For business owners and individuals alike, keeping up with ever-changing information has become a staple of the pandemic – as has pivoting and being able to strategize (and re-strategize) on a dime.
Understanding COVID loan relief options is no exception, and like always we’ve got your back. Here, we provide a breakdown of what business owners should be thinking about or considering when it comes to these three federal government loan programs:
- Canadian Emergency Business Account (CEBA)
- Business Credit Availability Program (BCAP)
- Highly Affected Sectors Credit Availability Program (HASCAP) Guarantee
Be aware of these recent changes
- What’s new: The repayment deadline for CEBA loans to qualify for partial loan forgiveness has been extended to December 31, 2023 for all eligible borrowers in good standing.
- What to consider: You’ve got a year’s extension! Just keep in mind that your CEBA loan converts to a 5% interest rate and a two-year repayment term if you don’t have the liquidity to pay it back in full by the deadline (December 31, 2023).
- What’s new: The HASCAP program application deadline closed on March 31, 2022.
Keep these 4 things top of mind
#1: Know your loan agreement – and how repayment works. While the CEBA program has set repayment dates (December 31, 2023 if you don't want your interest rate to increase to 5% or December 31, 2025), the BCAP and HASCAP loan agreements are structured uniquely to the borrower. Take BCAP, for example. While agreements generally have interest-only periods for at least the first 12 months, some might be a little longer. That’s why it’s important to check your agreement so you know when the principal repayments start and what your options might be if you need more help. Remember too that you can approach your bank if you need to renegotiate, because if you’re still struggling through COVID you don’t want to be in a situation where the principal payments begin and all of a sudden you don’t have working capital.
In contrast, with HASCAP the 12-month interest-only period cannot be extended. It’s also likely coming up on that one-year mark for some HASCAP loans. So, if you’re participating in this program you should be keeping an eye out for that annual renewal date and when those principal payments start…and also thinking about having a conversation with your bank about how that’s all going to work.
#2: Stay on top of annual renewals: For BCAP and HASCAP, your lender is required to submit a renewal annually, so make sure you’re being proactive with those conversations with your bank about what your plans are over the next 12 months. Also be aware that, unlike HASCAP, there’s a fee associated with the BCAP renewal so be prepared for that cost and refer to your loan agreement for the details.
#3: Be aware of pre-payment penalties: While there are no penalties for paying CEBA before December 31, 2023 or BCAP prior to the five-year term, lenders can collect early payment penalties for HASCAP because it’s a fixed rate. So, if you decide you want to pay it out before the 10-year term there would be costs associated with that, so you’ll want to be aware of what those costs are.
#4: Know your eligibility: Be familiar with what expenses are eligible through your loan so that you’re not accidentally including, say, deferrable expansion projects. Remember too that while your lender didn’t set this eligibility, it is their responsibility to do ample due diligence to ensure it’s met.
4 tips for preparing for a conversation with your bank about your government funded COVID loan
Ready to chat? Do this homework first before you have that meeting.
- Have a clear understanding of the use of funds, both historically and future.
- Complete (and bring) your cash flow forecasts, as well as your latest year-to-date and most recent year-end financial statements.
- Have a good understanding of what other sources of liquidity could be available if that cash flow forecast looks like it’s not going to provide sufficient funds for repayment.
- Review the associated government program website and be aware of the processes.
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