Tag: Canada’s COVID-19 Economic Response Plan

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Brandon Blog Post

CERB CLARITY: A COMPREHENSIVE GUIDE TO ELIGIBILITY AND REPAYMENT

A person wearing a traditional Canadian red and white plaid shirt, surrounded by stacks of paper and envelopes from the Canada Revenue Agency. They look terrified and overwhelmed as they try to figure out how to repay the money they owe. The scene is set against a gray, ominous background with looming shadows representing the fear and stress the person is feeling. The person's facial expression and body language should convey a sense of desperation and hopelessness.

Overview of the Canada Emergency Response Benefit

In the unprecedented times of the pandemic, one of Canada’s COVID-19 Economic Response Plan by PM Justin Trudeau and the Federal Government was the rolling out of the Canada Emergency Response Benefit (CERB) to provide financial aid to those affected by the COVID-19 pandemic. However, the eligibility requirements and repayment process have left many Canadians confused and frustrated.

In this Brandon’s Blog, we will dive deep into the intricacies of CERB eligibility and repayment, providing you with a comprehensive guide to navigate through the confusion. Let’s unravel the mysteries surrounding this together!

Explanation of what CERB was

The CERB has been a source of confusion for many Canadians, particularly when it comes to eligibility and repayment. Despite efforts to clarify the rules, there is still a lack of understanding among the public.

The first step towards clarity is understanding whether you were eligible for this benefit program. The program was designed to support individuals who lost their jobs or experienced a significant reduction in income due to the pandemic. However, the program was rolled out so fast that even those charged with administering the program did not fully understand the eligibility requirements.

With so many government civil servants not understanding the program, no wonder that ordinary Canadians were and are still uncertain about their eligibility status. In this section, we will break down the eligibility criteria, providing you with a clear understanding of who qualified for it and who did not.

Understanding Eligibility Requirements for CERB

Many Canadians are still facing uncertainty and confusion regarding their eligibility for the CERB application process. The ever-changing criteria and requirements had left individuals unsure about whether they qualified for this crucial financial assistance. Let’s delve into the key points causing confusion among applicants. The eligibility requirements were:

  1. Employment Status: To be eligible for CERB, you must have stopped working or experienced a significant reduction in your employment or self-employment income due to COVID-19. This includes individuals who have been laid off, furloughed, or had their business operations suspended.
  2. Income Threshold: The income requirement was that it must have been at least $5,000 in the previous 12 months or 2019. This income can come from employment, self-employment, or certain benefits related to maternity or parental leave.
  3. Residency Requirement: You must be a resident of Canada and have a valid Social Insurance Number (SIN) to qualify. Non-residents, temporary workers, and international students were not eligible.
  4. Exhaustion of Other Benefits: If you were already receiving other benefits, such as Employment Insurance (EI), you were not eligible for CERB. However, if you had exhausted your EI benefits, you could have been eligible.

Purpose of providing financial assistance during the COVID-19 crisis

The benefit was rolled out quickly by PM Justin Trudeau and his Federal Government and there was a lot of confusion about who was eligible for it. It was created to help those in Canada who the COVID-19 pandemic directly impacted. The program provided financial assistance to employees and self-employed workers. The benefit was worth a maximum of $2,000. Eligibility periods were every 4 weeks for up to four months.

The issue that troubles me is that the benefit was mostly paid to people who otherwise would not have been able to afford rent or food during their eligibility periods. The CERB benefit money was spent immediately and a long time ago. So if Canada Revenue Agency (CRA) and Service Canada have now determined that some people should not have gotten that benefit, what are those people supposed to do if CRA demands the money back?

A person wearing a traditional Canadian red and white plaid shirt, surrounded by stacks of paper and envelopes from the Canada Revenue Agency. They look terrified and overwhelmed as they try to figure out how to repay the money they owe. The scene is set against a gray, ominous background with looming shadows representing the fear and stress the person is feeling. The person's facial expression and body language should convey a sense of desperation and hopelessness.

Criteria for Eligibility Not Clearly Communicated

The criteria for qualifying for CERB have been subject to changes and updates by the Federal Government since the program’s inception until it closed. While the intention behind those adjustments may have been to accommodate a broader range of individuals in need, the frequent modifications have created additional confusion. Applicants struggled to keep up with the evolving requirements, making it challenging for them to determine if they were eligible for the benefit.

Moreover, the language used to communicate the eligibility criteria was complex and difficult for the average person to comprehend. The technical jargon and legal terms used in official documents and announcements further exacerbated the confusion, leaving many applicants feeling overwhelmed and uncertain about their eligibility status.

The shifting landscape of eligibility requirements added another layer of complexity for Canadians seeking financial support. As the government responded to changing economic conditions and societal needs, the criteria for qualifying were adjusted to reflect these shifts. While these changes were intended to ensure that those most affected by the pandemic received assistance, they also resulted in confusion among applicants.

For instance, updates to the eligibility criteria regarding income thresholds and employment status left many individuals questioning whether they still qualified for CERB. The evolving nature of these requirements meant that what may have been true one week could be outdated the next, creating challenges for applicants trying to navigate the system.

The confusion surrounding eligibility continues to be a significant issue impacting many Canadians who needed financial assistance during those uncertain times. The reason it continues is because CRA is now demanding repayment from many Canadians alleging that they never qualified for it in the first place.

Clear and transparent communication of the criteria, consistent updates on changes, and accessible language are essential to help individuals understand their eligibility status and navigate the application process effectively.

Understanding CERB Repayment and its Real-Life Challenges

While CERB provided much-needed financial relief to millions of Canadians, it is crucial to understand that the money received through the program was not a grant but a taxable benefit. This means that it needed to be included in each recipient’s income tax return for the taxation year it was received. Failure to do so results in serious consequences. Let’s delve into the repayment process as that was also not properly communicated.

  1. Repayment Deadline: The original deadline for repaying CERB was December 31, 2022. It was essential to plan your finances accordingly to meet this deadline and avoid any penalties or interest charges. As mentioned above, the problem was that everyone used the funds for rent and food. They did not have the money to repay.
  2. Repayment Options: The CRA provides various repayment options to make the process easier for Canadians. You can repay the amount in full, in installments, or through your income tax return. It is crucial to choose the option that best suits your financial situation. However, at this stage, if not repaid immediately upon CRA advising of ineligibility, penalty and interest will be added to the amount paid. This is causing much hardship to many Canadians today.
  3. Avoiding Misunderstandings: Many Canadians have found themselves in a situation where they received the benefit without realizing they were ineligible. CRA is now demanding repayment to rectify the situation.A person wearing a traditional Canadian red and white plaid shirt, surrounded by stacks of paper and envelopes from the Canada Revenue Agency. They look terrified and overwhelmed as they try to figure out how to repay the money they owe. The scene is set against a gray, ominous background with looming shadows representing the fear and stress the person is feeling. The person's facial expression and body language should convey a sense of desperation and hopelessness.

Answers to the CERB Repayment FAQs

Q: What are some common issues people are facing when it comes to repaying the CERB?

A: Some common issues people face when repaying the CERB include confusion about eligibility criteria, difficulties navigating the repayment process, challenges in understanding tax implications, and concerns about financial strain due to the repayment amount. Additionally, delays in receiving communication from the government regarding repayment arrangements and lack of clarity on repayment deadlines are causing stress and uncertainty among recipients.

Q: How is the government addressing the repayment problems faced by Canadians who received the CERB?

A: The Canadian government has implemented various measures to address the repayment issues faced by Canadians who received the CERB. This includes allowing individuals to set up payment plans, extending the deadline for repayment, and providing flexibility in terms of repayment options. Additionally, the government has introduced measures to waive interest charges on outstanding balances for a certain period and has simplified the process for individuals who may have difficulty repaying the benefit. These efforts aim to alleviate the financial burden faced by Canadians and ensure a smoother repayment process.

Q: Can I appeal a decision regarding the CERB Repayment?

A: Yes, you can appeal a decision regarding the Canada Emergency Response Benefit Repayment by contacting the Canada Revenue Agency and providing any relevant documentation or information to support your appeal. It is recommended to review the specific reasons for the repayment request and provide a clear explanation or evidence to support your case during the appeal process. You will need documents to prove your position and may require professional advice from a tax accountant or tax lawyer.

Q: Are there any options available for individuals who are struggling to repay the CERB due to financial difficulties?

A: Individuals who are struggling to repay the benefit due to financial difficulties can contact the CRA to discuss repayment options. The CRA may be able to work out a payment plan or provide assistance based on individual circumstances. It is important to communicate with the CRA as soon as possible to avoid any penalties or further financial burden.

Q: What are the consequences for individuals who are unable to repay the CERB on time?

A: Individuals who are unable to repay the CERB on time may face consequences such as having to pay penalties or interest on the overdue amount, having their tax refunds withheld by the government, or being subject to legal action to recover the debt. It is important to communicate with the Canada Revenue Agency if you are unable to make payments on time to explore potential options for repayment.

Q: What are the acceptable methods for repaying the Canada Emergency Response Benefit?

A: As of now, the CRA has not announced specific repayment methods. However, individuals who have received the benefit but are not eligible or have received more than they were entitled to will be required to repay it. The CRA may provide further guidance on repayment methods in the future, but for now, individuals can contact the CRA to discuss repayment options.

It is just like paying any other amount to CRA. You can do so online, at your bank or by mailing a cheque to CRA. Make sure you include the payment advice stub with your payment and write your social insurance number and how the payment should be directed on the back of your cheque or in the appropriate boxes if paying online.

Q: Can I access financial counselling services for assistance with CERB repayment?

A: Yes, you can access professional advice in the form of financial counselling services for assistance with repayment. Many non-profit organizations and financial institutions offer free counselling services to help individuals navigate their finances and manage any debt repayment, including assistance with repaying CERB funds. It is recommended to reach out to these organizations for personalized guidance on your specific situation.

Q: Can I file either a consumer proposal or bankruptcy to eliminate the CERB repayment debt demanded by the CRA?

A: You can include the CERB repayment debt in a consumer proposal or bankruptcy, but it is advisable to seek professional advice from a licensed insolvency trustee in Canada to understand the specific implications and requirements of each option to your unique financial situation. Each individual’s financial situation is unique, so it’s crucial to receive personalized guidance on the best course of action to address the this repayment debt, your other debts and the effect on your assets.

We have helped several individuals eliminate their CERB repayment debt through both successful consumer proposals and bankruptcy.

CERB Conclusion

The Federal Government has taken steps to address confusion surrounding this program by updating guidelines, improving communication, and providing resources for repayment assistance. However, the CERB part of PM Justin Trudeau’s Canada’s COVID-19 Economic Response Plan seems to be extending the confusion and angst that existed during the COVID-19 crisis itself.

Navigating the complexities of eligibility and repayment is overwhelming, but with the right information, you can ensure a smooth process. By understanding the eligibility criteria and repayment options, you can avoid confusion and potential financial hardships in the future. Remember, it is always better to be proactive and seek clarification if you have any doubts regarding your CERB eligibility or repayment status. Together, we can navigate the confusion and emerge stronger on the other side. Stay informed, stay compliant, and stay financially secure.

Individuals and business owners must take proactive measures to address financial difficulties, consumer debt and company debt and promptly seek assistance when necessary. It is crucial to recognize that financial stress is a prevalent concern and seeking help is a demonstration of fortitude, rather than vulnerability. Should you encounter challenges in managing your finances and find yourself burdened by stress, do not delay in pursuing aid.

Revenue and cash flow shortages are critical issues facing people, entrepreneurs and their companies and businesses with debt problems that are in financial distress. Are you now worried about just how you or your business are going to survive? Are you worried about what your fiduciary obligations are and not sure if the decisions you are about to make are the correct ones to avoid personal liability? Those concerns and more associated with your company debt are obviously on your mind.

The Ira Smith Team understands these financial health concerns. More significantly, we know the requirements of the business owner or the individual who has way too much financial debt. You are trying to manage these difficult financial problems and you are understandably anxious.

It is not your fault you can’t fix this problem on your own and it does not mean that you are a bad person. The pandemic has thrown everyone a curveball. We have not been trained to deal with this. You have only been taught the old ways. The old ways do not work anymore.

The Ira Smith Team uses innovative and cutting-edge methodologies, to adeptly navigate you through the intricacies of your financial challenges, ensuring a resolution to your debt-related predicaments without resorting to the rigours of the bankruptcy process. We can get you debt relief now! We have helped many entrepreneurs and their insolvent companies who thought that consulting with a Trustee and receiver meant their company would go bankrupt. On the contrary. We helped turn their companies around through financial restructuring.

We look at your whole circumstance and design a strategy that is as distinct as you are. We take the load off of your shoulders as part of the debt settlement strategy we will draft just for you.

The Ira Smith Trustee & Receiver Inc. team understands that people facing money problems require a lifeline. That is why we can establish a restructuring procedure for you and end the discomfort you feel.

Call us now for a no-cost consultation. We will listen to the unique issues facing you and provide you with practical and actionable ideas you can implement right away to end the pain points in your life, to begin your debt-free life, Starting Over, Starting Now.

A person wearing a traditional Canadian red and white plaid shirt, surrounded by stacks of paper and envelopes from the Canada Revenue Agency. They look terrified and overwhelmed as they try to figure out how to repay the money they owe. The scene is set against a gray, ominous background with looming shadows representing the fear and stress the person is feeling. The person's facial expression and body language should convey a sense of desperation and hopelessness.

 

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CANADA HOUSEHOLD DEBT: HOW COVID-19 AFFECTED HOUSEHOLD DEBT AND IS THERE A LOOMING CORONAVIRUS DEBT CRISIS?

We hope that you and your family are safe, healthy and secure during this coronavirus pandemic.

Ira Smith Trustee & Receiver Inc. is absolutely operational and Ira, in addition to Brandon Smith, is readily available for a telephone consultation or video meeting.

canada household debt

Canada household debt: Pre-pandemic debt pressures

Pre-pandemic, Canada household debt was continually increasing. The number of homes carrying debt has increased significantly over the last decade. In 2012, Statistics Canada reported that for the average household, Canadian households’ debt-to-income (DTI) ratio was 150%. That means that debt was rising at a rate of $1.50 for every dollar of income. This was up from $1.10 or 110% the year before. In the first quarter of 2020, the DTI ratio hit 175.4%. The ratio had been stuck at that level since about 2016.

This increase in debt can have a negative effect on a household’s bottom line — and the larger the debt, the greater the negative effect. In this Brandon’s Blog, I discuss what has happened to Canada household debt during the COVID-19 pandemic.

How COVID-19 Affected Household Debt in 2020: Canada household debt well supported by a temporary income surge

Whether you consider the federal and provincial financial assistance given to Canadians primarily through Canada’s COVID-19 Economic Response Plan as an income surge or not, findings released by Canada Mortgage and Housing Corporation (CMHC) in November 2020 show that the government assistance did help Canadians cope with Canada household debt.

The key findings in Canada in the CMHC report were:

  • Q2 2020 Canada household debt ratio is 17% down from the Q1 ratio at 158%.
  • The DTI ratio for home mortgage debt was also down, falling from 115% to 105%.
  • These declines were a straight outcome of a boost in household disposable income.
  • The degree of outstanding Canada household debt had not changed.
  • On average, Canadian household disposable income grew by almost 11% between the Q1 and Q2 of 2020 and by 15% year over year.
  • The government’s temporary transfer of money to Canadian families had the effect of decreasing the Canada household DTI ratio to a ratio not seen since 2010.

    canada household debt
    canada household debt

COVID-19: The second wave brought uncertainty on household debt

How Has COVID-19 Affected Canada Household Debt? Around the time of the second wave, the COVID-19 pandemic had actually changed the family financial picture. The DTI ratio is a crucial indication of financial obligations as a vulnerability for primarily the financial real estate industries.

The Canada household debt-to-income ratio decreased in all significant Canadian cities in the second quarter of 2021. Under regular scenarios, such a decline would certainly indicate a general strengthening in families’ capacity to pay off financial debt. Federal government subsidies effectively supported the household lost income. This more than likely helped Canadians with lowering their non-mortgage debt throughout those months. Nonetheless, the mortgage part of Canada household debt has increased in the majority of metropolitan areas while employment has contracted.

At the same time, mortgage deferrals on mortgage payments offered by Canadian financial institutions stopped. This of course leads to worries about the ability of Canadians to stay current on their mortgage payments, even with the current extremely low-interest rates. Other government assistance programs have already ended or are coming to an end. The end of the government support programs leading to the temporary boosting of household income now brings uncertainty as to how Canadians will be able to manage to carry and pay down their household debt levels.

Canada household debt: Higher-income increases drive DTI ratios down

Statistics Canada also came out with an interesting report about the economic impacts of how COVID-19 affected household debt in 2020. The key findings of the Statistics Canada report are:

  • The gap between the lowest and highest income groups declined in 2020. As you might expect, the reason was that lower-income families received a greater share of government COVID-19 funds than higher-income households. Therefore, lower-income households saw more growth in household income than high-income earners, so, the gap closed.
  • There was a more powerful rebound in disposable income for lower-income households as well as younger households. Again, government coronavirus pandemic-related funds transfers are the reason why.
  • Lowest-income and youngest families experience the biggest decline in wages and salaries. As mobility restrictions, shutdowns and lockdowns took place across Canada, travel, food and beverage and the hospitality industries were hard hit because of closings for an extended period. These industries provided employment for many lower-income people. Layoffs resulted in declines in wages and salaries.
  • The dollars of COVID-19 assistance doled out by the federal government surpassed the losses in employment and self-employment incomes suffered.
  • COVID-19 support procedures have the biggest impact on lower-income and more youthful households.
  • Families were able to reduce monthly expenses to the point where it was less than their monthly income from all sources to boost their savings and cash balances on hand in 2020.
  • Lowest-income and youngest families saw the largest wealth gains.
  • Low lending rates facilitated home buying for lower-income and younger Canadians.
  • Lower-income families restricted their consumer debt balances on credit cards and other non-mortgage debt.
  • Younger homes restricted consumer credit (non-mortgage) borrowing in spite of higher consumer spending.
  • The biggest changes in DTI ratios occurred in lower-income and also younger families as opposed to higher-income households.

    canada household debt
    canada household debt

Canada household debt: How will COVID-19 affect financial assets, delinquency and bankruptcy?

The Canada Emergency Response Benefit (CERB) supplied financial support to Canadians who experienced negative financial impact by the COVID-19 pandemic. Eligible Canadians obtained $2,000 for a 4-week period (the same as $500 a week), between March 15 and September 26, 2020. Roughly $82 billion was paid to about 8.9 million Canadians through the CERB program which ended in September 2020.

The Canada Recover Benefit (CRB) sustains Canadians that have actually not returned to work as a result of COVID-19 or whose earnings have actually been reduced at the very least by 50%, and who are not eligible for Employment Insurance (EI). Eligible Canadians should be searching for work and accepting a job where it is reasonable to do so. The CRB gives $500 a week for up to 38 weeks. It is available only for 1 year. You make an application for the CRB for 2 weeks a time through your online CRA MyAccount. You have to wait until after you’ve missed out on 2 weeks of work to apply.

So the CERB is over. The CRB will get kicked to the CRB by this Fall. The Canada Emergency Wage Subsidy for support businesses continuing to employ people is supposed to end this June. Mortgage payment deferrals are over. Although during the first wave courts were closed so lawsuits were not advancing and at the same time collection agencies were not hounding people.

The courts have been open and litigation continuing for some time now. Over the last few weeks, people calling in to inquire about consumer proposals and personal bankruptcy have been saying they are getting calls from collection agencies looking for money, including, credit card debt payments. So pretty soon we should be back to business as usual as far as debt collection is concerned.

To date, as indicated above, COVID-19 has allowed Canadians in general to increase their financial assets and their rise in household net worth. As already described, for those lower-income families, the government support measures have actually had an increase in household income.

Delinquencies in Canada household debt have been ignored to a large extent in 2020 and bankruptcy filings were the lowest on record in 2020 in two decades. I expect that to change, as nobody is currently addressing any form of debt hangover. That is debts that people had pre-pandemic where no principal has yet been paid down and lenders have been understanding and therefore not pressing for collection. As collection calls increase, I expect that personal insolvency filings will also.

I expect that there will also be an increase in corporate insolvency filings. So far in Canada, most of the filings have been large retailers, certain cannabis companies and Laurentian University seeking bankruptcy protection in order to restructure under the Companies’ Creditors Arrangement Act (CCAA). As the economy gets better, companies will need to restart, hire more staff and generally gear up for an increase in business.

Companies will need capital to do so. Unless a company is sitting with a large cash balance, which for the majority is unlikely, they will need to tap into available lines of credit or do fresh borrowing. Lenders who have been understanding to date, may not wish to increase their exposure to certain companies or industries. If companies do not have the cash to operate, they will fail.

How will COVID-19 affect financial assets, delinquency and bankruptcy? I will now provide you with some thoughts to consider.

Canada household debt: Predictions and financial challenges for 2021

Canadians will be facing a great financial challenge as the economy rebounds from the economic impacts of the coronavirus. Canada’s economy pretty well made a sudden stop due to the COVID‑19 pandemic crisis.

This has actually caused extensive income losses, producing a tough scenario for many Canadian families. This is especially true for those that are highly indebted. From a financial stability point of view, a key worry is whether homes can stay up to date with their financial obligation payments. Highly indebted Canadians may very well end up in a financial crisis.

The COVID‑19 pandemic has a worldwide reach, and its aftermath is a lot more uncertain than how we recover from a normal recession. Economic activity will most certainly rebound as mandated lockdowns are gradually relieved. However, this will likely be a slow process, implying some of the macro-financial results of the pandemic might linger.

The Bank of Canada is worried about the 2021 financial challenges for all Canadians. To what degree can homes weather the storm? Canada’s central bank says that this eventually depends on:

  • the financial wellness of households last February 2020;
  • the efficiency of Canadian government support measures and policy activities targeted at the recovery; and
  • the rate at which the labour market recuperates.

The Bank of Canada will be looking at many Canada household debt factors as the economy recovers. Specifically concerning are the more financially vulnerable households. Things that will give the Bank of Canada concern about household liabilities are:

  • Mortgagors (the homeowners) with not many financial guardrails.
  • Home equity credit lines can supply a financial reserve however at the expense of increased borrowing.
  • Will government fiscal policy aid in supporting Canadians until household income can get back to or exceed pre-pandemic levels?
  • Unemployment rates may not be a fully accurate indicator of household revenue losses.

Only time will tell how 2021 unfolds for Canadians and the economy.

canada household debt
canada household debt

Canada household debt summary

I hope you enjoyed this Canada household debt Brandon Blog post. Are you worried because you or your business are dealing with substantial debt challenges and you assume bankruptcy is your only option? Call me. It is not your fault that you remain in this way. You have actually been only shown the old ways to try to deal with financial issues. These old ways do not work anymore.

The Ira Smith Team utilizes new modern-day ways to get you out of your debt difficulties while avoiding bankruptcy. We can get you the relief you need and so deserve.

The tension put upon you is big. We know your discomfort factors. We will check out your entire situation and design a new approach that is as unique as you and your problems; financial and emotional. We will take the weight off of your shoulders and blow away the dark cloud hanging over you. We will design a debt settlement strategy for you. We know that we can help you now.

We understand that people and businesses facing financial issues need a realistic lifeline. There is no “one solution fits all” method with the Ira Smith Team. Not everyone has to file bankruptcy in Canada. The majority of our clients never do. We help many people and companies stay clear of bankruptcy.

That is why we can establish a new restructuring procedure for paying down debt that will be built just for you. It will be as one-of-a-kind as the economic issues and discomfort you are encountering. If any one of these seems familiar to you and you are serious about getting the solution you need, contact the Ira Smith Trustee & Receiver Inc. group today.

Call us now for a no-cost consultation.

We will get you or your business back up driving to healthy and balanced trouble-free operations and get rid of the discomfort factors in your life, Starting Over, Starting Now.

We hope that you and your family are safe, healthy and secure during this coronavirus pandemic.

Ira Smith Trustee & Receiver Inc. is absolutely operational and Ira, in addition to Brandon Smith, is readily available for a telephone consultation or video meeting.

canada household debt
canada household debt
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SMALL BUSINESSES IN CANADA ACCUMULATE MASSIVE DEBT DUE TO COVID-19

small businesses in canada
small businesses in canada

We hope that you and your family are safe, healthy and secure during this coronavirus pandemic.

Ira Smith Trustee & Receiver Inc. is absolutely operational and Ira, in addition to Brandon Smith, is readily available for a telephone consultation or video meeting.

If you would prefer to listen to the audio version of this small businesses in Canada Brandon Blog, please scroll to the bottom and click play on the podcast.

Small businesses in Canada introduction

Did you know that since the start of the COVID-19 outbreak 1 year ago that small businesses in Canada racked up $135 billion worth of debt to stay afloat? Seven in 10 small businesses in Canada have actually borrowed money because of COVID-19. The average is almost $170,000 per business, according to a new survey released by the Canadian Federation of Independent Business (CFIB). In total, small businesses in Canada currently owe a cumulative $135 billion.

Out of these businesses that have increased their debt, 76% say it will take them over a year to pay it off. Eleven percent of respondents worry that they might not have the ability to repay their COVID-19 associated financial obligations ever! As far as returning to normal profitability (before the additional COVID-19 debt repayment), 40% are hoping to see it in 1 year’s time, but they really worry that it will take longer.

The purpose of this small businesses in Canada Brandon Blog is to discuss how important small business really is to the Canadian economy and what options exist for businesses and companies facing insurmountable debt challenges. Sometimes I will refer to small businesses in Canada as SMEs.

Contribution of SMEs to Canadian business

The best way to describe the contribution of SMEs to the Canadian economy is by looking at the most recent facts about small businesses in Canada reported by Statistics Canada.

How many businesses in Canada are small businesses?

The widely held definition of a small business corporation is a company that employs no more than 500 people and that has a total asset value of less than $15 million. Most of us have heard that a “small business” is one that employs fewer than 50 people — and that a “big business” has more than 500 employees. But what about businesses that fall in the middle? They are not quite small, but they’re not quite big either; they all fall into the category of SMEs.

In Canada, 91 percent of businesses fall into this in-between category, and there are roughly 3.5 million businesses in total. That’s a lot of businesses to keep up with.

What is the contribution of SMEs to exports in Canada?

Small businesses in Canada are not just small versions of large companies. They are different beasts altogether, and their individual contributions to the Canadian economy are just as important as those of their larger counterparts. In fact, SMEs contribute almost 50% of the country’s exports, and if they were taken out of the picture, exports would fall by almost 40%.

In 2018, exports of items were valued at $522.8 billion, of which 41.1 percent was attributable to SMEs. More than 50,000 Canadian companies exported goods, the huge majority of which were SMEs (97.4 percent).

How many people were employed in Canada in 2019?

In 2019, roughly 16.1 million people were employed in Canada. Private sector businesses employed 76.2% of the total number. The public sector employed the balance of 23.8%.

The definition of small businesses in Canada ranked by firm size using the number of employees are:

  • Small companies (1 – 99 workers)
  • Medium-sized businesses (100 − 499 workers)
  • SMEs (1 − 499 employees)
  • Large companies (500+ workers).

What is the distribution of employment across the private sector?

The variety of people employed defined by the business size of the employer varies significantly between the private and public sectors. In 2019, 88.5% of employed individuals in the economic sector worked for small businesses in Canada, compared with 76.2 percent of those used by public companies of the same dimension.

For the five-year period 2014-2019, Canadian employment ranks had a net gain of 1,076,100. Just over 70% of this increase is attributed to the private sector employment and less than 30% to the public sector.

How many businesses appear and disappear each year?

From these statistics, we see that the contribution of SMEs to economic growth is huge. These small and medium-sized businesses make up the majority of businesses in Canada. These key small business statistics show just how important these Canadian businesses are to the survival of the Canadian economy.

An increase or decrease in the number of businesses is the net result of the appearance or disappearance of businesses over a given period. This is often referred to as “creative destruction.” Between 2001 and 2016, the business birth rate was greater than those that died, except for two: in 2013 and in 2016, when more businesses disappeared (97,151 and 95,889) than were created (95,326 and 95,176),

There are more business births each year than those that disappear, other than for 2 years; 2013 and 2016. According to a Business Development Canada report from the Business Development Bank of Canada, there are more than a quarter of a million businesses in the country at any one time each year. More than 40,000 disappear.

The report was based on data from Statistics Canada’s Business Demography Statistics, which tracks businesses based on the number of active and inactive corporations, and Entrepreneurship in Canada, which tracks self-employed and “indeterminate” businesses. The Statistics Canada information is that business formation is on the rise, and the rate of business deaths has decreased.

This variation between the average birth rate for these two sectors can be explained by the entry cost and different levels of competition. If this is, indeed, the case, higher birth rates would be observed in sectors with a lower entry cost or with a higher level of competition than other sectors.

So more small businesses in Canada appear than disappear every year according to these findings. These statistics of course were from time periods all before the coronavirus pandemic.

small businesses in canada
small businesses in canada

What proportion of new businesses survive the first 15 years?

Every year, an average of 128,000 new businesses are started in Canada. According to the CFIB, about 10% of these new businesses close their doors within the first year. By year 10, that number has risen to 25%. Those are pretty alarming statistics, no matter how you look at them.

What this means is that most new businesses are doomed to fail in their first year, and many of the rest will only survive a few years beyond that. Here are some more alarming statistics on the percent of SMEs enterprise survival rate:

  • there is a 45.8% chance that a business will survive for one year;
  • a 32.3% chance that it will survive for two years;
  • an 18.3% chance that it will survive for three years; and
  • a 9.5% chance that it will survive for five years.

How many small businesses in Canada could close permanently amid a pandemic

The number of small businesses in Canada that survive for ten years (and beyond) is quite low, so it is important to recognize those that are able to make it. So two essential business owner characteristics have to be eternal optimism and being a solid business planner when starting a new business because of the high failure rate.

Now take those long odds for a business survival rate and layer a global pandemic on top of that. The COVID-19 pandemic is nerve-wracking enough to the general public, but for many small business owners, it is downright terrifying. According to the CFIB, close to half of the country’s small businesses could close permanently. The CFIB‘s findings were based on responses from 1,800 small business owners. The CFIB called for the government to provide small business owners with the tools they need to protect themselves and keep their businesses afloat.

The Public Health Agency of Canada reported an even scarier estimate. It felt that up to 70% of small businesses in Canada could close permanently amid a pandemic. The reason? Employees and customers won’t show up. The industry sectors that will be affected the most are the ones whose employees and customers are the most mobile and those whose employees have to work in crowds, like cabs, the hospitality industry, food and beverage, and theatres.

From what we have seen so far, they are correct.

The need for government assistance for Canadian business

Given this result, the Canadian federal government is investing heavily in maintaining and creating jobs to help the struggling Canadian economy. One of its investment vehicles is Canada’s COVID-19 Economic Response Plan which I have previously written about. This program is aimed at supporting business sectors that create jobs here.

This financial help program is designed to assist businesses that are having difficulties because of the pandemic-caused state of the economy. It is intended to support businesses that create jobs. Although many of the support programs have now ended, the Economic Response Plan still has the following programs:

Saving small businesses in Canada

So before COVID-19 arrived here, the odds were always against Canadian start-up businesses having a healthy long-term survival rate. With the pandemic, credible Canadian organizations estimate that we could lose 50% (CFIB) to 70% (Public Health Agency of Canada) of small businesses in Canada.

The life support program federal and provincial governments have instituted help. Multiple lockdowns obviously do not. What is really needed is some sort of return to normal operations so that business revenue can return. Then hopefully over time, profitability will follow. But that is really outside of all of our control.

However, as a licensed insolvency trustee (Trustee), there are things we are currently doing for businesses that cannot see any short-term prospects for being able to overcome their debt problems on their own. The kinds of businesses that we are seeing fall into two categories; viable and non-viable.

The first thing I do as a Trustee is to get a good understanding from the business owner as to the history of the business and the reasons why the business owner believes the company has gotten itself into financial trouble. I also want to get a snapshot of what the assets and liabilities of the business are and I try to form an assessment as to whether the business is viable or not. Even if viable, does the entrepreneur have the energy, mindset and desire to manage a business turnaround. Finally, I need to understand the cash flow requirements of the business and is there a source of funding.

I then analyze all this information and form an opinion as to what the realistic options are for the company and its business. Depending on each situation, the range of options are:

  • The business operations and debt levels are such that they are not serious enough and the company, over time, should be able to work itself out of a short-term cash crunch through some imaginative management of the company. Perhaps even an informal restructuring of sorts.
  • The business is viable but needs to do a formal restructuring in order to keep the good parts of the business so that it can become profitable again and continue to provide jobs to Canadians. The process would be either a Division I Proposal under the Bankruptcy and Insolvency Act (Canada) (BIA) or a Plan of Arrangement under the Companies’ Creditors Arrangement Act (Canada) (CCAA).
  • If a formal restructuring is not possible, perhaps a sale of the business assets is required and the buyer will operate the assets as an operating business. In this case, a secured creditor will enforce its security in a receivership, through either a private appointment or a court appointment.
  • Finally, maybe corporate bankruptcy is required either in concert with the secured creditor enforcement or by itself if there are no secured creditors. This would allow for the necessary protection to give the time to liquidate the assets, either as a going concern sale or a pure liquidation. The funds obtained from the sale would then be paid to the creditors, in priority of their claims.

Entrepreneurs are obviously scared of any formal insolvency proceeding

The idea of a formal insolvency proceeding makes an entrepreneur feel like a failure. I know they can feel discouraged, but the business isn’t in trouble because senior management did something wrong. You didn’t fail. Business conditions changed. Especially under today’s pandemic circumstances.

Now you’re ready to move forward with your business, but you need some help. That’s what the BIA and CCAA are designed to do; to help your business make a new start. Insolvency proceedings are there to provide a safety net for people and companies. It’s a tool that responsible people use to save a good business after a setback.

Don’t worry what your customers might think about you if your business goes through a formal insolvency proceeding. You won’t be the first and you won’t be the last.

Small businesses in Canada summary

I hope that you found the question posed in this small businesses in Canada Brandon Blog. If you are concerned because you or your business are dealing with substantial debt challenges and you assume bankruptcy is your only option, call me. It is not your fault that you remain in this way. You have actually been only shown the old ways to try to deal with financial issues. These old ways do not work anymore.

The Ira Smith Team utilizes new modern-day ways to get you out of your debt difficulties while avoiding bankruptcy. We can get you the relief you need and so deserve.

The tension put upon you is big. We know your discomfort factors. We will check out your entire situation and design a new approach that is as unique as you and your problems; financial and emotional. We will take the weight off of your shoulders and blow away the dark cloud hanging over you. We will design a debt settlement strategy for you. We know that we can help you now.

We understand that people and businesses facing financial issues need a realistic lifeline. There is no “one solution fits all” method with theIra Smith Team. Not everyone has to file bankruptcy in Canada. The majority of our clients never do. We help many people and companies stay clear of bankruptcy.

That is why we can establish a new restructuring procedure for paying down debt that will be built just for you. It will be as one-of-a-kind as the economic issues and discomfort you are encountering. If any one of these seems familiar to you and you are serious about getting the solution you need, contact the Ira Smith Trustee & Receiver Inc. group today.

Call us now for a no-cost consultation.

We will get you or your business back up driving to healthy and balanced trouble-free operations and get rid of the discomfort factors in your life, Starting Over, Starting Now.

We hope that you and your family are safe, healthy and secure during this coronavirus pandemic.

Ira Smith Trustee & Receiver Inc. is absolutely operational and Ira, in addition to Brandon Smith, is readily available for a telephone consultation or video meeting.

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Brandon Blog Post

CANADA INSOLVENCIES EXPECTED TO JUMP SAYS EVERY AUTHORITATIVE PUNDIT AND INSOLVENCY INSIDER

canada insolvencies
canada insolvencies

We hope that you and your family are safe, healthy and secure during this coronavirus pandemic.

Ira Smith Trustee & Receiver Inc. is absolutely operational and Ira, in addition to Brandon Smith, is readily available for a telephone consultation or video meeting.

If you would prefer to listen to the audio version of the Canada insolvencies Brandon blog, please scroll to the bottom and click play on the podcast

Canada insolvencies introduction

Ideally, if the debt was free as well as limitless, most of us would certainly be able to spend for whatever we wanted with a couple of swipes on our credit card. Companies would be able to buy supplies and also pay salaries simply by borrowing a lot more from their lender. There would be no Canada insolvencies and I guess I would be out of work!

But when the credit crisis struck at the start of this century, it revealed simply how much complimentary and limitless credit there really was, and also the number of people who had been living beyond their means with massive huge debt loads for years.

In 2020, the coronavirus pandemic struck the globe. Every country’s health system has been exhausted to the max. Governments initiated widespread lockdowns and strove to maintain their respective economies afloat. Canadian workers lost their jobs or otherwise having their income considerably decreased because of stringent lockdown measures. This required the federal government to bring in several assistance programs for individuals as well as businesses under the banner of Canada’s COVID-19 Economic Response Plan. Household support measures were imperative.

Every pundit, economist and insolvency insider forecast that Canada insolvencies would jump in 2020. They didn’t. I discuss why and what it means.

What Canada insolvencies mean

As I have written many times in the past, the word insolvency refers to a financial condition in which a person or business is not able to pay its financial obligations. The sensation of being in debt can be an extremely frustrating scenario. The thought of being not able to settle your debts is impending darkness that can seem impossible to get rid of.

As I have promoted many times in my blogs about Canadian households and family budgets, your charge card must continue to be securely in your pocket most of the time. You only should utilize it to acquire things you’ve budgeted for. Nonetheless, if you find yourself not able to pay your credit card bill, you might run the risk of dealing with a scenario known as insolvency. If you have a large amount of debt or restricted earnings, the concern of insolvency needs to be a large motivator for you to do something about it. It causes strains in households.

Limited, lowered or no revenue, whether you are an individual or a company, has actually been the result for lots of Canadians due to the coronavirus pandemic. The provinces, including Ontario, implementing lockdowns of differing degrees has also been a cause. The federal government had no choice but to generate its economic response plan to make aid payments to individuals and companies. Pundits had actually been anticipating a rise in insolvency volumes since the 2nd quarter of 2020.

Global insolvency insider forecasts said there would be a rise in Canada insolvencies and elsewhere in 2020

Insolvencies in the UK were anticipated to leap to record levels by 27% in 2020. That was exposed in a financial study called the Atradius Insolvency Report. Atradius is a leading trade credit insurance firm. It also forecasted that every major economy in all countries, except for China, was anticipated to enter an economic downturn in 2020 with international GDP forecast to contract by 4.5%. This would make it a much more intense recession in magnitude than the Great Recession of 2009. Naturally, COVID-19 was the reason.

Euler Hermes, a trade insurance firm, reported that it predicted that governments around the globe are clambering to save companies battered by coronavirus lockdowns. They said the world is nonetheless encountering a huge rise in insolvencies by one-third in 2020 and also 2021.

In Canada, increased food prices, loss of income and a cost of living have many individuals struggling monetarily. Credit card debt is surging and that is what might push numerous people over the edge. Statistics Canada just released a preliminary estimate that 2020 GDP reduced by 5.1% over year-earlier levels which is the worst year in over 6 decades. The federal government will certainly be presenting a new budget to try to kickstart Canada into an economic recovery. Predictions for later in 2020 also had Canada insolvencies rising.

What really happened in 2020 Canada insolvencies

Nonetheless, as 2020 finished, Canada insolvencies including personal bankruptcies went to a 24-year low. The 2020 trend in insolvencies was a continuing descending pattern. There’s been no spike in personal and business bankruptcies notwithstanding lots of financial difficulty in our country. There was no surge in Canada insolvencies. The opposite was true.

I have previously written on the decrease in Canada insolvencies. In my view, the main factors for the record low Canadian personal insolvencies and corporate insolvencies, including bankruptcy filings in 2020 were:

  • federal and provincial government support measures including the Canada Emergency Response Benefit (CERB), Canada Emergency Wage Subsidy (CEWS) and the Canada Emergency Business Account (CEBA), which had an increase from $40,000 to $60,000
  • mortgage debt payment deferrals
  • the courts having been closed for many months so nobody could get sued

So the predictions for 2020 regarding the level of insolvencies did not come true as there was a continuing decline in insolvencies. So now, each economist and all the pundits have just kicked their signs of increases in insolvencies predictions down the road and claim that 2021 will be the year for the big jump in corporate and Canadian consumer insolvencies. The main reason cited for these 2021 insolvency forecasts is that as far as we know now, the COVID-19 relief programs will wind down. Canada, like most other nations, is not expected to return to a pre-pandemic level for some time.

canada insolvencies
canada insolvencies

How do you prove insolvency?

Canada’s insolvency laws are fairly straightforward. The two main options for an individual who cannot pay all their debts are also straightforward under the Bankruptcy and Insolvency Act (Canada) (BIA). You either file for an individual consumer proposal or personal bankruptcy.

For insolvent corporations, there are options for them under the BIA too. They can restructure and reduce their debts through a Division I Proposal. Alternatively, a company can file for bankruptcy. For companies with debts greater than $5 million, they could choose to restructure by filing under the Companies’ Creditors Arrangement Act (CCAA).

I have also written before about the tests for Canada insolvencies. They are:

  • the debtor has stopped paying debts as they generally become due
  • your liabilities are greater than your assets
  • if you liquidated all of your assets, there would not be enough money to pay off all your debts in full

Canada insolvencies: What happens during insolvency?

When a person or company finds themselves not able to pay their costs, they are insolvent. Insolvency is an economic problem. This typically indicates that they cannot pay their present expenses in a prompt way. There are a number of choices for dealing with your debt when you go into insolvency. What you need is the insolvency advice of a licensed insolvency trustee (Trustee). The Trustee will certainly examine your scenario, establish your insolvency level and discuss your sensible alternatives with you.

As an individual, you can try to use the proposal provisions of the BIA to keep your assets, while you negotiate with your creditors with the help of the Trustee. The objective is to come up with a plan to pay a portion of what you owe to eliminate all of your financial obligations. This allows you to attempt to reorganize your business or personal situation to avoid bankruptcy. It is important to understand your choices.

Lots of people are afraid of declaring bankruptcy or perhaps even owing money. Not many individuals understand what happens throughout insolvency. People assume bankruptcy is a quick fix to all of their financial problems. They think they will never ever need to fret about cash ever again. They are wrong. When you file for bankruptcy, you have simply taken a massive step in the direction of economic liberty.

Nonetheless, there are duties and responsibilities on the person that declares bankruptcy. The process is developed to work with you using counselling to ensure, as best as feasible, that your financial troubles will no longer rule your life. The ultimate objective is that when you have actually successfully completed your debt settlement proposal or have your bankruptcy discharge, you will not once more be tempted to have additional debt that is going to drag you back into insolvency.

It is very important to remember that just because you owe money does not imply that you ought to give up. Rather it suggests that you require to find among the realistic options that a Trustee can help you with to work you out of financial trouble.

Canada insolvencies: What happens when you file insolvency?

At some point in life, you may find yourself in an economic scenario that you do not recognize exactly how to get yourself out of. You’ll be stuck in a situation where you owe more money than you can ever pay back. Remember that insolvency is a financial situation. You can become insolvent, but you cannot file insolvency.

What you can do is search for an option to settle your financial debts, leave them behind as well as move forward with confidence and no tension in your life. It is not your fault that you cannot do it yourself. You have only been taught the old ways. A Trustee can help you using new ways. That is what we are trained to do.

The options, in order of seriousness and urgency, within the Canadian insolvency framework are:

  1. Devise a realistic family household budget to see where you can divert the money you are currently spending away from certain items to unpaid debt until it is all paid off. Household finances must be studied to make sure that there is a balanced budget.
  2. Reaching an informal arrangement with your few creditors to get deferrals from creditors and/or pay them less than the total amount owing on each in order for them to write off the balance.
  3. Reaching a formal debt settlement plan through a Trustee in order to extend the time you have on an interest-free basis and agreements with creditors that you will pay less than the total owing in order to wipe away all of your unsecured debt. This process is called either a consumer proposal or a Division I Proposal, depending on whether you owe more or less than $250,000. To read more about consumer proposals, please click to read my consumer proposal faq blog.
  4. Filing for bankruptcy in order to eliminate your debt and start again fresh, Starting Over, Starting Now.

This is what the BIA is designed for. For corporations owing less than $5 million, they too can take advantage of either debt settlement or bankruptcy using the BIA. If a corporation owes more than $5 million, they can also consider a debt settlement plan under the Companies’ Creditors Arrangement Act (CCAA).

You can deal with your own form of insolvency through the BIA if you can’t pay your bills and you can’t find a way to get out of your situation. You can do one of the consumer insolvency filings available to avoid being harassed by debt collectors. Consumer filings are available to individuals to get a fresh start. Your car breaks down and you can’t afford to fix it. Your debt through mortgages payments are too high. You can’t pay your rent. Why would you not want a no-cost consultation with a Trustee? You literally have nothing to lose.

Canada insolvencies summary

I hope you enjoyed this Canada insolvencies Brandon Blog post. Will there be an increase in insolvencies around the globe in 2021? What will the insolvency figures end up being? I don’t know. But rather than worrying about the whole world, what about you?

If you are concerned because you or your business are dealing with substantial debt challenges and you assume bankruptcy is your only option, call me. It is not your fault that you remain in this way. You have actually been only shown the old ways to try to deal with financial issues. These old ways do not work anymore.

The Ira Smith Team utilizes new modern-day ways to get you out of your debt difficulties while avoiding bankruptcy. We can get you the relief you need and so deserve.

The tension put upon you is big. We know your discomfort factors. We will check out your entire situation and design a new approach that is as unique as you and your problems; financial and emotional. We will take the weight off of your shoulders and blow away the dark cloud hanging over you. We will design a debt settlement strategy for you. We know that we can help you now.

We understand that people and businesses facing financial issues need a realistic lifeline. There is no “one solution fits all” method with the Ira Smith Team. Not everyone has to file bankruptcy in Canada. The majority of our clients never do. We help many people and companies stay clear of bankruptcy.

That is why we can establish a new restructuring procedure for paying down debt that will be built just for you. It will be as one-of-a-kind as the economic issues and discomfort you are encountering. If any one of these seems familiar to you and you are serious about getting the solution you need, Contact the Ira Smith Trustee & Receiver Inc. group today.

Call us now for a no-cost consultation.

We will get you or your business back up driving to healthy and balanced trouble-free operations and get rid of the discomfort factors in your life, Starting Over, Starting Now.

We hope that you and your family are safe, healthy and secure during this Covid-19 pandemic.

Ira Smith Trustee & Receiver Inc. is absolutely operational and Ira, in addition to Brandon Smith, is readily available for a telephone consultation or video meeting.

Categories
Brandon Blog Post

MORTGAGE WITH BAD CREDIT: MY BEST TIPS ON HOW TO GET THE MORTGAGE YOU NEED

mortgage with bad credit
mortgage with bad credit

We hope that you and your family are safe and healthy.

The Ira Smith Trustee Team is absolutely operational and Ira, in addition to Brandon Smith, is readily available for a telephone consultation or video meeting.

If you would prefer to listen to the audio version of this mortgage with bad credit Brandon’s Blog, please scroll to the very bottom and click play on the podcast.

A mortgage with bad credit introduction

Looking back on the 2020 year, the coronavirus pandemic has caused so much health and financial devastation to Canadians. Canadians’ either losing their jobs or at least their income has been the main cause of personal financial problems this past year.

To their credit, the Federal Government quickly came to the aid of people and businesses by rolling out Canada’s COVID-19 Economic Response Plan. The many programs to lend financial support implemented by the Federal Government have been largely successful, notwithstanding not all the programs worked well. Luckily, the major ones did work well in getting much needed financial support to Canadians and Canadian businesses.

In fact, the government support has worked so well that insolvency statistics in Canada as of October 31, 2020, show that consumer and business insolvency proceedings are down in 2020 by almost 25% compared to 2019. So at a time when there is so much financial hurt in Canada, formal insolvency proceedings are way down. I attribute Canada’s COVID-19 Economic Response Plan as the main reason why.

But that does not mean that financial problems in Canada are over. I suspect that as certain government support programs have now ended, and the remaining ones are right now scheduled to end in 2021, it is the coming year where the insolvency statistics may take a turn for the worse with the number of insolvency proceedings increasing.

One of the support programs that have ended is the mortgage deferral program. The purpose of this Brandon’s Blog is to look at what are the options for people who need to either get or renew their mortgage with bad credit.

Mortgages and the coronavirus

As I previously wrote about, there were two phenomenons in 2020 with mortgages in Canada. First, there were roughly $170 billion in home mortgage deferrals among Canada’s 6 major banks. The bulk of them was set to expire by September 30.

The second was that there was a significant rise in Canadian consumer debt primarily from an increase in both mortgage loans and vehicle financings. The major banks reported that increases in mortgage debt came from both the refinancing of existing home mortgage debt as well as new home mortgage applications.

We also know from media reporting, that at least in the Greater Toronto Ontario Area, the residential real estate market remained hot. COVID-19 could not slow it down. We also know that Canadians have taken advantage of the extremely low home mortgage interest rates to increase their mortgage debt in order to pay down or off much higher-rate consumer debt.

For those with a good credit rating, getting new or refinanced mortgage loans has not been a problem. But what about those needing a mortgage with bad credit?

How your credit score impacts your mortgage rate

To comprehend just how poor credit scores impact home mortgage rates, it helps to look at it as a mortgage lending institution. Giving a loan to someone with a poor credit history is high-risk, as they are more likely to not make their monthly payments on time or they might default completely. To make up for the additional danger, lenders approve this kind of home mortgage with bad credit using higher interest rates than the posted rates.

In Canada, credit scores range from a low of 300 to a high of 900. You are rated by Canada’s 2 significant credit bureaus; Equifax and TransUnion. This number is used to tell lenders just how you have dealt with available credit in the past. The greater your credit score the far better, due to the fact that it assists you to get approved for the lowest possible interest rates.

A person with a minimum credit score of 630, should not have a problem getting a standard mortgage approval from one of the major bank mortgage lenders. Obviously, the higher your credit score above 630, the better.

If your credit score is below 630, a lot of the financial institutions in Canada will not authorize you for a mortgage loan. Rather, you may need to utilize a “B lender institution” or even a private lender to get that mortgage with bad credit. Lenders such as these have bad credit mortgages available for people with a poor credit history.

mortgage with bad credit
mortgage with bad credit

What kind of bad credit mortgages are available?

A person applying for a bad credit mortgage may have to save for a larger down payment (frequently 20% or more), or more equity in your house than a person with a good credit score if you are applying for a mortgage refinancing. If you are lucky enough to have a co-signer, that is also a good thing.

Sometimes, if the debt problems are small, the best or close to the best mortgage rate could still be readily available to you. You would be well advised to hire a knowledgeable mortgage broker. A mortgage broker’s fee is paid for by the lender, not the buyer or homeowner. They will certainly attempt to get you the best rate based on your current economic situation. Using an experienced broker is essential if you are looking for a mortgage with bad credit.

A mortgage professional has access to many different types of lenders. Most insurance companies have a portfolio of residential mortgages as part of their overall financial investments. Mortgage brokers also know of private lenders. Even if a lender at one of the major banks turns you down, a mortgage broker may very well be able to find you a lender who will say yes. The mortgage rate might be higher than those posted in the newspaper or shown online, but at least you will get the mortgage with bad credit loan that you need.

What are the advantages of bad credit mortgage loans?

Commonly bad credit borrowers with credit report problems, a bad credit score range and overall credit issues are rightfully reluctant to handle more debt. However, a mortgage with bad credit is very different than taking on more debt just for consumer overspending. When you need a mortgage, it is because you want to buy an asset that is worth more than the amount of money you will owe on it.

So, a mortgage with bad credit can be a powerful device to enhance credit score ratings. A few of the methods bad credit borrowers who can qualify for a home mortgage accomplish this are:

  • Consolidate multiple high rate consumer debts, such as credit card debt or unsecured line of credit debt, into a solitary lower interest mortgage loan. Eliminating high rate debt that is in default through debt consolidation with a lower rate mortgage AND making your monthly payments on time, will improve your credit score.
  • Amortize financial debt over a longer period to lower your monthly payments. This will certainly help your cash flow.

Even a mortgage with bad credit will certainly have lower rates than credit cards and unsecured lines of credit. This conserves money because the lower interest rate loan will have a lower monthly payment than the total of the monthly payments of the higher rate loans.

In short, a mortgage product for bad credit scores helps you improve your credit score over time, especially if you use the new or refinanced mortgage with bad credit loans to retire your credit card balances.

Here is another tip. Once you retire your old unsecured credit card balances, cancel them. Then, get a secured credit card. Just like the mortgage with bad credit product, every time you pay off your secured credit card on time, the card issuer reports that to the credit bureaus. This too will help repair your damaged credit and improve it over time.

What if I can’t get approved for a mortgage with bad credit loan at an A or B lender?

If you have worked to build your credit and are still incapable to obtain approval on a conventional mortgage, be sure to ask your broker what else you should do differently. More than likely, the broker will recommend canvassing their private mortgage lender contacts. Private lenders are willing to do mortgages for people.

Borrowing from a private lender for a mortgage with bad credit will carry additional fees and a very high-interest rate. Most private mortgages also carry a very heavy penalty for defaulting or even just late payments. However, if your budget tells you that you can afford the monthly mortgage payment, a private lender has much more flexibility.

A private lender is much more willing to look at your stable employment record and your proof of income, rather than just your credit report. Of course, an appraisal supporting the value of the home and the loan requested is crucial.

Keep in mind that a private lender may very well be more lenient if you had previously filed a consumer proposal or for bankruptcy. Whereas an A lender and many other lenders will be scared off by this, a private lender may very well not be. If you have successfully completed your consumer proposal or have received your bankruptcy discharge then you have shed the debt that weighed you down. So it is very possible that you have a relatively small debt load.

Alternatively, if you are refinancing for debt consolidation purposes, the private lender will want proof that the debts have been paid off with the portion required from their mortgage with bad credit advance. As long as the alternate lender is happy with your income and employment history along with the appraisal, the lender won’t be bothered by the debts that will no longer be outstanding.

So although the private mortgage route is expensive, at least the money you need is available. Let’s face it, if you had a good credit score, you would deal with one of the chartered banks, even for insured mortgages. You would not need someone who can provide you with a mortgage with bad credit product.

Mortgage with bad credit summary

I hope you have enjoyed this mortgage with bad credit Brandon’s Blog. Do you or your company have too much debt? Are you or your company in need of financial restructuring? The financial restructuring process is complex. The Ira Smith Team understands how to do a complex restructuring. However, more importantly, we understand the needs of the entrepreneur or the person who has too much personal debt.

You are worried because you are facing significant financial challenges and you think the only thing you can do is file bankruptcy in Canada. It is not your fault that you are in this situation. You have been only shown the old ways that do not work anymore. The Ira Smith Team uses new modern ways to get you out of your debt troubles while avoiding bankruptcy. We can get you debt relief freedom.

The stress placed upon you is huge. We understand your pain points. We look at your entire situation and devise a strategy that is as unique as you and your problems; financial and emotional. The way we take the load off of your shoulders and devise a debt settlement plan, we know that we can help you.

We know that people facing financial problems need realistic lifeline. There is no “one solution fits all” approach with the Ira Smith Team. Not everyone has to file bankruptcy in Canada. We help many people and companies avoid bankruptcy.

That is why we can develop a restructuring process as unique as the financial problems and pain you are facing. If any of this sounds familiar to you and you are serious about finding a solution, contact the Ira Smith Trustee & Receiver Inc. team today.

Call us now for a free consultation.

We will get you or your company back on the road to healthy stress-free operations and recover from the pain points in your life, Starting Over, Starting Now.

We hope that you and your family are safe and healthy.

The Ira Smith Trustee Team is absolutely operational and Ira, in addition to Brandon Smith, is readily available for a telephone consultation or video meeting.

Call a Trustee Now!