The Canadian Federal government has announced a loan program to help small businesses with the possibility of FREE MONEY to those who qualify.  This was updated June 30.

Here’s the outline from the video:

  • Eligibility Criteria
    • Canadian Business operation as of 1 March 2020
    • Paid total remuneration (box 14 on T4SUM) of $50K to $1M in 2019
    • OR Eligible non-deferrable expenses between $40K and $1.5K in 2020
  • Benefits
    • Up to $40,000 loan
    • Interest free until 31 Dec 2022
    • If 75% is repaid by 31 Dec 2022 the remaining 25% will be forgiven
    • After 31 Dec 2022 it converts to a 3 year term loan at 5%
  • Application
    • Through your normal bank (require a single signature and a business bank account)
    • Most have online applications available now
    • If you qualify under the expenses option you have to upload proof before they will approve your application
  • Other Conditions
    • Can only be used to pay non-deferrable operating expenses of the Borrower including, without limitation, payroll, rent, utilities, insurance, property tax and regularly scheduled debt service
    • may not be used to fund any payments or expenses such as prepayment/refinancing of existing indebtedness, payments of dividends, distributions and increases in management compensation
  • Eligible Expenses
    • Wages and other employment expenses to independent (arm’s length) third parties;
      • Include employer CPP/EI, benefits etc.
      • Reduced by Wage Subsidy
      • Excludes owners!
    • Rent/lease payments for real estate or capital equipment used for business purposes;
    • Payments incurred for business insurance, property taxes,
    • Payments incurred for business purposes for telephone and utilities in the form of gas, oil, electricity, water and internet;
    • Payments for regularly scheduled debt service;
      • Existing mortgages and loans (no start date specified but presume that it would be pre-covid)
      • Can’t claim un-scheduled or optional lump sum payments
      • Repayment of shareholder loans probable excluded
    • Payments incurred under agreements with independent contractors and fees required in order to maintain licenses, authorizations or permissions necessary to conduct business by the Borrower
      • Unclear whether this is a blanket ability to claim all Independent Contractors – do they have to be involved in this narrow activity? Hopefully not; unclear what level of “agreement” is needed here
      • SAAS fees, business permits, license fees
  • Issues
    • Payroll option excludes contractors (only T4 employees) and dividends
    • Sole Proprietors operating from a personal bank account are ineligible
    • Unclear what penalties there are for using the loan for non-approved spending (other than loss of forgiveness)
      • Be prepared to justify EVERY expense!
    • Still an amount of uncertainty over some eligible expenses
    • Do the expenses need to be spent within a year? The expense eligibility criteria suggests so.
    • The $10K forgiven portion will be taxable income
  • Recommendations
    • Put this money in a separate bank account (recommend a basic cheque account)
    • As you pay eligible expenses pay these funds from the nominated bank account
    • If you can’t do that, reimburse the spending account from the loan account with a SPECIFIC list of the items that you are claiming
    • When you are able, replenish the funds from your normal bank account (recommend opening a separate savings account to accumulate these funds – only use the COVID spending account if you have completely spent the full $40K)
    • By 31 Dec 2022 ensure that you have repaid 75% (and no more)

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