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Running a small business or working as a contractor requires you to wear many hats, including accountant and chief financial officer. Without adequate education and training, you may struggle to manage your business finances which can lead to debt.
Here’s what you need to know about the debt relief programs available to small business owners, contractors, and self-employed individuals in Canada.
Small Business Debt
Small businesses take on debt for a variety of reasons. You may need to borrow money to purchase equipment or inventory, to expand to a new location, or to fund day-to-day operations.
There are also external factors that can increase debt including inflation, economic downturns, and unexpected tariffs.
If you run your business alone or as a family, you may lack formal training or expertise in budgeting, financial planning, or income tax preparation. This can make it easier to accumulate credit card debt or tax debt.
There are also life events such as job loss, health expenses, or an emergency that can contribute to your overall debt.
Considering all these factors, it’s easy to see small business owners and contractors can encounter money issues.
So, what can you do if your debt is becoming unmanageable?
What Debt Relief Programs Are Available?
If you’re at a point where you’re struggling to keep your business afloat, it’s time to speak to a Licensed Insolvency Trustee (LIT). A LIT is a debt professional who offers the widest range of personal and business debt solutions.
A LIT is also the only professional in Canada who can administer formal debt solutions, including Consumer Proposals and Bankruptcies.
Here are some of the debt relief programs available to small business owners and contractors in Canada.
Credit counselling
If you’re struggling with debt or money management, a credit counsellor can help you improve your financial skills and knowledge. They can teach you how to make a budget, manage your credit, and what debt solutions are available.
There are for-profit and not-for-profit credit counsellors in Canada. Before working with a counsellor, make sure you do your research to confirm they are trustworthy and have the proper qualifications.
Debt settlement
Some credit counsellors offer debt settlement services. This is when a counsellor or the debt settlement company negotiates with your creditor on your behalf. They will offer your creditors a lump sum of money to eliminate your debt. The amount you offer is typically lower than your total debt.
If your creditors agree, you send the money to the debt settlement company, and they’ll pay your creditors. However, your creditors do not have to negotiate with the debt settlement company, and if they refuse, you may have to pay the original amount of debt plus any fees charged by the debt settlement company. This could leave you in a worse financial position than when you started.
Consumer Proposal
A Consumer Proposal is a formal, legal debt relief process that can only be administered by a LIT. In a Proposal, you work with the LIT to create an offer to your creditors to pay them a percentage of what you owe, extend the time you have to pay, or both. You have up to five years to repay your debts.
To be eligible for a Consumer Proposal you must:
- Be an individual (meaning you’re not a corporation)
- Have total debts of $250,000 or less (not including your mortgage)
For example, if you’re a sole proprietor or independent contractor and you have $100,000 in debts that are all in your name, you may consider a Consumer Proposal.
Division I (business) proposal
A Division I proposal is another formal debt relief process. It’s available to businesses and individuals who have over $250,000 in debt (not including your mortgage). There’s no limit to how much debt you can have.
For example, if your business is incorporated and you have $300,000 in debt, you may be a good candidate for a Division I Proposal.
Bankruptcy
Bankruptcy is typically seen as the last resort for individuals and businesses dealing with overwhelming debt. To file for business Bankruptcy, you must work with a Licensed Insolvency Trustee. Once you’re declared Bankrupt, your LIT will sell some of your assets to try and repay your creditors. In exchange, you are discharged from most of your unsecured debts.
To be eligible for Bankruptcy:
- You must owe at least $1,000
- You must be insolvent (you can no longer pay your bills when they are due)
- Your debts exceed your assets
Small Business Loans
If you’re still managing to pay your bills but need extra cash flow, you can consider applying to the Canada Small Business Financing Program (CSBFP).
The CSBFP makes it easier for small businesses to get loans from various financial institutions by sharing the risk with lenders.
To be eligible for the program you need to:
- Run a small business or start-up that operates in Canada
- Have gross annual revenues of $10 million or less
The maximum loan amount is $1.15 million. This is made up of a maximum $1 million term loan and up to $150,000 for a line of credit.
The term loan can be used to finance things like:
- Commercial vehicles
- Hotel or restaurant equipment
- Computers or telecommunications equipment
- Production equipment
- The cost of purchasing a franchise
You can use the line of credit to help cover the day-to-day operating costs of the business.
To apply for the CSBFP, you’ll need to speak with a financial officer at any bank or credit union in Canada. After discussing your business needs, the financial officer will review your proposal and make a decision on your application.
Visit the Government of Canada to find a lender near you.
Need Debt Help in Canada?
If you’re a self-employed contractor or small business owner and you’re struggling to manage your debt, you have options. Your first step is to speak to a Licensed Insolvency Trustee. A LIT can assess your financial situation and explain the debt relief solutions that are available.
For a free, no-obligation consultation to discuss your debt, contact us Toll Free – Allan Marshall & Associates at 1-888-371-8900 or complete our online contact form
