Can't Pay Back Your CEBA Loan? You're Not Alone

Can't Pay Back Your CEBA Loan? You're Not Alone

As a Licensed Insolvency Trustee, we’re unfortunately seeing an influx of small business owners who are overwhelmed by their debt and have come to accept that they’re unable to keep their struggling businesses alive. Some of these businesses were already struggling before the pandemic. Many others were doing well before being severely impacted by lockdowns. Regardless of which group they fall into, almost all of these businesses received CEBA loans which they cannot repay, and their owners are looking for advice on how to deal with this outstanding debt.

The COVID-19 pandemic caused disruptions of all kinds for individual Canadians and their businesses, who are still seeing the impact. Disruption was also felt at the government level, and our government struggled to deal with the financial fallout caused by lock-downs. One of the primary stimulus measures the government ended up using for Canadian small businesses was the Canada Emergency Business Account (CEBA). The CEBA program offered interest-free loans of up to $60,000 to small businesses. According to the government’s website 898,271 small businesses and not-for-profits took advantage of this and were granted a total of over $49 billion in loans.

COVID-19 stimulus programs were often administered in haste by government employees pulled from an assortment of departments who were charged with sacrificing perfection for speed to help keep food on tables. Now that the dust has settled, however, many CEBA borrowers, some of whom likely wouldn’t have qualified for loans in any other scenario, are finding that they’re under stress due to an inability to re-pay these loans. In some cases, the business has sadly failed. In other cases, the financial health of the company will take far longer to repair than the timelines currently required for re-payment (the deadline is currently the end of 2025 for borrowers that are in good standing, which includes paying interest only starting in 2023).

So what happens when you can't pay?

Although the government has guaranteed the loans (so that the banks didn’t have to take risk when disbursing the funds), the banks appear to be primarily responsible for attempting to collect the amounts owing. But with no “skin in the game” and no clear rules regarding what steps they have to take to try to collect before they can rely on their guarantee from the government, it remains to be seen how aggressively banks will pursue collecting these loans. And it’s too early to tell if the government will step in and try to recover their loss if they have to pay out the guarantee. Either way, if there are no remaining assets in the business, neither the bank nor the government will be able to collect the debt from the company. Naturally, in this case business owners want to know what part, if any, of the outstanding debt they might be personally liable for.

The terms of the CEBA loans were set by each of the individual financial institutions that distributed the funds – usually the company’s existing bank – so there is no one-size-fits-all answer. Generally speaking, if the business was operated by the individual as a sole proprietor, they’re personally liable for this debt; however, we haven’t yet seen any cases where the bank required an individual to personally guarantee a CEBA loan issued to a corporation.

Likewise, we’ve seen no indication that the government will take the position that an individual such as a director could be on the hook to the government for a guarantee the government has had to pay to the bank for a defaulted corporate CEBA loan. However, there certainly is precedent for that sort of thing. For example, directors are legally personally liable for certain tax debt that the government can’t collect from a corporation. And the Canada Revenue Agency collects defaulted federal student loans on behalf of the department that issues them (upon which it’s treated like a tax debt in terms of the CRA’s powers to collect). So far, we’re not aware of any laws or regulations that would allow CEBA loans to be dealt with in such a manner, but there is no guarantee that the government won’t find a way to make this happen.

If you’re starting to get the impression that all of the above is a long way of saying “I don’t know” when it comes to the question of how an unpaid CEBA loan will impact you, you’re not wrong. There is a lot of uncertainty around how banks and the government will handle unpaid CEBA loans. For now, it is safest to assume there might eventually be some personal fallout for unpaid corporate CEBA loans. If you’re considering an insolvency filing to deal with other debts, you’ll probably be advised to disclose any unpaid CEBA loans from a failed business on your filing documents in order to allow the bank and/or the government to submit a claim, just in case. If not, a wait and see approach might be advisable.

We understand that having an unpaid CEBA loan hanging over you causes stress. The best way to relieve that stress is to consult a professional to clarify where you’re at and get a handle on what your options are. Based on that advice, you may decide to move forward with one of those options or you may decide to wait and see how thing play out, but either way you will sleep better knowing you’ve got the information you need to make a decision when necessary.

Charla Smith & Company Ltd. is a Calgary-based Licensed Insolvency Trustee. We regularly provide advice to individuals who are dealing with business debt. If you would like advice on options for dealing with your business's debts, contact us for a free, confidential consultation.

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Frequently Asked Questions

Absolutely. A Licensed Insolvency Trustee can talk to you about an array of options, including a Consumer Proposal. There may be some options that are not realistic for you, based on your situation. A Licensed Insolvency Trustee will meet with you and go over the options, helping you figure out which options are realistic for you and which one is the best to deal with your debt. Contact us to book a meeting to find out more.

At Charla Smith & Company, we focus on the needs of individuals who are struggling with debt, so you've come to the right place. Check out our solutions page for information on insolvency options, our blog for a discussion of various bits of information surrounding those options, or better yet give us a call at 1-403-899-3890 or send us a message and we will work with you to figure out how the various options for dealing debt might look for you.

Reach out to us. You can make an inquiry directly from our website by clicking here, or you can call or text us at 1-403-899-3890. We will respond quickly, and work with you to find a good time for the meeting.

We'd suggest working with your bank to determine the plan for shutting down the company and turning over assets to them. Getting in touch with a Licensed Insolvency Trustee can help, as they may be able to give you advice or even in some cases work with both you and the bank to determine a liquidation plan

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