Briefing binder created for the Deputy Minister of Finance on the occasion of his appearance before the Standing Committee on Public Accounts on December 9, 2024 on the Auditor General of Canada's report 8, entitled “Canada Emergency Business Account” - part 4

CEBA Program Evolution

Issue

Finance Canada, as the policy lead for the CEBA program, recommended significant changes over the course of the program to respond to issues raised by stakeholders and the evolving pandemic context.

Key points

• Finance Canada led the significant evolution of the CEBA program. The Department provided advice to respond to issues raised by stakeholders, ensure that the program continued to meet its policy objectives as the pandemic situation evolved, and align the CEBA with other government support programs.
• Certain decisions, such as the decision on collections, were taken after extensive policy work and collaboration between Finance, EDC and the CRA to determine the options available and considering the costs associated with each.

Anticipated Questions and Answers

1. Why was EDC chosen to administer CEBA?

As it became increasingly clear that the economic fall out of the pandemic would be dire, it rapidly became apparent that a critical need to provide liquidity quickly to Canadian businesses to support them during, what was expected to be at the time, a short lockdown.

However, there were limited tools at the federal government's disposal to deliver this critical liquidity quickly, as speed of execution was a priority to keep Canadian businesses afloat. Federal financial crowns are well-positioned to address extraordinary liquidity issues.   However, EDC was identified as the only organization capable of facilitating federal supports in the form of loans at large scale through Canadian deposit-taking financial institutions. Federal crowns are positioned to address extraordinary liquidity issues. If any other organization were used, it is likely that there would have been a delay of at least several additional weeks, if not more, prior to CEBA loans being disbursed.

2. Why were other Crown corporations not considered? Why was EDC chosen over BDC?

Other Crown corporations were considered. However, the only Crown corporations determined to be positioned to deliver a large-scale loan program were the Business Development Bank of Canada (BDC) and EDC. A key qualification of any organization was that it had existing relations with Canadian banking sector to achieve speed of deployment and national coverage.

BDC and EDC advised that given the scale and the scope of a program that provided loans on non-commercial terms, the initiative could not be supported on their Corporate Accounts.

However, given that neither Crown could support the program on their corporate Accounts, and EDC was able to use the Canada Account, it made EDC the obvious choice for rapid implementation.

3. Why was a government department not chosen to administer the CEBA program?

It was determined that a Crown corporation would be best positioned to administer a significant value loan program due to the large volume, operational experience and industry connections. There was also an element of path dependence once the program had begun under EDC; there would have been significant costs if the administrator changed mid-way.

4. Did Finance know about EDC's reliance on Accenture, and that it would not be able to deliver the CEBA program entirely itself?

The department was aware of EDC's reliance of third-party service providers, including Accenture – the scope of the reliance on third-party service providers grew significantly as the program was expanded, both in size and scope of activities such pre- and post-funding verifications.

As EDC is a crown corporation and operates at an arms-length, the department does not play any role in EDC's procurement decisions. All contracting decisions and disclosures were made independently by EDC.

5. The OAG report makes clear that EDC, in the early days of the program, indicated to FIN officials concerns that it did not have the capacity to undertake such a program. At what official levels were these discussions happening? What did FIN do in response to these expressed concerns?

These discussions occurred at various levels of senior management. Prior to and after the launch of the CEBA program, departmental officials at various levels were meeting daily with EDC officials.

It was well understood at the time that EDC would need to rely on a third-party to deliver the program. However, there were no other reasonable alternatives identified at the time given the need to implement rapidly.

6. As the policy lead, FIN was aware that businesses, provinces, opposition parties were all pushing for a further 12-month extension of the forgiveness deadline for CEBA loan holders, what was the rationale to not grant that extension?

Finance Canada was aware that many stakeholders were advocating for a further extension. Finance Canada considered the views of stakeholders and the economic and fiscal environment in providing advice to the Deputy Prime Minister.

Some considerations included costs (including administrative costs) associated with a one-year extension, ability for businesses to repay (and providing the right incentives for repayment), operational considerations, as well as the current economic conditions.

Ultimately, however this was a policy decision by the government.

Background

The CEBA program evolved significantly during 2020 and subsequent years, to respond to stakeholder needs, address the evolving pandemic situation and to align the program with other pandemic support program like the Canada Emergency Workers Subsidy.

Many of the program changes were informed directly through stakeholder feedback. Through the Canadian Federation of Independent Businesses (CFIB) and other representative organizations, Finance Canada received information on program needs and operational issues that required policy changes. Feedback was also received by FIs, both directly and communicated through EDC to Finance. Stakeholder feedback informed much of the Department's advice, including expanding the payroll range (April 17, 2020), adding a non-deferrable expense stream (June 29, 2020), and the establishment of the final repayment deadline on December 31, 2023.

Many other program changes were in response to the evolving pandemic situation and economic context. Difficult COVID waves in December 2020 and January 2022 led to an increase in the CEBA loan amount and an extension of the repayment deadline, respectively.

Timeline

2020

• March 27: CEBA was announced by the Government of Canada in response to the COVID-19 crisis. It was intended to support businesses by providing financing for their expenses that could not be avoided or deferred as they took steps to safely navigate a period of shutdown.
• April 17: The eligible payroll range was expanded (minimum payroll threshold lowered to $20,000 from $50,000 and maximum payroll threshold increased to $1.5 million from $1 million) (CEBA 2.0 v1)
• Following feedback from stakeholders (including CFIB) stating that the current threshold excluded many small businesses. Expanding payroll range meant that an additional estimated 300,000 businesses were now eligible for CEBA.
• April 29: The definition of payroll was expanded (total listed non-deferrable expenses between $40,000 and $1.5 million, alongside some administrative requirements) (CEBA 2.0 v2) The definition was expanded to ensure more businesses had access to CEBA.
• June 29: The non-deferrable expenses stream and pre-funding validations were launched (CEBA 3.0)
• Following feedback from stakeholders stating that certain businesses are unfairly excluded from the existing CEBA structure (e.g., those that rely on contracts rather than formal employment relationships, those that pay in dividends). An additional ~900,000 businesses would now be eligible for CEBA.
• June 30: This was the original application deadline (an extension to August 31, 2020, was affected as part of the CEBA 3.0 rollout)
• August 31: First extended application deadline, to allow sufficient time for implementation and for businesses to apply, in response to the continued pandemic situation.
• October 26: The requirement for a pre-existing business bank account was removed (CEBA 4.0)
• Some stakeholders expressed concerns that the current eligibility requirements continue to limit access to CEBA for businesses with genuine need for support, particularly for businesses operating out of a personal bank account. In response, the Government communicated that it would work on a potential solution to help business owners and entrepreneurs who operate through their personal bank account, as opposed to a business account, or have yet to file a tax return, such as newly created businesses. 
• October 31: Second extended application deadline, to allow sufficient time for implementation and for businesses to apply.
• December 4: Upsize loans of $20,000 (for a total $60,000 CEBA loan) was launched (CEBA 5.0)
• Due to the powerful second wave of COVID-19, eligible businesses facing financial hardship as a result of the pandemic were able to access a second loan of $20,000 – on top of the initial $40,000 that was available.
• December 31: Third extended application deadline, to allow sufficient time for implementation and for businesses to apply

2021

• March 31: Fourth extended application deadline
• Extended from December 31, 2020, to allow businesses more time to apply for CEBA 5.0.
• May 25: EDC provided with Minister of Finance's decision to set repayment deadline for ineligible loan holders on December 31, 2022.
• Aligned with repayment deadline for eligible loan holders.
• June 2: FI agreements were signed, and the Remediation & Reclassification process to address anomalous (i.e., ineligible) loan holders was launched
• To provide timely resolution and provision of the additional $20,000 CEBA expansion funding for those who qualify.
• June 30: Fifth and final application deadline, extended from March 31, 2021, to align with extensions to other emergency benefit programs (CEWS, CERS)

2022

• January 12: The Government of Canada announced a one-year extension for the forgiveness deadline. It was changed from December 31, 2022, to December 31, 2023. The ultimate final maturity date (i.e., term loan deadline) for full repayment of December 31, 2025, was not changed at this time
• This extension was to support short-term economic recovery and offer greater repayment flexibility to small businesses and not-for-profit organizations, many of which were facing continued challenges due to the Omicron surge. Small businesses and representative organizations (such as CFIB) had communicated the need for an extension to FIs, EDC and Finance.
• June 9: Legislation extending the CEBA limitation period to six years and enabling information sharing for CEBA collections received Royal Assent
• The April 5 and June 9 decision were made following work by EDC, FIN and CRA to identify suitable collections options, and advice given by FIN to the Minister of Finance.
• September 2: The Government of Canada changed the repayment deadline for ineligible loan holders to December 31, 2023
• Delays in communications and the rapid pace of program changes caused confusion among stakeholders, which was communicated through FIs to EDC and Finance. The repayment deadline was extended, alongside confirming that ineligible loan holders were not eligible for loan forgiveness, in order to give additional flexibility and improve chances of ineligible repayment and provide clarity to stakeholders.

2023

• September 14: The Government of Canada announced an extension of the forgiveness deadline for eligible loan holders from December 31, 2023, to January 18, 2024, a one-year extension of the final maturity date (i.e., term loan deadline) from December 31, 2025, to December 31, 2026, and a refinancing extension to March 28, 2024.
• After discussions with FIs, EDC came forward with a number of proposals to provide 'operational flexibilities' to support CEBA administration, including:
• Providing the loan forgiveness to CEBA loan holders that have applied for refinancing with their FI prior to the December 31st, 2023, deadline (i.e., the loan has until March 28, 2024, to be funded).
• Adjusting the forgiveness deadline from December 31, 2023, to January 3, 2024 (i.e., to avoid the administrative complexity of the current deadline landing on the weekend of December 30th and 31st); and, 
• Providing discretion for EDC to authorize forgiveness in the event of administrative or technical issues (e.g., network outages).
• There were numerous calls for an extension to the repayment deadline for forgiveness or an increase in the amount of forgiveness from various stakeholders, including a number of small business associations (e.g., CFIB, Restaurants Canada, etc.).