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 Dec 9.

Applications for this scheme was set to close on Aug 31, but has now been extended to Mar 31.  There is now a phone number you can call to inquire about the status of your government evaluation and ask about declines (1-888-324-4201) – callbacks are taking about 3 days!

Here’s the outline from the video:

* = updated since 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 $60,000 loan (originally was $40K but now extended to $20K)
      • * If you applied for the original $40K you can now apply for the $20K extension through the same bank that you were originally approved through
    • Interest free until 31 Dec 2022
    • If 75% of the original $40K is repaid by 31 Dec 2022 the remaining 25% will be forgiven
    • * If you received the $20K extension and you repay 50% of the extension amount by 31 Dec 2022 then the remaining amount will be forgiven
    • After 31 Dec 2022 it converts to a 3 year term loan at 5% (but you lose forgiveness)
  • Application
    • * Through your normal bank (require a single signature; no longer requires 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
    • * Deadline for applications is 31 March 2021
  • 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 (check your loan agreement with your bank as some banks don’t specify it in their agreements)
    • 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
    • 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.  Check your loan agreement!
    • *The $10K/$20K forgiven portion will be taxable income AT THE TIME THE LOAN IS ISSUED
    • * RBC is funding this through a VISA line of credit.  Their loan agreement requires that the line will be frozen at 31 Dec 2020.  If you haven’t drawn down the full amount you will be unable to draw down the rest from 1 Jan.  The amount of forgiveness is based on the amount borrowed, not the amount available.
  • 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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