Debt Advice Canada
Debt Advice Canada
When it comes to my mortgage, can I pay more than my required monthly payment?
I live in Canada (so any advice, please consider Canadian law), and I am pretty naive when it comes to mortgages and the details behind payments and “prepayments”. (Not even sure I understand that term accurately.)
I’m wondering if I have a mortgage (more specifically a fixed-rate), and I have a set monthly payment, if I can pay more than my monthly payment without making a permanent commitment to that increased payment. (For example, throw my tax return towards my mortgage debt.) And, if it doesn’t effect that, what are the penalties surrounding paying off your loan early? Any websites that explain this in relation to Canada law would greatly be appreciated or perhaps someone who is an investor that lends or is a mortgage broker for a living.
Thank you in advance!
If you have a normal mortgage – there most probably won’t be any penalties.
Its the ARM mortgages and option and all the other scam mortgages that you get fees.
One thing I would do, is write separate checks.
I would write one – regular payment. On the other check – payment towards principal (on the memo part).
Make sure that when you get your statement – that it was applied to the principal and not tacked on to the end of the loan.
I would call the mtg company just to make sure.
NOTE::::
Do not do this unless you have at least 6 months worth of living expenses in a savings.
Be sure you are putting into your 401K, at least the company match.
Make it your goal not to have a mortgage by the time your kids go to college.
This is a great way to “hide” money from the FAFSA and get your kids the most grants as possible.
Only taxable accounts are counted in the FAFSA – so start hiding money in mortgages, 401Ks, ROTH’s or tax–deductible IRA’s – pay off all your debts by the time your kids are 16.
Google EFC calculator – expected family contribution
You’ll get a better understanding of what I’m talking about.
Even if you don’t get the grants – you’ll get all the student loans you need at super low interest rates. Hopefully you will pay their loans for them
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Starting a Business in Canada – Part 1 of 2
INTRODUCTION
I write this piece to share my personal and professional experience with all of you aspiring entrepreneurs in out there regarding issues that you will likely have to face when starting your own business. Please note that some of the legal topics in this piece apply to someone starting and operating a business in Ontario, Canada.
DO YOU HAVE WHAT IT TAKES?
Experience and education
You need the technical education and experience in your area of interest to provide a great service or product, whether you’re an accountant, a furniture salesman or a web-designer. But if you have only this, it only qualifies you to be great employee. It doesn’t mean you are able to run a business.
To successfully run a small business, you need to be a “jack of all trades” with a working knowledge in the areas of sales & marketing, accounting & finance, business law, and human resources management.
No one expects you to be an expert in these areas to be a successful entrepreneur, but you should know enough to identify potential problems or issues so you can hire an expert to deal with them quickly before problems get worse. If you cannot even identify a problem, then you’re setting yourself up for some major trouble.
If you’ve considered starting up a business, you ideally should first find a job with a successful employer in the industry that interests you and learn all aspects of how the business is run. You should also enroll in some introductory courses in accounting, finance, business law and marketing at a local college or university.
Personality traits
From our experience, most successful entrepreneurs have the following personality traits:
1. They are highly organized
2. They love their work – they are truly passionate about what they do and that gives them an edge over their competition. This translates into a strong work ethic, and the best entrepreneurs are considered “workaholics”.
3. They have a broad range of interests and talents. In the context of running a business, they are good at selling, financial management and working with people. This goes back to being a “jack-of-all trades” in order to succeed in business.
4. They can tolerate risk but carefully assess risks before making any major decisions.
To be more specific, there are people who are highly intelligent and educated, but require the emotional security blanket of having a job with a steady paycheque. At the other end of the scale are business people who will make decisions recklessly without first getting facts, analyzing them and then weighing the risks. Neither of these types can be successful entrepreneurs in the long run.
PREPARE A BUSINESS PLAN
Why? Because you need to know who you’re selling to – what’s the point of being in business if you can’t sell your product or service?
You also need to know how much it’s going to cost to set up and run your business. After all, if you spend more than what you sell, you’ll be losing money. Why be in business if you’re losing money all the time?
Finally, unless you already have a lot of money in the bank, you need to figure out how you’re going to finance the start up costs of your business.
Who are you selling to (define your market)?
If you took our advice previously and worked for a company specializing in your industry of interest, you should have an idea of who you can sell to and at what price.
If you didn’t, and have no idea whatsoever, then stop right here – you shouldn’t be starting a business at all.
Will I make any money (preparing a cash-flow projection)?
The most common costs you’ll incur can be separated into two categories: Setup costs
* Legal fees if you’re incorporating your business
* First and last months rent if you’re operating from rented premises
* Costs of setting up an IT network, phone and fax system
* Office furniture
Monthly operating costs
* Rent
* Wages
* Inventory purchases if you’re selling goods
* Professional fees (accounting, legal)
* Leasing costs for business equipment
* Advertising
Once you’re able to estimate what you can sell and your cost of doing business, you (or you and your accountant) are in a position to put together a cash-flow projection.
The purpose of putting together a cash-flow projection is to determine if it makes sense to go into business in the first place.
Therefore, get accurate information about what how much you can sell and how much it costs to set up and operate. If you don’t do this before proceeding with actually going ahead with the business, it could lead to disaster.
Getting financing
You’ve now estimated how much it will cost to set up the business. It’s now time to get the start-up capital. You have a number of options:
Your own money
* Many people get the start up money they need by mortgaging or re-mortgaging their homes, or selling property or possessions
* Banks and other lenders rightfully expect you to make a personal financial commitment – this is called putting “skin in the game”.
Family and friends
* If you’re fortunate enough to have them believe in your ability to succeed, family and friends may be willing to provide a business start up loan
* Never, ever approach friends and family unless you have a detailed business plan that will demonstrate why your business will succeed.
* If you cannot factually demonstrate how your business will succeed, and how you’ll repay them, you are just throwing their money away
* We’ve seen this scenario play out, which results in broken friendships and strained family relationships
Canada Small Business Loan Program
* Administered by Industry Canada. Although you borrow the money from a bank, the Canadian government basically guarantees that the bank will be repaid in the event your business fails
* Provides up to $500,000 of financing
* You must be carrying on business for profit with gross annual revenues of $5 million or less
* Loan proceeds can only be used to purchase business equipment, leasehold improvements to leased premises, or to purchase land for business operations
* You cannot use the proceeds to finance working capital, like inventory or accounts receivable
* You apply by completing a loan application at your bank. If the bank decides to grant you a loan, they register it with Industry Canada
* If you give a personal guarantee, you’re only personally liable for 25 percent of the initial amount borrowed. This is a big advantage over conventional loans, which usually require you to personally guarantee 100 percent of the loan borrowed by your business
Canadian Youth Business Foundation
* This is a national charity that provides young entrepreneurs (18 to 34 years) of up to $15,000 in start up capital
* There is a mandatory 2-year mentoring program where you are matched up with an experienced businessperson to allow knowledge sharing and a higher business success rate
Business Development Bank of Canada (BDC)
* BDC is a Crown corporation owned by the Government of Canada
* Its goal is to support small businesses in Canada, by providing consulting and financing services
* Its “Co-Vision” loan program can provide up to $100,000 in financing, which can be repaid over 6 years. If needed, borrowers can postpone principal payments for 12 months
* The program targets businesses in manufacturing, distribution, services and tourism
* Loan proceeds can be used to finance working capital, fixed assets, marketing and start-up costs as will as purchasing an existing business or a franchise
* Must be able to demonstrate realistic market and sales potential
* Must also be able to demonstrate relevant experience and knowledge about your industry
* Must be able to give personal and financial references
WHAT IS THE BEST LEGAL STRUCTURE?
Most people start their businesses on a small scale and operate initially as sole proprietorships. You only need to register your business name through Service Ontario, either at one of their kiosks or online. As of this writing, the registration fee is $60.00.
However, if you expect your business to regularly incur debt as part of its operations (e.g., purchase of inventory on credit terms, leasing of equipment) or your industry is known to be highly litigious (i.e., there may be a good chance you can be sued someday), then we advise you to incorporate from the outset.
So what is a corporation anyway? A corporation is a legal person, just like you. It can purchase assets, incur debt, file lawsuits or be sued just like a “natural” person. It has many of the same rights as a natural person. Corporations exist as virtual or fictitious persons, granting limited protection to the actual people involved in the business of the corporation. This limited liability is the major advantage of incorporating your business.
So why is the protection “limited” and not “absolute”? Because a director of a corporation (who is usually also the shareholder who owns the company) has personal exposure to certain statutory business debts, such as:
* GST collected by your business but not remitted to Canada Revenue Agency
* Payroll taxes deducted from your employees’ wages, but not remitted to Canada Revenue Agency
* Employer premiums for EI and CPP
* Up to 6 months unpaid wages and vacation pay of your employees
* Retail Sales Tax collected by your business but not remitted to the Ontario Ministry of Finance
Also, if you gave any personal guarantees to any of your business creditors, for example, the bank for your loan or your landlord when you signed the lease agreement, incorporating your business will not protect you personally if you fall behind in these obligations. Therefore, to the extent possible, negotiate your way out of giving any personal guarantees for your business.
The easiest way to incorporate is to see a lawyer, who will prepare, have you sign and register the necessary documents to incorporate your business. Unfortunately, between legal fees and government registration fees, it costs quite a bit more to incorporate compared with registering a sole proprietorship.
This article shall be continued in “Starting a Business in Canada – Part 2 of 2″. If you have any questions about this article or reside in Toronto, Canada and need the services of a Toronto accountant, please contact Jenny directly.
© Copyright Jenny Lin, CGA 2009.
About the Author
Jenny Lin, CGA is a
Toronto accountant practicing in Toronto, Canada. She is a licensed Certified General Accountant specializing in the areas of
personal income tax and corporate income tax preparation as well as providing bookkeeping, accounting and financial statement preparation services.
Jenny is fluent in English and Mandarin Chinese
An introduction:
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Prerequisites and other facts:
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