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SMALL BUSINESS LOANS CANADA CASE STUDY: LOSING YOUR MONEY IS NOT FUNNY

1st Global Capital

Small business loans Canada: Introduction

Today I am going to be telling you a story about a US corporate bankruptcy, and then a case study of our own. The purpose is to illustrate how you need to understand all the risk factors as a private small investor in making small business loans Canada.

Small business loans Canada: 1st Global Capital bankruptcy

A $283 million corporate US bankruptcy has derailed many retirement plans. It has left many investors in a financial crisis. In one case, a small inheritance was invested. In another, a cash award granted by a Court was invested. These are just two of the investor stories coming out of the US bankruptcy case of 1st Global Capital of Hallandale Beach, Florida.

1st Global Capital describes itself this way:

1st Global Capital is an industry-leading direct funder with the professionalism, flexibility and fast turnaround you need to maximize your success. We use our years of industry experience, our funding power and our technological expertise to empower Independent Sales Organizations (ISOs) and Partner’s like you to maximize your business opportunities. Behind every 1GC deal is the expert vetting and oversight from our team of funding professionals with over 50 years of combined underwriting experience.”

Small business loans Canada: The “memorandums of indebtedness”

1st Global Capital was created 5 years ago to fund small companies. It funded loans to small businesses throughout many states in the USA. Examples of the types of businesses it funded are dining establishments, retail stores, construction businesses, healthcare, and e-commerce companies.

They raised money by issuing “memorandums of indebtedness” to people who invested with 1st Global Capital. Many used retirement savings accounts to fund their investment. 1st Global Capital used commissioned agents in many states to sell the 1st Global Capital investment opportunity. These short-term deals were supposed to pay back with interest at the end of nine months.

Small business loans Canada: The risky loan products

1st Global Capital was an alternative lender. It’s loan products included:

  • Merchant Cash Advances
  • Specialty Funding Options
  • Asset Based Lending
  • Accounts Receivable Funding

By its very nature, this was risky lending to businesses that could not obtain more traditional bank financing. The investors were wooed by promises of high returns, but I am certain they did not really understand they were making unsecured loans to a company that placed the money into risky loans.

Small business loans Canada: The small investors

Bankruptcy documents indicate greater than 4,000 1st Global Capital accounts existed across the country at the date of bankruptcy. Numerous are individual retirement accounts, each owed in between $621,000 and $922,000.

Court records indicate that 1st Global Capital stated that the cause of its bankruptcy was examinations by the Securities and Exchange Commission as well as the U.S. attorney’s office in southern Florida over alleged securities violations.

As a result, the inflow of money from investors stopped when 1st Global Capital could no longer offer its memorandums. The bankruptcy files show that as a result, the company dealt with an unexpected and intense liquidity situation. The regulatory agencies state that 1st Global Capital was selling securities and the company was subject to government registration with and oversight by government regulatory agencies.

The bankruptcy records do not indicate this but I am certain that eventually, the bankruptcy trustee will report that the investment scheme was a Ponzi scheme. If the inability to take in more loans caused the company’s bankruptcy, it is obvious that they required fresh money in order to honour their existing liabilities. New investors’ money paying back older investors is a classic definition of a Ponzi scheme.

Small business loans Canada: Our very own Canadian case study

Not understanding what you are investing in is not a story unique to the United States. Let me tell you about one of our case studies from last year called Vaughan Crossings Inc (“VCI”). We were appointed by the Court as Receiver of the assets, properties and undertaking of VCI. The main asset of VCI was 5.5 acres of owned development land located at the northwest corner of Dufferin and Centre Streets in the City of Vaughan, ON. In this receivership, our main role was to sell these lands. You can find all the Court records and public information on our webpage that we set up for VCI, so I won’t go through the history of the file in this Brandon’s Blog.

The important point in this file is that the second mortgagee was a group of investors. These investors were found through the use of commissioned agents. These agents were mainly financial advisors and insurance agents. The agents made commissions to raise funds from their clients for investment in this project. Just like in the 1st Global Capital case, the investors were mainly individuals, many of whom used funds in their RRSPs to make the loan.

Small business loans Canada: The dangers of not understanding risk

During the receivership, I had the chance to speak with many investors who called in wanting to know the status of their investments. These unsophisticated people were wooed by the promise of high returns when the project was fully built out. Just like in the 1st Global Capital case, the mortgage syndicator had to cease raising funds as they were being investigated by the Financial Services Commission of Ontario. Ultimately, the mortgage syndicator went into receivership also.

The money put in by this unsophisticated investor group was secured by way of a second mortgage. The developer ran out of cash to develop the property. The mortgage syndicator was shut down. The lands were not be developed. The plan was that the mortgage syndicator was going to do another round of financing to provide construction financing, which would be in priority to the second mortgagee! The mortgage syndicator had the authority, acting as trustee of the second mortgage, to subordinate that mortgage to the construction financing. However, that never happened.

Small business loans Canada: The receivership

Without construction financing, the development project could not continue; hence our appointment as Receiver. There two mortgages against the property and numerous construction liens filed and perfected against the property. We obtained our appraisals and ran a receivership sales process. We sold the property for much more than its appraised value. The sales price repaid the construction liens and the first mortgage. However, there was very little available for the second mortgagee investors.

The promise of a high-interest rate wooed these investors. They may not have been as focussed on the safety of their capital. Unfortunately, these small investors did not understand the risks associated with this type of loan they were making. Shame on their financial advisors who sold them this investment, knowing it was not right for most of them. The financial advisors were hungry for commissions, regardless of what harm may come to their clients.

Small business loans Canada: Is your business at risk?

If your small business is having financial problems, more small business loans alone is not the answer. You must first look at all aspects of your business. First, you should look at the viability of your business.

Are there expenses that need cutting and activities that you must do that can generate more revenue? If so, perhaps we can restructure your business. You may not need a long-term small business loan. Perhaps a short-term loan to get over the immediate financial hurdle you are facing is enough.

If you are looking for ways to restructure your corporate or personal debt call Ira Smith Trustee & Receiver Inc. We understand the stress and pain your financial problems are causing you. We feel your pain and we can end it for you.

Our strategy for every single business and person is to develop a result where Starting Over, Starting Now comes true, starting the minute you walk through our door. You’re just one call away from taking the necessary actions to get your debt settlement and back on the road to leading a healthy and stress-free life. Contact the Ira Smith Team today.small business loans canada

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Brandon Blog Post

SMALL BUSINESS LOANS CANADA BAD CREDIT: NEED IT?

small business loans Canada bad credit, bad credit, payday loans, payday loan companies, personal loans for bad credit, subprime loans, subprime lending, bankruptcy, small business loansWe are seeing small businesses with poor or bad credit being turned away by the traditional lenders because they require small business loans Canada bad credit. We’ve written several articles on personal loans for people with bad credit – Payday Loan Companies: There Are Options, Canadian Payday Loans No Credit Check: Too Good To Be True!, Payday Loans Are Not The Answer To Your Financial Problems, Personal Loans For Bad Credit: Interested?, Bad Credit Loans Online Attack The Already Vulnerable and others.

However searching for loans with bad credit is not the exclusive domain of individuals; there are also many small businesses who find themselves in the same predicament. And, there are a plethora of companies out there offering to give small business loans Canada bad credit or with actually no credit. Although they are not payday loan companies, they operate in exactly the same way. They are predatory lenders offering subprime loans that are not regulated and are not protected by the same laws that cover the traditional lenders.

If you’re looking for small business loans Canada bad credit, subprime loan companies will hurt your company, not help it. Caveat emptor! Buyer beware! The websites of these business loan companies look very official and several feature the Canadian flag giving the impression that they are affiliated with the federal government. Others have websites with a .org extension also giving the impression that they are government affiliated. Make no mistake; these are for profit companies with no government affiliation or association.

The subprime lending industry is exploding and is now estimated at more than $3 billion in loans a year. According to an article recently published in Bloomberg Businessweek, one of the companies specializing in subprime lending, also referred to alternative lending, is World Business Lenders. “The firm’s representatives pitch their high-rate loans to small business owners who have trouble borrowing elsewhere. World Business Lenders seizes collateral such as vehicles and other assets when borrowers can’t pay, and press legal action where World Business sues companies for missed payments, often sending them into bankruptcy. In fact, 20 percent of World Business’s borrowers were forced to close down last year, according to former executives”. Lenders specializing in small business loans Canada bad credit are no different.

If your business is experiencing financial difficulties, rather than looking for small business loans Canada bad credit, contact Ira Smith Trustee & Receiver Inc., not a subprime lender.Whether you are a small company, an entrepreneurial corporation, or a multi-faceted complex organization, our experienced bankruptcy, insolvency and restructuring team will work with you to solve problems in your financially challenged environment. Starting Over, Starting Now you can get your business back on track.

Call a Trustee Now!