The article “How To Protect Personal Assets If Your Business Fails” was originally published on MoneySense on May 6, 2020.
With COVID-19 protective measures crushing her already struggling business, Annette fears losing her home if she’s unable to repay business loans that are tied to her personal finances.
Q. We are closing our business due to the recent pandemic events. We had been looking at selling it anyway due to a struggling economy, challenging franchise, and so on.
We are personally liable to the bank for our build-out loan, as well as to the landlord. Basically, we would love to avoid losing our house and were wondering if it is possible to sell our house to a relative for a $1 and then just continue to rent it from the relative until everything is finally resolved.
A. First off, Annette, I am so sorry to hear about your business. You, and many other business owners, have been sideswiped by this pandemic.
I suspect you are aware of some of the business measures put forth by the federal government like the Canada Emergency Business Account. The CEBA provides up to a $40,000 loan at 0% interest for businesses with between $20,000 and $1,500,000 in payroll in 2019.
CEBA can be used to pay operating expenses, including existing regular debt payments—like your build-out loan. Property tax, commercial insurance and other costs you may be incurring could also qualify to be covered by the loan.
CEBA payments do not begin until Jan. 1, 2021, at which point, the loan is amortized over five years. Monthly payments would be $667 for those who utilize the full $40,000 limit.
If your repayments are on track by Dec. 31, 2022, the government may deem the remainder of your eligible for forgiveness—25% of the original Jan. 1, 2021 balance, or to $10,000. If you’re unable to repay on this schedule, the balance can be converted to a loan at 5% interest, repayable over the next three years.
Your business may be in such a difficult position that not even CEBA funds would help, Annette, and I can appreciate that. But you may be able to salvage either the business, or at least the cost for the build-out. If the CEBA allowed you to, for example, sublet the commercial property to a new tenant, that could be one possible solution.