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How can we help?

How Can We Help With Cash Flow Issues

As a follow-up to my previous post on Cash Flow, I wanted to dig deeper into how we can help, as well as the good and bad around some of the relief programs being offered. 

First, How can we help? We are finding that many of our clients are able to save by refinancing their debts into one low payment.  

Here is an example:  

Current situation

DebtBalanceMonthly PaymentRate
Mortgage$300,000$18003.29%
Car loan$ 35,000$ 6001.99%
Line of credit$ 20,000$ 6003.95%
Credit cards$ 15,000$ 45019.99%
TOTAL$370,000$3450

New situation

DebtBalance Monthly paymentRate
Mortgage$370,000$14962.69%

Monthly Savings $1954  

This is a real example.  If you have enough equity in your home you could potentially change your cash flow instantly. We are noticing that so many Canadians are keeping balances on credit cards, lines of credit, or car loans when they don’t have to. It’s a made in Canada phenomenon that has puzzled experts for years.  We all want to pay our mortgage off first, even if that means borrowing using other higher interest, higher payment credit facilities.

But what if you aren’t working? What options do you have?

We keep hearing about these huge financial support programs that will help Canadians get by until we can go back to work.  $175billion to $200billion is what has been allocated so far. Experts believe that number will be much higher as the government has once again underestimated how many people have actually applied for assistance.

If you aren’t working now, you are probably aware that you could be eligible for the $2,000/month Canadian Emergency Response Benefit (CERB).   But let’s be honest….  $2,000/month isn’t gonna cut it for many of us living in or near major cities across Canada. But hey, it seems everyone and their brother or sister can apply for and get this. Worked part-time last year as a student earning $5k?  You qualify.  We are seeing and hearing about thousands of people in their late teens or early 20’s getting more money now than they would have expected pre-covid. 

As much as our Federal government has promised to give us financial support to stay home and lock our doors, the reality is that they have fallen short. 

DID YOU KNOW THAT ACCORDING TO STATS CANADA 69% OF OUR TOTAL PRIVATE LABOR FORCE IS FROM SMALL BUSINESSES? THAT’S 8.3 MILLION PEOPLE.

And now we are seeing and hearing of businesses closing for good. Why, you ask? The reality is small businesses have received almost nothing.  The only financial support programs that small businesses have received are as follows:

The $40,000 Canadian Emergency Business Account (CEBA).  

  • Easy to qualify loan of $40,000 with no payments or interest for 2 yrs.  
  • If you pay it back by December 2022, your repayment is reduced by $10,000. (That is the net benefit of $10,000.)   

It is welcome and will help many, but if you have a business with a storefront or retail space with on-going overhead like rent, taxes, salary, etc, this won’t be enough.  Commercial rent is expensive. Rent can take up as much as 50% of a business owner’s expense. This is why you are hearing and seeing so many restaurants close down.

The $100,000 Business Development Bank Canada Covid-19 loan. BEWARE OF THIS ONE!  

  • Introduced back on March 19.  
  • Supposed to help businesses with cash flow problems.  

Again, it sounds great but if you look more closely you see that this is not a grant. You must pay it back with payments amortized over a 5 year period at a rate of the BDC base rate less 1.75% (4.55% – 1.75% = 2.80%).  The rate is great but with payments of $1660/month and a personal guarantee, it could and will do more harm than it will help.  

A personal guarantee means this debt will show up on your personal credit report. Try applying for a mortgage or any other credit facility when you add in another $1660/month payment to your profile.  It will hinder your ability to borrow for 5 years. 

The 75% Canada Emergency Wage Subsidy (CEWS).  

For businesses that qualify (and this is really important to highlight this point), you can apply for a wage subsidy that will cover up to 75% of the employee’s first $58,700 of salary.  That’s a net benefit of $847 per week to the employer.  Again, this sounds great and it will help.. but it didn’t and hasn’t helped those businesses that haven’t been allowed to be open.  

If you are lucky enough to be open, you still have to pass the government’s ever-changing test to qualify.  

  • Your business revenue must have dropped by 15% to 30% depending on which measurement you use, compared with the first 3 months of revenue in 2020 or compared with the same month’s in 2019 in a year over year comparison.  
  • You cannot call and speak with anyone at the government to see if you qualify.  
  • If you apply and you get it wrong, you will face penalties up to 200%, a fine, potential imprisonment, and the name shame game.  That’s right, the government is gonna post your name publically. 

It seems the government loves this new trend of social bullying.  Personally, I find it despicable.  Especially when you cannot prequalify.  It all comes down to interpretation.  And this is why so many business owners are opting not to take the chance and are instead closing up shop for good. Who can blame them?   

My response to the ineffective and lack of financial support is to make more people aware of what is really going on. I am not seeing this covered by any media.  All I see is that our government is doing a great job, they are helping us, we are getting by,  or the government has rescued us. And this just isn’t the case.  We need small businesses to thrive and survive.  They are our major employers.  We can’t all work for the government.  Private businesses are too important to let fail.  Come on Federal Government, help out the majority of Canadians. We need access to funds without being threatened with prison, fines or shaming.

That said there is shame here, and I’m not talking about the small business owner.

As always, I welcome your comments, calls and questions.

Steve Garganis 416 224 0114 steve@mortgagenow.ca

Your best interest is my only interest.

Steve Garganis View All

As an industry insider, Steve will share info that the BANKS don't want you to know. Steve has appeared on TV's Global Morning News, CBC's "Our Toronto" and The Real Life TV show. He's also been quoted in several newspapers such as the Globe and Mail, The Toronto Star, The Vancouver Sun, The Star Phoenix, etc.

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