CEBA loan forgiveness - what is it? How do I qualify? (updated)

Is your business one of the nearly 900,000 SMEs that took out a CEBA loan? If so, you could save up to $20,000 if you repay by January 18, 2024. Read on to see how Swoop can help you save big.

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    Michael David

    Page reviewed by, Michael David, Expert financial copywriter, on August 8, 2023 12:52 pm

    The Canada Emergency Business Account (CEBA) was set up to help small businesses and not-for-profits get through the pandemic. Qualified applicants received interest-free loans of up to $40,000 and were subsequently able to apply for a CEBA expansion, which increased the maximum loan amount to $60,000. Eligible CEBA borrowers in good standing who repay part of their loan by January 18, 2024 can receive loan forgiveness of up to $20,000. However, even if you weren’t planning to repay your balance before the deadline, there might be a business financing strategy that will make it possible to claim the forgivable portion of your CEBA loan. Keep reading for details.

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      What is a CEBA loan?

      The CEBA program offered interest-free loans of up to $60,000 to Canadian small businesses and not-for-profits. It was open for applications from April 9, 2020 to June 30, 2021, and nearly $50 billion was lent to almost 900,000 applicants. CEBA was made available through more than 220 banks, credit unions and other financial institutions across the country.

      The original CEBA loan repayment deadline was December 31, 2022, but this was moved back 12 months to December 31, 2023 and has been moved again to January 18, 2024. If a CEBA loan remains outstanding after January 18, 2024, interest payments will be required at a rate of 5% per annum until December 31, 2025, when the full principal repayment will be due.

      What is CEBA loan forgiveness?

      CEBA loan forgiveness makes up to $20,000 of the loan amount forgivable if certain conditions are met. These conditions include the loan being in good standing (i.e. not in default) and the outstanding principal (minus the potential debt forgiveness) being repaid by January 18, 2024.

      The forgivable portion is calculated as follows:

      If you borrowed $40,000 or less, you can receive loan forgiveness of 25%. That means you must repay at least 75% of the outstanding principal by January 18, 2024.  in order to receive loan forgiveness. For example:

      If you borrowedYou must repayTo be forgiven

      If you borrowed between $40,000 and $60,000, you can receive loan forgiveness of 25% of the first $40,000 and 50% of the the next $20,000. For example:

      If you borrowedYou must repayTo be forgiven

      If you repaid your original $40,000 loan, claimed forgiveness, and later received the $20,000 expansion, the 50% rate applies. That means you can repay $10,000 and be forgiven the remaining $10,000.

      Your bank or financial institution can help you determine exactly how much you’ve borrowed, how much you’ve repaid, and how much more you need to repay in order to claim the forgivable portion of your loan.

      How does it work?

      You can think of the CEBA loan forgiveness program as having four phases:

      • Before January 18, 2024. This is the current grace period where the interest rate is 0% and no principal repayment is required. During this period, you can make a sufficient repayment and benefit from loan forgiveness.
      • January 18, 2024. This is the end of the grace period and the final day to repay a sufficient amount of your loan balance to qualify for loan forgiveness.
      • January 19, 2024. On this date, any remaining balance owing on your CEBA loan will be converted to a 2-year term loan at 5% interest.
      • December 31, 2025. This is the final deadline to fully repay your CEBA loan.

      How much of a CEBA loan is forgivable?

      The forgivable portion of a CEBA loan is calculated based on two tiers:

      • Loans of $40,000 or less. If you borrowed $40,000 or less and and did not receive a CEBA extension, you can have 25% of your loan forgiven.
      • Loans between $40,000 and $60,000. If you borrowed $40,000 initially and received a subsequent CEBA extension, you can have 25% of the initial loan forgiven and 50% of the extension forgiven.

      What are the terms of forgiveness?

      You must pay the remaining principal of your CEBA loan minus the forgivable portion by January 18, 2024 in order to receive loan forgiveness. For example, if you borrowed $60,000, the maximum loan forgiveness amount is $20,000. Therefore, you need to repay $40,000 by December 31, 2023 in order to have the remaining $20,000 forgiven.

      Example scenarios

      Here are two example scenarios:

      Tom borrowed $40,000 from the CEBA loan program. The maximum loan forgiveness available to him is $10,000 ($40,000 x 25%), which means he needs to repay $30,000 by January 18, 2024 in order to qualify.  He has already repaid $10,000 of the outstanding principal, so he is going to pay the remaining $20,000 by the end of the year using cash flow from his business in order to have $10,000 of his loan forgiven.

      Suzy borrowed $60,000 from the CEBA program. The maximum loan forgiveness available to her is $20,000 ($40,000 x 25% + $20,000 x 50%), which means she needs to repay $40,000 by January 18, 2024 in order to qualify. Since she doesn’t have the cash flow to make this payment, she has decided to refinance her CEBA loan. She’ll use a $40,000 line of credit to pay off her CEBA loan and secure $20,000 in loan forgiveness.

      How do I qualify for forgiveness?

      If you met the eligibility criteria to receive a CEBA loan in the first place, remain in good standing today, and repay the outstanding balance of the loan (other than the amount that can be forgiven) on or before January 18, 2024, you will qualify for forgiveness.

      Please note that CEBA eligibility was determined based on the criteria established by the Government of Canada. No bank, credit union or other organization involved in administering the CEBA program has the authority to grant exceptions to these criteria.

      What is the CEBA loan forgiveness deadline?

      The CEBA loan forgiveness deadline is January 18, 2024. If paid back on or before January 18, 2024, up to $20,000 of the outstanding balance will be forgiven. After that, the loan will incur a 5% annual interest rate on the full amount borrowed. This interest will be charged monthly beginning on January 19, 2024.

      If you have a CEBA loan and have not made provisions to repay the minimum amount of principal required by the deadline, you might want to consider your refinancing options that could help you secure your loan forgiveness.

      How can I find out the balance of my loan?

      CEBA loans are administered by banks and credit unions across Canada, and they can provide details regarding your loan balance, outstanding amount that must be repaid, acceptable methods of repayment, and terms of the loan. Some banks allow you to conveniently check your balance and make payments online.

      Is CEBA loan forgiveness taxable?

      The forgiveness portion of your CEBA loan is taxable. If you have questions about the taxation of your CEBA loan, please contact the Canada Revenue Agency or speak with a professional accountant.

      How do I account for CEBA loan forgiveness?

      Your CEBA loan forgiveness amount should be recorded as income. For example, if you originally borrowed $40,000 and repaid $30,000 in order to secure $10,000 of loan forgiveness, you would have $10,000 of taxable income. For specific advice on how to record this transaction, we recommend seeking the advice of a professional accountant.

      What happens if I can’t pay back my loan by the Jan 18, 2024 deadline?

      If you have failed to comply with any of the repayment terms set out by your financial institution, your CEBA loan may not be in good standing and you may not qualify for loan forgiveness. If this is the case, your bank or credit union will contact you regarding next steps.

      If your CEBA loan is in good standing and you do not repay the required amount of your loan by January 18, 2024, you will not receive forgiveness. During the period of January 19, 2024 to December 31, 2025, you will be required to pay interest on your CEBA loan at a rate of 5% per year. If you have questions about the payment terms after January 18, 2024, please contact your financial institution.

      Can I refinance my CEBA loan?

      Yes, and this could be an effective strategy for those who do not have the capital on hand to secure the forgivable portion of their loan.

      For example, let’s say you borrowed the maximum amount of $60,000 and have not made any payments yet. You could obtain business financing to repay $40,000 before the deadline of January 18, 2024, and have the remaining $20,000 forgiven. Although there would be interest costs associated with the $40,000 loan, this would likely be more than offset by the $20,000 of loan forgiveness. In addition, you will avoid carrying a balance with the CEBA program, which will begin charging interest of 5% annually, paid monthly starting on January 19, 2024.

      How Swoop can help

      If you need funding to capture the maximum loan forgiveness, Swoop can help. We will scan the market for the best business finance deals and bring you a list of options in minutes. Sound good? Register with Swoop to discover your options to reduce your CEBA loan amount.

      Written by

      Michael David

      Michael David is a financial writer and former investment advisor. Writing for Capital Group, Dimensional Fund Advisors, Franklin Templeton Investments, HSBC, Invesco, PIMCO, Vanguard, global insurance companies, major banks and others, he has educated professionals, business owners and consumers about strategies for investing, insurance, banking and corporate finance for more than 20 years.

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