Owner and trainer of purebred dogs, Julie loves animals and managed to bring her dream of opening a pet store to life. She embarked on the adventure in 2019, but a year later, her hopes were dashed.
As with many other entrepreneurs, COVID hit hard. “After only a year in business, the pandemic changed everything. I had to close my doors for several months, then I had supply problems and I lost a lot of customers. I fought for three years to stay afloat, but today I am mentally and physically exhausted and I have to preserve my health,” explains Julie.
With death in her soul, she decided to close her pet store. She also found a job as an administrative assistant in a hospital in her region, in Mauricie, which will provide her with a salary of $3,000 per month after tax. Unfortunately, it remains heavily in debt due to its business woes, particularly due to an emergency loan provided by the federal government to support businesses during the pandemic.
Loan refused
The Canada Emergency Business Account (CEBA) was intended to help businesses cover their operating costs during COVID. In Julie’s case, she borrowed the sum of $40,000 which was due on January 18, 2024. If she had managed to repay $30,000 before this date, she would then have been able to benefit from a grant of 10,000 $.
To try to achieve this, she asked her bank to grant her a loan of $30,000. But his financial institution refused due to his level of debt and his precarious employment status. Julie must also pay an amount of $5,000 to end her commercial lease and has unpaid invoices of $4,000 to her suppliers. No longer knowing where to turn, she went to consult the licensed insolvency trustee Jean Fortin et Associés.
Getting off on the right foot
After examining Julie’s budget, Jean Fortin’s advisor noted that she also had a balance of $12,000 on her credit cards, and a car payment of $600 per month. She absolutely needs to keep her vehicle to get to her work, which is located several dozen kilometers from her home. In total, his personal and business debts therefore amount to $62,000. It is clear that with her current salary, she will not be able to pay this amount.
“It is unfortunate how the pandemic has affected small businesses despite emergency loans. They are often small entrepreneurs who have given everything to survive, even at the risk of affecting their physical, mental and financial health, in addition to losing their personal investments,” notes Pierre Fortin, president of Jean Fortin et Associés.
He notes that even if the bank had granted him the $30,000 loan, Julie probably would not have been able to get out of the situation. “Refinancing your debts is the best option, but the monthly payment to be made must not prevent us from paying our bills and balancing our budget. Too often people confuse good will and financial capacity,” says Pierre Fortin.
In his case, the best solution was therefore to file a consumer proposal. The creditors accepted an offer of $200 per month for 60 months for a total of $12,000. “Given the nature of emergency loans, the institutions that manage them on behalf of the federal government are generally very open to settlement offers,” specifies Pierre Fortin.
At the end of the proposal, Julie will be freed from all her debts, including those from her business and her credit cards. Her credit score will be affected for a few years, but then she can get back on track.
ADVICE
- If you received an emergency loan, consult an expert (accountant, lawyer or licensed trustee) before or after meeting with your financial institution to find out what your rights and options are.
- The loan that the financial institution could grant you to repay the emergency loan and benefit from the subsidy will bear interest at a rate varying between 8% and 11% and you may have to guarantee it personally. It is therefore a risk to be assessed.
- Companies that were unable to repay the CEBA by January 18, 2024 saw their loan automatically converted into a term loan at a rate of 5%. The capital will be repayable no later than December 31, 2026. Until then, the only obligation will be to repay the interest costs each month ($250 per month for a loan of $60,000 for example).