The best options to pay back a CEBA business loan & how to save $20,000

In this episode, we will cover… Which strategies can save you the most in repaying your CEBA loan.

You may or may not like what you hear

I am Jessi Johnson, guiding you with almost 18 years of experience as a mortgage broker and realtor.

Stay with me for the next few minutes, as I reveal the most effective strategies to pay back your CEBA loan and how you can save up to $20,000

First off, this is very important to understand, if you took the Covid CEBA government business loan.

As of today’s recording, the repayment deadline for eligible CEBA loan holders to qualify for full or partial loan forgiveness was extended a few weeks to January 18, 2024

But CEBA loan holders that submit a refinancing loan application specifically, to the financial institution that provided their CEBA loan,

by January 18, 2024 but require a grace period in order to finalize the payout of their CEBA loan can still qualify for partial loan forgiveness, emphasis on partial,

if the outstanding principal of their CEBA loan, other than the amount of potential debt forgiveness, plus any applicable interest is repaid by March 28, 2024.

CEBA, aka The Canada Emergency Business Account, has been a lifeline for many.

However, repaying it can be daunting

Are you a business owner concerned or potentially struggling to repay your CEBA loan?

Well, you are NOT alone

About 900,000 businesses in Canada took CEBA COVID loans

That equates to about 50 billion and most of that, is still outstanding

Only 10% of businesses have been paid back so, if you fall into that category, well done 🙂

89%, of small businesses in Canada took out the CEBA emergency loans during the pandemic, according to the Financial Post.

I’m one of those people, I’ll admit it.

I took 40 grand and have the money saved to pay it back but it is in stocks and investments

My portfolio isn’t doing that hot right now so I am hesitant to use that

So probably like you, I am looking at all options to compare what is best

Let’s cut to the chase, here is how you save $20,000

If you took out $60,000 in a CEBA loan, it all must paid back by the deadline and they will “forgive” $20,000

If you took out $40,000 in a CEBA loan, it all must paid back by the deadline and they will “forgive” $10,000

I still don’t get the math on that… They literally encourage you to borrow money

Now let’s review a series of strategies and options to pay it back

Then, I will review how it works and what to expect if you don’t.

The following strategies are in order based on cost-effectivity but first, a quick disclaimer

I’m not a financial advisor or accountant, so I highly recommend you seek their professional guidance first before implementing any of the strategies for your situation

Strategy #1 Sell stocks or investments

Strategy #2 Refinance your existing mortgage

Strategy #3 Secured Line of credit

Strategy #4 BDC, Unsecured Line of credit & bank business loan

Strategy #5 Secured private mortgage equity loan

Strategy #6 Unsecured 3rd party loan

Strategy #7 File for bankruptcy and tell the government to go fuck themselves (bleep out swearing)………..     I don’t actually recommend that one

Let’s look at some numbers to understand these strategies better

But, while I have your attention, if you appreciate my hard work, please hit the like button and subscribe to this channel

Strategy #1 Sell stocks or investments

If your stock holdings are underperforming, like mine, this could be a great option for you

You need to look at the tax implications of selling your investments versus the tax benefits of writing off interest in a loan

Talk to your accountant about this

If your stocks are earning only 5%, but you have to pay 10% with a business bank loan, then selling your poorly performing stocks sounds pretty good

Again, I’m not a stockbroker or financial advisor, so talk to your team about this first before implementing anything

Strategy #2 Refinance your existing mortgage

Many lenders allow you to keep your existing mortgage rate and top up, which is called equity takeout

The new funds will be at the current market mortgage rates.

So around 5 or 6%, at the time of this recording

No fees “should be” associated with this except for a lawyer or notary because you would likely be changing the title

Strategy #3 Secured Line of credit

Not all lenders offer line of credits, but if they do, this could be a great option

Right now, a line of credit will cost you prime +0.5%

So, 6.7% at the time of this recording

Fees for this should be very little, especially if you already have an existing collateral mortgage

Speak with your mortgage provider or me, and we can figure out if you have a collateral mortgage, which makes things a little easier in this circumstance

Not sure what that means, just ask me in the comments below

This is an interest only loan and you can pay back the principal portion when it is best for you

Strategy #4 Unsecured Line of credit, BDC or bank business loan

The BDC (Business Development Bank of Canada) offers up to $100,000 with rates of about mid 8% to mid 9% range

If you have an existing loan with them already, it’s pretty easy to re-advance what you’ve already paid back

Alternatively, speak with your bank or credit union about an unsecured line of credit or business loan

Unsecured loans are substantially expensive for obvious reasons

All loans are based on risk ad unsecured means higher risk

Not sure what secured or unsecured means? Ask in the comments

This strategy will still cost you around 10% rates but at least there should be no fees associated with it

Strategy #5 Secured private mortgage equity loan

This is a first or second mortgage secured on your property through a Private lender

Private lenders are great for those with low credit, or those who don’t claim enough income on their taxes

Private lenders care more about the property and less about the applicant so, this is what’s called an equity loan

Rates can vary from 7 to 12% and there will be fees associated with this transaction

Most private mortgages are interest-only, which is great

I recommend dealing with Home Equity Solutions, and the website is homeequitysolutions.ca

Because private mortgages are based on the equity in your property,

and you can often obtain a lot more capital than you would normally get from an unsecured line of credit or business loan

If you have any other outstanding loans with interest rates higher than the private mortgage rate,

This is a perfect time for debt consolidation and maybe even paying off outstanding taxes

It takes about three weeks to have the funds in your account so plan accordingly

Strategy #6 Unsecured 3rd party loan

Now, this is where things become very pricey

I have collected a long list of companies that offer third-party unsecured loans

The interest rates started at 13% and go up to 26%

And that’s not all, you’re looking at up to 6% more in fees

Yes, I said that right. Your first year could cost you 32% interest.

Ouch.

The crazy thing is, it can still be cheaper to go this route than to lose the $20,000 forgiveness

Only take this route if you have the capacity to repay the entire loan within one year

Otherwise, the high interest will work against you

Strategy #7 File for bankruptcy

I was just kidding about that, that is your absolute last resort and I do not recommend it.

There’s almost always a way to appoint bankruptcy.

Now let’s review how this plays out if you exercise none of the above strategies, forgo forgiveness and simply repay the full amount.

You have two full years to repay the entire loan, which expires December 31, 2026.

During the period of January 19, 2024 to December 31, 2026,

interest at a rate of 5% per annum will apply to the outstanding balance of your CEBA loan

$60,000 dividend by 24 months is $2,500

You now must pay $2,500 per month plus interest, so your first monthly payment should be $2,750.

How many businesses can afford a new payment that high during the worst inflation in 40 years?

I am going to guess that many businesses will struggle with this.

The Financial Post reports that over 250,000 Canadian businesses may close if the loan repayment deadline isn’t extended (for a second time).

Let’s hope they are wrong

Your goal should be to pay back the loan to obtain the forgiveness option.

However, if you don’t already know, they’re planning on taxing you for that forgiveness as well which complicates the overall savings calculations

In real estate and business finance, staying informed and proactive is key.