What Happens If You Can’t Pay Your CEBA Loan?

Repaying CEBA Loan Difficulties? You’re Not Alone!

The COVID-19 pandemic disrupted businesses worldwide, prompting governments to introduce financial aid programs. In Canada, the Canada Emergency Business Account (CEBA) loan aimed to provide interest-free funding to small enterprises grappling with economic turbulence. While this assistance was crucial, some borrowers may now face challenges repaying their CEBA loans. This comprehensive guide explores the potential scenarios and viable solutions for those struggling to meet their CEBA loan obligations.

Understanding CEBA Loan Repayment Terms

To grasp the implications of non-payment, it’s essential to comprehend the CEBA loan’s repayment structure. These interest-free loans, ranging up to $60,000, offered borrowers a lifeline during the pandemic’s darkest days. However, specific conditions governed their repayment and potential forgiveness.

The CEBA loan remained interest-free until January 18, 2024, with no principal repayment required before this date. Borrowers who maintained their loans in good standing and repaid the outstanding balance, excluding any potential forgiveness amount, by January 18, 2024, were eligible for partial loan forgiveness.

Loan Forgiveness Breakdown

The exact forgiveness percentage varied based on the loan amount and disbursement timeline:

  • Borrowers who received only the initial $40,000 CEBA loan could qualify for 25% forgiveness.
  • Those who secured the additional $20,000 expansion loan might receive 50% forgiveness on amounts borrowed above $40,000.

However, a crucial caveat applied: failure to repay the required principal balance by January 18, 2024, would nullify any forgiveness eligibility. Additionally, the remaining loan balance would begin accruing interest at 5% per annum and convert into a 3-year term loan due on January 18, 2025.

Exploring Refinancing Options

As the repayment deadline loomed, the Canadian government recognized the potential financial strain on small businesses. In September 2023, Ottawa adjusted the repayment deadlines, granting partial forgiveness for loans refinanced by March 28, 2024.

Several major banks, including Bank of Montreal, National Bank, and Royal Bank of Canada, expressed willingness to consider refinancing CEBA loans. These refinancing options typically involved larger loans at 5% interest or smaller loans at higher rates.

Advantages of Refinancing

Refinancing CEBA loans can offer several advantages:

  • Preserving Loan Forgiveness Eligibility: By settling the CEBA loan through refinancing before January 18, 2024, borrowers can retain their eligibility for loan forgiveness.
  • Extended Repayment Period: Personal loans often feature longer repayment periods, resulting in lower monthly installments and improved cash flow management.
  • Credit Score Protection: Refinancing allows borrowers to avoid defaulting on the CEBA loan, safeguarding their credit scores from potential damage.

However, it’s crucial to consider the higher interest rates associated with refinancing and thoroughly assess one’s ability to maintain the new loan’s monthly payments. Failure to repay the refinanced loan could lead to creditor collection actions.

Resolving CEBA Loans Through Insolvency Proceedings

For businesses unable to recover from the pandemic’s economic impact or generate sufficient revenue to repay their CEBA loans, insolvency proceedings may provide a viable solution.

Incorporating CEBA Loans into Personal Insolvency

If the borrower operated as a sole proprietorship or partnership, they bear personal liability for the CEBA loan repayment. In such cases, any outstanding CEBA loan can be included in a personal bankruptcy or consumer proposal filing.

Since CEBA loans are unsecured debts, they can be discharged through insolvency proceedings under the Bankruptcy and Insolvency Act in Canada. This option allows individuals to make financial arrangements with the Canada Revenue Agency (CRA) for unpaid taxes and their financial institution for the CEBA loan through a consumer proposal.

Consulting Licensed Insolvency Trustees

Licensed Insolvency Trustees (LITs), professionals regulated by the Government of Canada, can provide invaluable guidance to individuals and businesses facing financial difficulties. If defaulting on the CEBA loan seems inevitable, consulting an LIT is advisable to explore various debt resolution options, including their implications for future business operations and creditworthiness.

LITs can assess the viability of the business, evaluate the presence of additional debts, and determine whether eliminating these obligations could make the small business viable moving forward. Their expertise ensures borrowers make informed decisions tailored to their unique circumstances.

Handling CEBA Loans for Defunct Corporations

In cases where the CEBA loan was obtained by a corporation that has ceased operations, the repayment dynamics differ slightly.

Corporate Liability and Dissolution

Since CEBA loans were not personally guaranteed, the corporation, not its owners, bears liability for repayment. If the corporation has no assets and is no longer operating, the following steps can be taken after consulting a corporate tax accountant and lawyer:

  1. File the final corporate tax returns (T2 and HST), indicating the intention to dissolve the corporation.
  2. Inform the CRA that the corporation has ceased operations and has no assets, effectively submitting the final tax return.
  3. Close the corporation’s bank account to avoid ongoing service charges.
  4. Resign as a director, as the corporation is no longer operational.

While the CRA may pursue the corporation for payment, eventually, they may write off the CEBA loan and discontinue collection activities if the corporation has truly ceased operations and lacks assets.

Seeking Professional Guidance

Navigating the complexities of debt repayment, particularly when facing financial hardship, can be overwhelming. Seeking professional guidance from Licensed Insolvency Trustees or financial advisors is crucial to explore all available options and make informed decisions.

These professionals can assess individual circumstances, evaluate the viability of refinancing or insolvency proceedings, and provide tailored recommendations to achieve the best possible outcome. Their expertise can help borrowers avoid costly mistakes and ensure compliance with relevant regulations.


The CEBA loan program provided a lifeline for countless small businesses during the COVID-19 pandemic. However, as economic conditions evolve, some borrowers may face challenges repaying these loans. By understanding the repayment terms, exploring refinancing opportunities, considering insolvency proceedings, and seeking professional guidance, borrowers can navigate this situation with clarity and make informed decisions to secure their financial future.

Remember, proactive action and open communication with lenders or Licensed Insolvency Trustees are key to finding suitable solutions. With the right approach, borrowers can effectively manage their CEBA loan obligations and pave the way for a fresh start.

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