Julie, owner and trainer of purebred dogs, loves animals and managed to make her dream of opening a pet shop come true. She began the adventure in 2019, but a year later her hopes were dashed.
Like many other entrepreneurs, COVID hit hard. “After just a year in business, the pandemic changed everything. I had to close my doors for several months, then I had delivery problems and lost a lot of customers. I have struggled for three years to stay afloat, but today I am mentally and physically exhausted and need to maintain my health,” explains Julie.
With death in her soul, she decided to close her pet shop. She also found a job as an administrative assistant at a hospital in her area, in Mauricie, which paid her a monthly salary of $3,000 after taxes. Unfortunately, the company remains heavily in debt due to its business problems, particularly due to an emergency loan provided by the federal government to support businesses during the pandemic.
Loan rejected
The Canada Emergency Business Account (CEBA) was intended to help businesses cover their operating costs during COVID. In Julie's case, she borrowed the amount of $40,000, which was due on January 18, 2024. If she had managed to repay the $30,000 before that date, she could have benefited from a $10,000 grant.
To achieve this, she asked her bank to give her a loan of $30,000. But his financial institution declined due to his debt and precarious employment status. Julie also has to pay an amount of $5,000 to terminate her commercial lease and has $4,000 in unpaid invoices to her suppliers. Since she no longer knew who to turn to, she turned to the licensed insolvency administrator Jean Fortin et Associés.
Get off on the right foot
After reviewing Julie's budget, Jean Fortin's consultant found that she also had a $12,000 balance on her credit cards and a car payment of $600 per month. In order to get to her place of work, which is several dozen kilometers away from her home, she absolutely has to keep her vehicle. This brings his total personal and business debts to $62,000. It is clear that she cannot pay this amount with her current salary.
“It is unfortunate how the pandemic has impacted small businesses despite emergency loans. They are often small entrepreneurs who have given everything to survive, even at the risk of compromising their physical, mental and financial health, in addition to losing their personal investments,” notes Pierre Fortin, President of Jean Fortin et Associés .
He notes that even if the bank had given him the $30,000 loan, Julie probably wouldn't have been able to get out of the situation. “Refinancing your debt is the best option, but the monthly payment we have to make should not prevent us from paying our bills and balancing our budget. Too often people confuse goodwill and financial performance,” says Pierre Fortin.
In his case, the best solution was therefore to submit a consumer proposal. The creditors accepted an offer of $200 per month for 60 months, for a total of $12,000. “Given the nature of emergency loans, the institutions that manage them on behalf of the federal government are generally very open to settlement offers,” explains Pierre Fortin.
At the end of the application, Julie will be released from all of her debts, including the debts from her business and her credit cards. Your credit score will be affected for a few years, but then it can get back on track.
ADVICE
- If you received an emergency loan, consult a professional (accountant, attorney, or licensed trustee) before or after speaking with your financial institution to find out what your rights and options are.
- The loan that the financial institution could grant you to repay the emergency loan and claim the subsidy carries an interest rate of between 8% and 11% and may need to be personally guaranteed by you. It is therefore a risk that needs to be assessed.
- Businesses that were unable to repay the CEBA by January 18, 2024 saw their loan automatically converted to a term loan with an interest rate of 5%. The capital must be repaid by December 31, 2026 at the latest. Until then, the only obligation is to repay the interest cost each month (e.g. $250 per month for a $60,000 loan).
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