this result, the Canadian federal government is investing heavily in maintaining and creating jobs to help the struggling Canadian economy. One of its investment vehicles is Canada’s COVID-19 Economic Response Plan which I have previously written about. This program is aimed at supporting business sectors that create jobs here.

This financial help program is designed to assist businesses that are having difficulties because of the pandemic-caused state of the economy. It is intended to support businesses that create jobs. Although many of the support programs have now ended, the Economic Response Plan still has the following programs:

Canada Emergency Wage Subsidy (CEWS); and the
Canada Emergency Business Account (CEBA) interest-free loan
small businesses in canada

Saving small businesses in Canada

So before COVID-19 arrived here, the odds were always against Canadian start-up businesses having a healthy long-term survival rate. With the pandemic, credible Canadian organizations estimate that we could lose 50% (CFIB) to 70% (Public Health Agency of Canada) of small businesses in Canada.

The life support program federal and provincial governments have instituted help. Multiple lockdowns obviously do not. What is really needed is some sort of return to normal operations so that business revenue can return. Then hopefully over time, profitability will follow. But that is really outside of all of our control.

However, as a licensed insolvency trustee (Trustee), there are things we are currently doing for businesses that cannot see any short-term prospects for being able to overcome their debt problems on their own. The kinds of businesses that we are seeing fall into two categories; viable and non-viable.

The first thing I do as a Trustee is to get a good understanding from the business owner as to the history of the business and the reasons why the business owner believes the company has gotten itself into financial trouble. I also want to get a snapshot of what the assets and liabilities of the business are and I try to form an assessment as to whether the business is viable or not. Even if viable, does the entrepreneur have the energy, mindset and desire to manage a business turnaround. Finally, I need to understand the cash flow requirements of the business and is there a source of funding.

I then analyze all this information and form an opinion as to what the realistic options are for the company and its business. Depending on each situation, the range of options are:

The business operations and debt levels are such that they are not serious enough and the company, over time, should be able to work itself out of a short-term cash crunch through some imaginative management of the company. Perhaps even an informal restructuring of sorts.
The business is viable but needs to do a formal restructuring in order to keep the good parts of the business so that it can become profitable again and continue to provide jobs to Canadians. The process would be either a Division I Proposal under the Bankruptcy and Insolvency Act (Canada) (BIA) or a Plan of Arrangement under the Companies’ Creditors Arrangement Act (Canada) (CCAA).
If a formal restructuring is not possible, perhaps a sale of the business assets is required and the buyer will operate the assets as an operating business. In this case, a secured creditor will enforce its security in a receivership, through either a private appointment or a court appointment.
Finally, maybe corporate bankruptcy is required either in concert with the secured creditor enforcement or by itself if there are no secured creditors. This would allow for the necessary protection to give the time to liquidate the assets, either as a going concern sale or a pure liquidation. The funds obtained from the sale would then be paid to the creditors, in priority of their claims.

Entrepreneurs are obviously scared of any formal insolvency proceeding

The idea of a formal insolvency proceeding makes an entrepreneur feel like a failure. I know they can feel discouraged, but the business isn’t in trouble because senior management did something wrong. You didn’t fail. Business conditions changed. Especially under today’s pandemic circumstances.

Now you’re ready to move forward with your business, but you need some help. That’s what the BIA and CCAA are designed to do; to help your business make a new start. Insolvency proceedings are there to provide a safety net for people and companies. It’s a tool that responsible people use to save a good business after a setback.

Don’t worry what your customers might think about you if your business goes through a formal insolvency proceeding. You won’t be the first and you won’t be the last.

Small businesses in Canada summary

I hope that you found the question posed in this small businesses in Canada Brandon Blog. If you are concerned because you or your business are dealing with substantial debt challenges and you assume bankruptcy is your only option, call me. It is not your fault that you remain in this way. You have actually been only shown the old ways to try to deal with financial issues. These old ways do not work anymore.

The Ira Smith Team utilizes new modern-day ways to get you out of your debt difficulties while avoiding bankruptcy. We can get you the relief you need and so deserve.

We understand that people and businesses facing financial issues need a realistic lifeline. There is no “one solution fits all” method with theIra Smith Team. Not everyone has to file bankruptcy in Canada. The majority of our clients never do. We help many people and companies stay clear of bankruptcy.

That is why we can establish a new restructuring procedure for paying down debt that will be built just for you. It will be as one-of-a-kind as the economic issues and discomfort you are encountering. If any one of these seems familiar to you and you are serious about getting the solution you need, contact the Ira Smith Trustee & Receiver Inc. group today.

Call us now for a no-cost consultation.

We will get you or your business back up driving to healthy and balanced trouble-free operations and get rid of the discomfort factors in your life, Starting Over, Starting Now.

We hope that you and your family are safe, healthy and secure during this coronavirus pandemic.

Ira Smith Trustee & Receiver Inc. is absolutely operational and Ira, in addition to Brandon Smith, is readily available for a telephone consultation or video meeting.

Tags Business Development Canada, canada emergency business account (ceba), canada emergency wage subsidy cews, Canada's COVID-19 Economic Response Plan, Canadian Federation of Independent Business, cfib, How many businesses appear and disappear each year?, How many businesses in Canada are small businesses?, How many people were employed in Canada in 2019?, How many small businesses in Canada could close permanently amid a pandemic, Ira Smith Trustee, licensed insolvency trustee, small businesses in canada, small businesses in Canada racked up $135 billion worth of debt, Statistics Canada, Statistics Canada's Business Demography Statistics, What is the contribution of SMEs to exports in Canada?, What is the distribution of employment across the private sector?, What proportion of new businesses survive the first 15 years?

Brandon Blog Post

SMALL BUSINESS IN CANADA: MUST A STAGGERING 200,000 CANADIAN SMALL BUSINESSES DECLARE BANKRUPTCY DUE TO THE PANDEMIC?

Post author By Brandon Smith
Post date January 25, 2021

We hope that you and your family are safe, healthy and secure during this coronavirus pandemic.

Ira Smith Trustee & Receiver Inc. is absolutely operational and Ira, in addition to Brandon Smith, is readily available for a telephone consultation or video meeting.

If you would prefer to listen to the audio version of the small business in Canada Brandon Blog, please scroll to the very bottom of the page and click play on the podcast.

Small business in Canada introduction

The Canadian Federation of Independent Business (CFIB) is the country’s champ of small business in Canada. CFIB is Canada’s biggest non-profit organization devoted to producing and sustaining an atmosphere where your small business in Canada can succeed.

CFIB promotes small business in Canada issues with political leaders as well as decision-makers. As a non-partisan company, it influences public policy based upon its members’ views. It tries to ensure that small business owners have an opportunity to impact the regulations and policies that impact Canadian business.

A member survey was performed by CFIB and the results were announced on Thursday, January 21, 2021. The results suggest that greater than 200,000 organizations could shut permanently because of and during the pandemic.

The federation states that it could throw greater than 2.4 million people out of work. The study suggests 1 in 6, or about 181,000 small companies, are currently seriously considering closing down. That’s up from 1 in seven or around 158,000 last summer.

The CFIB is contacting provincial and federal governments to try to help small businesses by presenting secure pathways to re-open and end lockdowns that may kill off these businesses.

The question I wish to explore with you today is if a small business in Canada needs to shut down, does it have to become one of the statistics of Canadian business bankruptcies? Must it file for corporate bankruptcy? For this small business in Canada Brandon Blog, I will assume that the small business is a corporation.

Small business in Canada: When is a corporation bankrupt, or insolvent?

As I have discussed with you in previous blogs, a company is insolvent under the BIA if:

it is not able to satisfy its debts as they generally come to be due; or
it has ceased paying current debts in the normal course of business as they end up being due; or
the company’s property is not enough, at a fair valuation, to permit settlement of all debts (significance that even if all the property was to be sold, the proceeds would not provide sufficient cash to pay all financial obligations which are owed, or will certainly soon end up being due).

A company is bankrupt under the Bankruptcy and Insolvency Act (Canada) (BIA) if it has made an assignment in bankruptcy, or if a bankruptcy order has actually been made against it. Bankruptcy is a legal process to eliminate debts if the small business in Canada is unable to pay them.

To be bankrupt, in the case of an assignment, the company, and in the case of a court order, the applicant creditor would have engaged the services of a licensed insolvency trustee (formerly called a bankruptcy trustee or a trustee in bankruptcy). Licensed insolvency trustees are the only professionals allowed to administer bankruptcies in Canada and are licensed and supervised by the Office of the Superintendent of Bankruptcy (OSB).

Every corporate bankruptcy is what is called an “ordinary administration“. Unlike in personal bankruptcy, there is no streamlined method for corporate bankruptcy. Remember this point as it serves as the basis for answering the question “Must a small business in Canada declare bankruptcy in order to close down due to the pandemic“?

***Small business in Canada*: Is small business bankruptcy the right choice?**

One of the most difficult decisions that an entrepreneur owner of a small business in Canada ever needs to make is whether or not to put his/her business into bankruptcy. Obviously, every entrepreneur goes into business hoping for success, so thinking about bankruptcy isn’t just an economic decision; it is a psychological emotional one too. It’s very crucial to understand the truths regarding local business bankruptcy and also the various other options that may be available to you before you make that decision. This will aid you to avoid making a rash choice that could be the wrong one.

The reality is that, for many companies, there are choices besides small business in Canada bankruptcy. One possible choice is a proposal to creditors. In a proposal, you make a deal to your unsecured creditors to pay off a percentage of what is owed to them and/or stretch out (commonly lower) monthly payments over a longer amount of time. This ensures that creditors receive either some or all of what is owed to them in a way the company can afford. This enables small business in Canada to avoid bankruptcy and remain in operation.

The whole concept of a proposal is that you have a corporate entity that is insolvent, but, the underlying business is viable. If you can cut away the layers of debt, the business could continue to operate and employ people. You may even need to transition the business assets to a new corporation. All of this is possible under a Division I Proposal under the BIA. A proposal under the BIA is the same as the term you hear in the news all the time – bankruptcy protection. The company ultimately comes up with a plan of reorganization to tell its unsecured creditors what the company can do for them because it does not have the necessary money to pay them 100%.

If the business is not that complex and there are only a few creditors, possibly an informal proposal would work. The entrepreneur would discuss his company’s problems with each creditor and make an offer to them that is both appropriate and something the company can pay. If successful, the company can avoid formal restructuring proceedings. If there are too many creditors to do it on an informal basis, or if the restructuring is too complex, the small business can restructure under the BIA.

A proposal can be an excellent option for a small business that has actually encountered recent economic issues while having had success in the past. It can also be useful for a small company that was profitable but is now having a hard time due to the fact that past issues are weighing it down. A proposal is one of the alternatives to bankruptcy that I implement to save a company by allowing it to develop its plan of reorganization to emerge healthy to stay in business and to save jobs.

However, for some organizations, filing for small company bankruptcy is the choice that makes the most sense. A Trustee can help you recognize the alternatives available to ensure that you can decide if a bankruptcy filing is a proper alternative for your small business.

***Small business in Canada*: Is just closing the door an alternative?**

Over the years we have consulted with many entrepreneurs about their small businesses in Toronto or other small business Ontario locations. Many times we end up advising them that it does not make sense to spend the money on any of the various types of bankruptcy proceedings. The size of the company and the nature of its assets makes either a proposal in bankruptcy or any bankruptcy process unnecessary. None of the forms of bankruptcy make sense. Let me explain.

Most small business opportunities in Canada started by entrepreneurs are funded using a variety of methods including:

investment by the owners;
small business start up grants Canada; and
small business loans.

More recently, the small business loan covid 19 Canada ($40000 Canada Emergency Business Account (CEBA) loan which has now been increased to $60,000) has also been used. The combination of owners taking stock in exchange for cash, loaning money to the small business and having a small business bank loan, perhaps even the official government-guaranteed Canada small business loan is pretty standard.

The bank will take security over all of the assets of the small business in Canada. By the time the business needs to shut down, there are not many assets left. Whatever assets there are, they are all fully secured by the bank. If the business is no longer viable, then although it is insolvent, it cannot be restructured as the business itself does not work anymore. If the assets are all fully encumbered, then there is no restructuring that can take place.

So a Division I Proposal under the BIA is not possible. Bankruptcy is a remedy for the unsecured creditors. If there are not many assets left, and what is left is fully secured by the bank, then the bank will suffer a shortfall and there are no assets available for the Trustee to use to make a distribution to the unsecured creditors. So why have any type of bankruptcy or any bankruptcy proceeding? It does not make sense to spend that money.

In this situation, it just makes sense to tell the bank that the business is shutting down, turn the key in the lock to the front door and give the key to the bank.

***Small business in Canada*: So what happens if I just close the door and lock it?**

I call this the self-help remedy. There are too many problems with the business that it is not viable anymore. Perhaps the COVID-19 lockdown is just too tough to recover from and the small business cannot survive. Perhaps the assets are not worth much – think restaurant equipment where the cost of the leasehold improvements may be as much as the cost of the equipment. Because of this, the only choice is to walk away.

As a director of the company, you have a responsibility to make sure that all final government returns are completed and filed. If the company’s books and records are stored on-site. Perhaps the accounting information is stored on a computer hard drive. The directors should make sure that the books and records, be they electronic or physical, are safeguarded by taking them off the business premises.

You may need them not only to prepare final returns but also in case Canada Revenue Agency or any other regulatory authority has any questions or wishes to perform an audit. The directors will also want to make sure that all final employee records are completed and distributed to the former employees.

Next comes the bank. In Canada, the bank loan would have been either fully or partially guaranteed by the entrepreneur. The entrepreneur may have also personally guaranteed the premises lease of the business. The entrepreneur may also have personal liability for director obligations such as unremitted source deductions, unpaid HST and outstanding employee wages and vacation pay.

If the individual does not have sufficient personal assets or other resources to make good on their personal guarantee, then rather than focussing on bankruptcy for the business notwithstanding all the business debts, we need to focus on the person’s situation. Perhaps they will need to look at the various bankruptcy options, be it a consumer proposal, Division I Proposal or as a last resort, bankruptcy.

It will be much more productive for the entrepreneur to retain me to help them with their personal financial problems arising out of the closure of the small business in Canada rather than on the business itself that has little in the way of assets and no viable business left to salvage.

Must 200,000 Canadian small businesses declare bankruptcy due to the pandemic?

So given the above, the answer to the question is no. If the small business in Canada is viable, then perhaps it can be restructured to avoid bankruptcy, maintain operations and save jobs. If it is not viable, then, bankruptcy may be necessary depending on the complexity of the business and the issues facing it.

If it is not complex and there are no free assets, then just closing the doors of that small business in Canada is all that needs to happen. The individual will then have to deal with their personal liabilities arising from that.

Small business in Canada summary

I hope you enjoyed this small business in Canada Brandon Blog post. If you are concerned because you or your business are dealing with substantial debt challenges and you assume bankruptcy is your only option, call me. It is not your fault that you remain in this way. You have actually been only shown the old ways to try to deal with financial issues. These old ways do not work anymore.

The Ira Smith Team utilizes new modern-day ways to get you out of your debt difficulties while avoiding bankruptcy. We can get you the relief you need and so deserve.

That is why we can establish a new restructuring procedure for paying down debt that will be built just for you. It will be as one-of-a-kind as the economic issues and discomfort you are encountering. If any one of this seems familiar to you and you are serious about getting the solution you need, Contact the Ira Smith Trustee & Receiver Inc. group today.

Call us now for a no-cost consultation.

We will get you or your business back up driving to healthy and balanced trouble-free operations and get rid of the discomfort factors in your life, Starting Over, Starting Now.

We hope that you and your family are safe, healthy and secure during this coronavirus pandemic.

Ira Smith Trustee & Receiver Inc. is absolutely operational and Ira, in addition to Brandon Smith, is readily available for a telephone consultation or video meeting.

Tags Bankruptcy, bankruptcy trustee, business debts, canada emergency business account (ceba), canadian federation of indepdent business, cfib, Corporate Bankruptcy, Division I Proposal, Ira Smith Trustee, licensed insolvency trustee, small business, small business canada, small business in canada, small business loan covid 19 Canada 40000, small business Ontario, small business start up grants, small businesses in Toronto, when is a corporation bankrupt

Brandon Blog Post

CANADIAN BUSINESS: WHAT WILL BE THE ULTIMATE BUSINESS IN ONTARIO RECOVERY PROGRAM?

Post author By Brandon Smith
Post date July 8, 2020

The Ira Smith Trustee Team is absolutely operational and Ira, in addition to Brandon Smith, is readily available for a telephone consultation or video meeting.

Canadian business introduction

In April 2020, a survey of entrepreneurs who own what could be called a small Canadian business across the GTA was conducted. It found that almost two-thirds of them might have to shut down for good as they struggle to stay on top of rent and other bills throughout the COVID-19 pandemic.

In this Brandon’s Blog, I look at entrepreneurs in Canadian business, both small and large, and talk about the one essential ingredient that will determine Canadian business success or failure. This one necessary item may turn out to be the only Canadian business recovery program that will ultimately work.

Canadian business opening-up again

Many are progressively opening up under local, provincial and federal government guidance. They need to navigate a host of constraints, including restrictions on the number of customers at any one time. I have read that many say the restrictions with their added layer of costs may stop them from being profitable. Even though COVID-19 cases appear to be under control in Ontario, companies have actually reopened to dramatically smaller sized groups, imperilling their survival.

To save local Canadian businesses, and the millions they employ, the federal government developed Canada’s COVID-19 Economic Response Plan. The federal assistance programs for Canadian business include:

Canada Emergency Wage Subsidy (CEWS )
Temporary 10% Wage Subsidy
More time to pay income taxes
Canada Emergency Business Account interest-free loans
Loan Guarantee for Small and Medium-Sized Enterprises
Canada Emergency Response Benefit (CERB) for the self-employed business people and Canadian workers.
Canada Emergency Commercial Rent Assistance (CECRA)

I have already written about most of these support programs. I have attached relevant links above so that you can read up on the various support programs for Canadian business.

Provincial governments have also stepped up. For example, in Ontario, the Doug Ford Conservative government has implemented:

Interest/penalty relief – Canadian business in Ontario will get five months of interest and fine relief to make payments for taxes administered by the Province. From April 1, 2020 – August 31, 2020, Ontario will not apply any penalty interest on any late-filed returns or incomplete or late tax obligation payments under the Employer Health Tax, Tobacco Tax and Gas Tax obligations. This enhances relief from the federal government on interest and other charges from not remitting the amount owing for corporate income tax.
WSIB payment deferments – Employers can delay WSIB payments for 6 months.
Rent support for local Canadian business – Ontario has partnered with the Government of Canada on the Ontario-Canada emergency commercial rent assistance for small businesses and landlords experiencing financial problems throughout the COVID-19 pandemic.

But there are still Canadian business problems

Despite all these support programs, the Canadian business world still has to figure out how to pay the balance of their rent, utility, insurance as well as a host of various other recurring expenses. While some have had the ability to delay these expenses, they can’t do so for life. Companies will become required to take care of their unmet commitments. They will also have to figure out how they are going to go back to paying all their expenses in full once the support programs end and business has not yet come back to the pre-coronavirus pandemic level.

Some companies may have enough cash savings to ride out the pandemic or can access fresh cash resources from owners. That is both good and bad. Entrepreneurs will take from their retirement savings, and in some cases deplete them, in the hopes of keeping their business alive long enough to survive and once again be profitable. It is highly doubtful that Canadian business will be able to borrow from the Banks as a source of fresh capital under these circumstances.

For a lot of others, the crush of past-due costs will certainly limit and maybe even end their business.

What happens when the government support programs end?

That is a big question that I get asked always. The answer is somewhat obvious: Everyone will have to stand on their own two feet just like they had to before the COVID-19 pandemic. Right now all the Canadian business support programs are all scheduled to end August 31. What will happen then?

My personal belief is that the federal and provincial governments will not be able to end the economic response support programs that soon. Rather, I think they will have to extend all the programs again. They may tweak them to begin the process of weaning Canadian business off of government support. Nevertheless, I feel they will have to be extended.

I think the extension will come with stark warnings. I believe the government would not want to extend for more than 90 days, but Christmas will still come in December. Pandemic or no pandemic. Nobody will want to shut off the tap before Christmas. So, that means an extension until the end of the calendar year 2020. With it, the governments will have to warn everyone to get their houses in order now because for certain there will be no more support programs after December 31.

I don’t have any inside information. I am just guessing. But to me, that seems the most realistic to still help Canadian business because entrepreneurs and workers are still all scared. At the same time, the governments’ exit strategy time clock begins ticking. Everyone will have a fair warning.

There is one precious commodity Canadian business will need when the support programs stop

Please humour me. Let us just say you find my prediction to be a reasonable one. On January 1, 2021, Canadian business is not all of a sudden flush with cash. They have survived. Entrepreneurs will still be scared. They certainly will not hire everyone back with an uncertain economic climate. All of the creditors of the businesses will start demanding payment in full. They have been patient and understanding. But now, all business debts will be demanded.

What is the one commodity Canadian business will desperately need? Cash is an obvious one but, no more is coming. Not from the government, the Banks or investors. Entrepreneurs are already tapped out having used personal savings to keep their businesses afloat. The most precious commodity Canadian business will need is TIME. Time to gear up again. Time to get back on their feet and bring in some cash. The Courts will have reopened. Creditors will begin to sue. There will be no more “time-outs” built into our Canadian economic system.

How will businesses get the time they need?

Bankruptcy protection will very likely be the answer

Breathing time that briefly ices up the need to pay off old debt while letting Canadian business function and have the time to find a strategy to keep going. In most cases, that will only be able to happen with a bankruptcy protection insolvency filing.

While bankruptcy is only thought of with going out of business, there are two Canadian federal statutes that allow viable businesses to develop a restructuring plan to lead them back to success. The trouble is that bankruptcy laws don’t give sufficient time to do this while there is still a pandemic. Ongoing COVID-19 health problems will likely suppress the Canadian economy in 2021.

Some out-of-the-box thinking and creativity are going to have to go into bankruptcy restructuring. It will be incumbent on licensed insolvency trustees (formerly called bankruptcy trustees), insolvency lawyers and the courts to recognize viable businesses that deserve to survive. This will be the case even if the processes being recommended are a bit unorthodox. These times are unorthodox and the solutions will have to fit the realities of our time.

I have previously written many blogs on how the two Canadian insolvency statutes can be used to allow Canadian business to restructure. The two statutes are:

Bankruptcy and Insolvency Act (BIA)

Companies’ Creditors Arrangement Act (CCAA)

For the purpose of this blog, I won’t repeat what I have previously written about corporate restructuring under either the BIA or CCAA. For this blog, what you need to know is that CCAA proceedings are for companies with $5 million or more of debt. BIA proceedings are for those companies with $4,999,999 of debt or less. Both statutes allow for bankruptcy protection filing. They are the Canadian equivalent to Chapter 11 bankruptcy protection in the United States.

How will bankruptcy protections help Canadian business?

For numerous companies battling the consequences of COVID-19, the main issue will not be a massive backlog of debt. It will be the inability to pay off the debt fast due to an absence of immediate profits. Cash will be needed to carry on business and make commitments on a go-forward basis. Given enough time, Canadian business will be able to repay its debts which accrued during the coronavirus shutdown. Unfortunately, the time Canadian business will need will be much longer than how much longer creditors will be willing to wait.

This is where bankruptcy protection filing, under either the BIA or CCAA comes in. First, under a bankruptcy protection filing, there is an automatic stay of proceedings. Creditors will not be able to start or continue collection efforts. This includes repossession by secured creditors or beginning or continuing legal proceedings.

Other benefits of a bankruptcy protection filing for Canadian business will be:

Buying some time to come up with a restructuring plan to keep viable businesses in operation.
Saving jobs through restructuring rather than liquidating the assets of many companies.
Allowing for the sale of entire business units to be integrated into other healthier companies in order for businesses to survive, albeit in a different legal format.
To allow for the sale of redundant assets to raise much-needed cash.
Get out of onerous equipment, IP or premises leases/contracts that need to be jettisoned or else a restructuring is not possible.
Stopping secured lenders from calling a default on loan facilities due to either cash or non-cash impairment charges leading to going concern worries.
Obtain operating capital by way of a new debtor-in-possession loan credit facility for restructuring. Most companies outside of a formal restructuring will be unable to borrow any more money as I have already mentioned. However, in a BIA or CCAA Canadian business restructuring, the court can approve emergency funding and raise that operating loan to the top of the pile by giving it a priority secured loan position.
Stopping Canada Revenue Agency (CRA) from starting or continuing garnishee tactics, general collection efforts and especially placing liens on business property for unpaid taxes.
To allow companies to restructure their debt and clean up their balance sheets in a post lockdown economy.

The biggest resource Canadian business will need is also going to be its largest enemy

So as you can see, I believe that the most important resource that Canadian business will need to survive will not be cash. It will be time. Creditors will no longer want to give businesses more time to repay. Companies will need more time to get back on their feet when the COVID-19 Economic Response Plan support programs end.

The only way I can see that truly happening while allowing for proper restructuring of viable businesses will be under bankruptcy protection filings. Those businesses that are not viable, by definition, will fall by the wayside causing more harm to many good people.

So this why I say formal bankruptcy protection proceedings to allow viable businesses to restructure will be the ultimate business recovery program in a post-lockdown Canada.

Canadian business summary

I hope you have found this Canadian business Brandon’s Blog interesting and helpful. The Ira Smith Team family hopes that you and your family members are remaining secure, healthy and well-balanced. Our hearts go out to every person that has been affected either via misfortune or inconvenience.

We all must help each other to stop the spread of the coronavirus. Social distancing and self-quarantining are sacrifices that are not optional. Families are literally separated from each other. We look forward to the time when life can return to something near to typical and we can all be together once again.

Ira Smith Trustee & Receiver Inc. has constantly used clean, safe and secure ways in our professional firm and we continue to do so.

Income, revenue and cash flow shortages are critical issues facing entrepreneurs, their companies and individual Canadians. This is especially true these days.

If anyone needs our assistance for debt relief Canada COVID-19, or you just need some answers for questions that are bothering you, 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.

The Ira Smith Trustee Team is absolutely operational and Ira, in addition to Brandon Smith, is readily available for a telephone consultation or video meeting.

Brandon Blog Post

CANADA EMERGENCY WAGE SUBSIDY: HELPING YOUR COVID-19 BUSINESS RECOVERY

Post author By Brandon Smith
Post date May 20, 2020

The Ira Smith Team is absolutely operational and Ira, in addition to Brandon Smith, is readily available for a telephone consultation or video meeting.

Stay healthy, well balanced and safe and secure everyone.

Introduction

Statistics Canada says the annual cost of living rate went negative in April as the economy came to a standstill in the very first full month of the pandemic. The agency says the consumer price index for April fell 0.2 percent compared with a year ago as energy rates did a nosedive. It was the very first year-over-year decline in the CPI since September 2009. As a result, on May 15, Prime Minister Justin Trudeau announced some amendments to existing Federal government support programs, including the Canada Emergency Wage Subsidy program, to help during this COVID-19 pandemic.

Millions of Canadians have actually lost their jobs due to the COVID-19 pandemic. As our economic recovery gradually begins, any place feasible to do so securely, Canadians need to return to work. Businesses opening up again safely will bring life back into the Canadian economic climate. That is exactly why the federal government generated the Canada Emergency Wage Subsidy (CEWS) (initially called the Canada Emergency Response Benefit) in March.

Canada Emergency Wage Subsidy extended

I have previously written about the federal government assistance programs to help both workers and employers. The overall umbrella name for all the programs is the COVID-19 Economic Response Plan. When the CEWS program was launched, critics quickly pointed out that it did not cover all types of businesses. They also wondered if the original program, scheduled to end June 30, was long enough to really help the economy.

On May 15, PM Trudeau introduced amendments to the program to help businesses get ready for reopening. These companies need to be able to rehire workers and with any luck perhaps hire even more than they had when the state of an emergency shutdown was declared. So, the CEWS is extended for 3 extra months to August 29. The CEWS covers 75% of an employee’s salaries– up to $847 per week – for eligible employers. For those able to additionally benefit from the Temporary 10% Wage Subsidy for a period, any credits taken under that program for a pay period will decrease the amount available to be claimed under the CEWS for that exact same time period.

The 1 part of your business your customers are most worried about

So businesses currently have some runway to get restarted. This is a good thing as businesses will certainly need funding to reactivate. Specific businesses might need a few extra staff members than they had before the shutdown. I just read this morning an article about what restaurants and other businesses may have to do to make customers feel at ease about returning.

The one area of the business that people might fear is the washroom. The article raises the following questions that should be answered before reopening:

How many people can be in there at one time?
Is every other urinal in the men’s room going to have to be sealed off?
Are the barriers between stalls and urinals sufficient?
Do the sinks have automatic taps or will patrons have to use the handles to turn on the water?

So a new job category that really hasn’t been seen much since the early 1960s might just come back – the washroom attendant. The business will have to make sure they can prove to their customers and clients that the washrooms are being cleaned on a very regular basis. Someone will have to make sure that there are only a limited number of people in a washroom at one time so that social distancing can be maintained. This could lead to new jobs!

Other amendments to the CEWS

The CEWS will ideally keep encouraging companies to rehire staff and even broaden where possible. The federal government has actually pledged, for moving forward, that it will work with company and labour stakeholders on any other changes that might be required.

Among the important things, they will certainly be looking at the 30% income drop limit for eligibility. As companies start-up, satisfying that revenue test should not be an obstacle to growth. Although all businesses require aid, certain ones could not fulfill the revenue decline test. There are two main factors. The revenue decline examination is on a monthly basis. Considering that the first half of March businesses were operating normally, many could not meet the test for that month. Startup companies probably couldn’t either.

Other businesses did not qualify not because of the revenue decline test, but because their business did not meet the original definition. So, Justin Trudeau announced broadened eligibility for the CEWS benefit. Previously, only corporations and charitable organizations were eligible employers for this wage subsidy benefit. Now the list has been expanded.

The eligible employer list has now been expanded and includes:

individuals (including trusts)
taxable corporations
persons that are exempt from corporate tax (Part I of the Income Tax Act), other than public institutions:
non-profit organizations
agricultural organizations
boards of trade
chambers of commerce
non-profit corporations for scientific research and experimental development
labour organizations or societies
benevolent or fraternal benefit societies or orders
registered charities
partnerships consisting of eligible employers

Public institutions continue to not be eligible for the subsidy. This includes municipalities and local governments, Crown corporations, public universities, colleges, schools and hospitals.

Canadian Emergency Business Account (CEBA)

In my April 13 blog, COVID 19 BUSINESS SUPPORT: CANADA EMERGENCY BUSINESS ACCOUNT REVIEW, I described the CEBA in detail, as the program then existed. On May 15, at the same time, he was announcing the extension and changes to the CEWS, PM Trudeau also announced an expansion of the CEBA program. The expansion is meant to include an important part of the Canadian economy that was previously excluded. I think the exclusion was inadvertent, in the government’s rush to get the program out. So Justin Trudeau announced that the CEBA program will also now include:

Sole proprietorships/partnerships.
Any other form of owner-operated businesses.
Businesses that hire contractors but not employees, so they do not have a payroll account with the Canada Revenue Agency.
Family-owned businesses where remuneration is paid via dividends, not salary.
Businesses where the proprietor uses a personal bank account for business purposes rather than a business operating account.
Newly created businesses.

This should go a long way to removing previous inequities in the CEBA program.

So now, the list of ineligible businesses is relatively narrow, being:

A government organization or body, or an entity owned by a government organization or body.
A union, charitable, religious or fraternal organization or an entity owned by such an organization or if it is, it is a registered T2 or T3010 corporation that generates a portion of its revenue from the sales of goods or services.
A business owned by any Federal Member of Parliament or Senator.
One that promotes violence, incites hatred or discriminates on the basis of sex, gender identity or expression, sexual orientation, colour, race, ethnic or national origin, religion, age, or mental or physical disability, contrary to applicable laws.

Summary

I hope you found this Canada Emergency Wage Subsidy Brandon’s Blog helpful. It should be of particular interest to contractors, developers and builders in Ontario.

The Ira Smith Team family hopes that you and your family members are remaining secure, healthy and well-balanced. Our hearts go out to every person that has been affected either via misfortune or inconvenience.

Ira Smith Trustee & Receiver Inc. has constantly used clean, safe and secure ways in our professional firm and we continue to do so.

Revenue and cash flow shortages are critical issues facing entrepreneurs and their companies and businesses. This is especially true these days.

If anyone needs our assistance, or you just need some answers for questions that are bothering you, 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.

The Ira Smith Team is absolutely operational and Ira, in addition to Brandon Smith, is readily available for a telephone consultation or video meeting.

Stay healthy, well balanced and safe and secure everyone.

Tags business owner, Canada, canada emergency business account, canada emergency business account (ceba), canada emergency wage subsidy, canada emergency wage subsidy cews, ceba, cews, corporation, covid-19, COVID-19 Economic Response Plan, Ira Smith Trustee, justin trudeau, partnership, proprietorship, Statistics Canada

Brandon Blog Post

COVID 19 BUSINESS SUPPORT: CANADA EMERGENCY BUSINESS ACCOUNT REVIEW

Post author By Brandon Smith
Post date April 13, 2020

If you would prefer to listen to the audio version of this Brandon’s Blog, please scroll to the bottom and click play on the podcast

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:

Loan amount: $40,000
Initial term date: December 31, 2022
Extended term date: December 31, 2025
Interest rate: 0% per annum during the initial term. 5% per annum during the extended term
First interest payment date: January 31, 2023
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:

you default in paying any amount due under the CEBA loan;
you default in paying any other loan to the bank;
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;
The SME or NPO commits an act of bankruptcy or becomes insolvent; or
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

Tags Bankruptcy, canada emergency business account, canada emergency business account (ceba), canada emergency business account application, canada emergency business account application form, canada emergency business account apply, canada emergency business account details, canada emergency business account program, canada emergency business account requirements, ceba, covid 19 business support, covid-19, insolvency, Ira Smith Trustee, who qualifies for 40k ceba

Canada Emergency Business Account (CEBA)

CEBA update: Original CEBA eligibility requirements

CEBA update: Is my business eligible for CEBA and its expansion?

CEBA update: Non-deferrable expense stream eligibility

CEBA update: How many businesses have applied for CEBA?

What are the CEBA loan terms and is there any CEBA event of default?

CEBA update summary

Small businesses in Canada introduction

Contribution of SMEs to Canadian business

How many businesses in Canada are small businesses?

What is the contribution of SMEs to exports in Canada?

How many people were employed in Canada in 2019?

What is the distribution of employment across the private sector?

How many businesses appear and disappear each year?

What proportion of new businesses survive the first 15 years?

How many small businesses in Canada could close permanently amid a pandemic

The need for government assistance for Canadian business

Saving small businesses in Canada

Entrepreneurs are obviously scared of any formal insolvency proceeding

Small businesses in Canada summary

Small business in Canada introduction

Small business in Canada: When is a corporation bankrupt, or insolvent?

Small business in Canada: Is small business bankruptcy the right choice?

Small business in Canada: Is just closing the door an alternative?

Small business in Canada: So what happens if I just close the door and lock it?

Must 200,000 Canadian small businesses declare bankruptcy due to the pandemic?

Small business in Canada summary

Canadian business introduction

Canadian business opening-up again

But there are still Canadian business problems

What happens when the government support programs end?

There is one precious commodity Canadian business will need when the support programs stop

Bankruptcy protection will very likely be the answer

How will bankruptcy protections help Canadian business?

The biggest resource Canadian business will need is also going to be its largest enemy

Canadian business summary

The Ira Smith Team is absolutely operational and Ira, in addition to Brandon Smith, is readily available for a telephone consultation or video meeting.

Stay healthy, well balanced and safe and secure everyone.

Introduction

Canada Emergency Wage Subsidy extended

The 1 part of your business your customers are most worried about

Other amendments to the CEWS

Canadian Emergency Business Account (CEBA)

Summary

The Ira Smith Team is absolutely operational and Ira, in addition to Brandon Smith, is readily available for a telephone consultation or video meeting.

Stay healthy, well balanced and safe and secure everyone.

Introduction

The Canada emergency business account program

Canada emergency business account requirements

COVID 19 business support through small business relief

The Canada emergency business account how to apply

Canada emergency business account details important to know

Canada emergency business account – apply carefully

Summary

***Small business in Canada*: Is small business bankruptcy the right choice?**

***Small business in Canada*: Is just closing the door an alternative?**

***Small business in Canada*: So what happens if I just close the door and lock it?**