Big Six banks open to refinancing CEBA loans for small businesses

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The Big Six banks say they are open to refinancing Canada Emergency Business Account loans for small businesses, though they provided few details and say new terms will have to be decided on a case-by-case basis.

CEBA was the most widely used COVID-19 support program for businesses, with the federal government handing out loans of $40,000 or $60,000 to nearly 900,000 corporations in 2020 and 2021. The program was created by the government, but administered in co-ordination with financial institutions. The loans are government-backed.

Ottawa changed the repayment deadlines on Thursday after months of pressure from business groups, which argued that most small enterprises still have not financially recovered from the pandemic.

Businesses that repay their loan by Jan. 18, 2024, will have either $10,000 or $20,000 forgiven. After that, none of the loan will be forgiven and interest will begin to accrue at 5 per cent per year. The loans are due in full by Dec. 31, 2026.

Ottawa also created a new deadline on Thursday: If a business has been in talks with its financial institution to refinance its CEBA loan, it can still have the loan partially forgiven if an agreement is reached by March 28, 2024.

Refinancing is an option for businesses that can’t repay their loans in full by Jan. 18, but still want the loan to be partially forgiven. The trade-off is this: Keeping the government terms means a larger loan ($40,000 or $60,000) at 5 per cent interest, or a smaller loan ($30,000 or $40,000) at an interest rate that will be higher than the current prime rate of 7.2 per cent.

Bank of Montreal said it has a program for helping CEBA recipients streamline their loans and take advantage of the government’s partial loan forgiveness.

“For several months now, we have been reaching out to customers to discuss the benefits of partial loan forgiveness and repayment alternatives to meet the deadline,” BMO spokesperson Jeff Roman said.

National Bank also said it has been proactively reaching out to some customers with financing options. “We encourage our clients to discuss their specific situation with their account manager,” spokesperson Alexandre Guay said.

Royal Bank of Canada said it will soon launch a new process for its small-business clients to apply for CEBA refinancing. However, the bank cautioned that customers will have to be reassessed for their creditworthiness.

“It is important to note that any refinancing requests with RBC will be assessed using the bank’s standard credit approval process and provided under the bank’s normal lending terms and conditions,” RBC spokesperson Yuri Park said.

Canadian Imperial Bank of Commerce said it will allow customers with CEBA loans to refinance them, but they will have to contact the bank for details.

The Bank of Nova Scotia and Toronto-Dominion Bank said they will evaluate requests on a case-by-case basis.

Some alternative lenders have already started advertising their CEBA refinancing programs. Those loans may be available for business owners who can’t get reapproved at a bank, but will likely feature even higher interest rates.

Mathieu Labrèche, spokesperson for the Canadian Bankers Association, said the banks supported the government’s decision to extend the deadlines.

“These extensions provide additional time for small businesses to manage their repayments, alleviating some of the financial pressures faced in the current environment,” he said.

Financial institutions are also paid annually for their role in partially administering CEBA. The fee is 0.4 per cent per year of the outstanding balance of CEBA loans handled by that bank. A federal report showed that financial institutions were paid a total of $92-million in administrative fees in the 2020-21 fiscal year, the most recent year for which data is available.