Corpcentre's Blog

September 30, 2009

Government Financing for Small Business

One of the most difficult results of the financial recession has been the drastically reduced amount of credit available to small businesses. Banks have become highly selective in granting loans – the lifeblood of many a business.

An important program in Canada’s Economic Action Plan is the Canada Small Business Financing Program (CSBFP). This program is designed to help small and medium-sized businesses access financing. For-profit enterprises with gross annual revenues of $5 million or less may be eligible for loan amounts up to $350,000 and $500,000 for real property.

The CSBFP is administered by Industry Canada in partnership with private sector lending institutions across all the provinces and territories. In total, more than 1200 service locations have been established to facilitate business owners seeking loans. The government does not participate in the lending process, nor does it make the decisions. The final decision is solely at the discretion of the financial institution. However, in order to encourage lenders to make loans that they otherwise might not, the federal government will cover a portion of losses due to default. A lending institution with a portfolio greater than $500,000 will be eligible for reimbursement of losses up to 12 percent of its portfolio’s value.

Loans to small and medium-sized businesses are not guaranteed under the CSBFP. Business owners should discuss their needs with a financial officer at a participating financial institution. Upon approval, the loan will be registered with Industry Canada.

This program is not available for farming businesses, not-for-profit organizations, or charitable and religious organizations.

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September 29, 2009

Small Business – Less Tax

However you dissect the finances of a business, specifically a small business, cash is the primary component of the bottom line. The more cash in the coffers, the more flexibility the business has.

The current global recession has dealt extremely harshly with Canadian small businesses. Reduced sales and credit restrictions have pummeled the cash flow of many worthy enterprises.

The Canadian government, seeking to ease the plight of this important and large sector of the country’s business community, has established several stimulus programs through its Economic Action Plan to provide much needed economic relief. Realizing that continued growth of small business is dependant upon available cash, the federal government has passed legislation that increased the amount of small business income eligible for a reduced federal tax rate of 11 percent. Effective January 1, 2009, the eligibility cap was raised from $400,000 to $500,000. Canadian-controlled private corporations that claim the small business deduction are eligible for this credit. By increasing the eligible income by 25 percent, the federal government is helping small businesses retain more of their hard-earned cash. This, in turn, will help stabilize the business community, create new, much-needed jobs, and promote economic growth throughout the nation. It is estimated that this reduced tax rate will cost the country more than $120 million over the next two years. However, with nearly half a million Canadians out of work, it is a wise investment and money well spent.
Canadian businesses can obtain detailed information from the applicable federal government agencies.

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September 25, 2009

When Business Needs Cash

Strangely enough, the best and easiest time to raise cash for your business is when you don’t need it. Cash and credit are the lifeblood of any business. However, when your business is in serious need of a cash injection, that is the hardest time to secure a loan. Raise cash for a rainy day when you’re flush.

Lending institutions are in the business of making a profit on money that they lend. Therefore, a strong business is a far better prospect than a troubled one. The stronger a business’ position, the better the terms it can secure on financing. Thus, when your business least needs a cash influx, go shopping for money. Proudly walking in the door of a financial institution with one’s head held puts you in the driver’s seat. Even in today’s markets when banks are being far more selective, they prefer lending money and providing credit to strong, secure businesses. A smart bank seeks to limit its risks.

Experts suggest taking several advance steps while you’re on strong financial footing. For example, draw down your credit line if you fear that rocky times are ahead. You may pay interest on unused funds but that’s preferable to having the bank cancel an unused credit line.

While your company is still in its infancy, raise as much capital as you can from a variety of sources. It may be easier to sell your idea on paper rather than after reality sets in. Your initial excitement may be contagious to potential investors so use that to its maximum. New businesses often take time to show positive results. That early cash may help you get over the humps.

Be sure that you have a strong grip on your business. Learn to read the signs of impending problems and secure your financial grip before the situation becomes precarious.

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September 24, 2009

Shareholders Determine Executive Compensation

It’s commonly known as say-on-pay policy. In the United Kingdom and the Netherlands, say-on-pay is mandatory. Now, as Canadians desire to be viewed as doing the right thing, say-on-pay will become policy at 13 Canadian corporations beginning next year.

Say-on-pay, although sounding like the name of a children’s game, is by no means a game. It is a system whereby the shareholders of a corporation get to vote on executive compensation packages. Although the policy is merely advisory, it is by no means to be taken lightly. The board of directors is not obligated to follow the express directives of the shareholders. However, the vote by the shareholders – whether to increase top executive compensation, decrease executive pay, or leave it as is – can send a clear message to the board members.

In countries that regularly implement a say-on-pay policy, top company executives invest a good deal of effort to court shareholder votes. While they certainly have a vested interest in the outcome, the important factor is the open lines of communication between shareholders and corporation management. Regular discussion between the investors and operations is extremely important. The goal behind encouraging shareholders’ input is to break down the barrier that currently exists and allow management to understand how their investors view the company’s performance.

In an effort to encourage widespread acceptance of the say-on-pay policy, the Canadian Coalition for Good Governance is working on a model policy for boards to implement, including the wording of the actual resolution put to shareholders. As shareholders are likely to vote based on overall feelings and ignore the specifics, the Coalition hopes that the wording of their resolution will help shareholders focus their thoughts.

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September 23, 2009

It’s Start-Up Time

Filed under: canada economy,canadian business,canadian jobs,entrepreneurs — corpcentre @ 5:57 pm

The recession is in bloom. People fear for their jobs. The economic future is questionable. It may be the perfect time to start your own business. Though it sounds rather absurd, this may be the ideal time to become self employed. True – self employment is not easy but, in a climate where one is never certain how long they will be guaranteed a regular salary, being your own boss may provide the best security for the present and the future.

Starting your own business carries certain risks. However, by following a basic blueprint, you will start with the right foot forward.

Before all else, prepare a business plan. Put your ideas, thoughts, research, and projections in writing. This will help you review your proposal as well as become an important document for outside investors.

The best idea can fall flat if you can’t sell your product or service. Conduct your market research before you hang out your shingle. Carefully identify your potential customers and calculate whether a viable market exists. Don’t be shy about seeking advice from more experienced players in the field.

Small businesses can readily get bogged down in government bureaucracy. It is wise to consult with experts who have dealt previously with the red tape.

Prepare a realistic cash flow projection. In the early stages of your business, check your financial statements daily. Consult with seasoned financial professionals to ensure that your projections are on the mark. You should be projecting the first two years in advance.

It may be difficult to raise the initial seed capital for your business. Most likely, friends and relatives will be the best address, as will former entrepreneurs who can appreciate where you are. The banks will likely wait until you are up and running.

Finally, we live in a world dominated by the internet. However, keep in mind that it is merely a technical tool. The success of your business depends on your personal effort and input.

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September 22, 2009

Are You Prepared for Retirement?

Filed under: canada economy,entrepreneurs,retirement savings,small business — corpcentre @ 6:00 pm

If you are a small business owner, the answer to this question may be a resounding “no.” In studies conducted recently by the Royal Bank of Canada (RBC), the RBC surveyed small business owners across Canada. Almost a quarter of small business owners expressed a desire to retire within the next five years. However, only a small number are properly prepared or have any idea what the impact will be.

One of the primary stumbling points for retirement planning by small business owners is the question of succession planning. In the business world, transfer of the company to the next generation within one’s family is most common. Only a third of small businesses survived succession to the next generation and only one third of these businesses were then passed on successfully to the grandchildren.

It is not always a question of poor planning. It may be that one’s children are not qualified to take over the helm of the family business. Or, on the other hand, they may simply not be interested.
Sometimes, the founder is the business. Remove that dominant figure and the business ceases to exist. If one built a business and failed to make financial plans for leaving the business, he could face serious financial problems should the business cease to function.

The RBC study revealed that 62 per cent of small business owners in Canada were age 50 or older. This translates into a large number of future retirees in the next decade that must start planning for the golden years as soon as possible, if the transition from business owner to retiree is to be smooth and well provided for.

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September 21, 2009

Alberta Faces Record Deficit

Filed under: Alberta Economy,canada economy,natural resources — corpcentre @ 3:11 am

With natural gas prices continuing to fall, Alberta’s energy boom has come to an end. The immediate result is a growing deficit that has no immediate relief in sight. The latest forecast, revised from earlier predictions this year, indicate a record $7 billion deficit by year’s end. Some economists believe that continuing weak gas prices will send the deficit above the $8 billion mark. This dour prediction is based on the assumption that the province is being overly optimistic about tax revenues. It is widely believed among economists that corporate taxes will fall well below figures recently published by the province’s Progressive Conservative government.

Alberta’s Finance Minister Iris Evans has issued orders to provincial offices to trim $430 million from provincial programs. The government itself is seeking to trim $2 billion from next year’s budget.

The province’s premier Ed Stelmach warned that the deficit is likely to remain in place for at least two years following the recession. However, he also announced that the deficit will be offset by $17 billion in emergency savings in the provincial Sustainability Fund. This amount will likely deplete the fund. However, it will enable the Premier to not implement any tax increases nor will the province have to cut jobs. The weakened economy has already contributed to a predicted jobless rate of 22,000 this year. Adding to the gloomy outlook is a forecast of negative 2.5 percent growth for the current year.

Despite a sorry economic forecast, the province is pleased to note that its population is continuing to grow. Economic hardships in other regions of the nation have caused a migration to Alberta. The premier announced that his province’s population is expected to grow by 50,000 residents this year.

On the positive side, the provincial Heritage Savings Trust Fund suffered a $3 billion beating when the stock markets plunged. Recently, though, the Fund has shown a $1 billion recovery, allowing the province to transfer $730 million from the Fund’s profits to the province’s general revenues.

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September 17, 2009

Bank Of Canada: Strong Canadian Dollar may Reduce Economic Growth

Filed under: canada economy,Canadian economy,canadian jobs,US economy — corpcentre @ 9:10 pm

With predictions abound of economic recovery in the third quarter of this year, the Bank of Canada has issued a warning – not its first – that the strong Canadian dollar may pose a serious threat to the nation’s financial comeback.

The Deputy Governor of the Bank of Canada, Timothy Lane, recently addressed economists at a meeting of the Canadian Association of Business Economists. Mr. Lane’s speech did not veer much from the official viewpoint of the country’s central bank. He warned that a strong Canadian dollar will reduce economic growth and will delay the return of inflation to its target. In fact, as the bank has made certain projection in regards to inflation, Mr. Lane feared that the continuing strength of Canada’s currency may force a revision of those predictions.

Mr. Lane explained that the Bank of Canada has tools at its disposal to deal with the rise in the dollar’s strength. However, the Bank’s options are limited, with interest rates at an historic low of 0.25 percent. At this point, the most the Bank can do is issue verbal warnings to speculators to try and steer them away from the Canadian dollar. Most economists agree that Bank intervention in foreign exchange markets is highly unlikely. Another step the Bank could do, and is highly unlikely, is quantitative easing – literally, the printing of money. Mr. Lane did not give any indications, though, that the Bank is considering this unconventional step.

One of the leading factors of the currency’s rise in value is attributed to higher commodity prices, in turn leading to a Canadian recovery. Similarly, the weakening of the U.S. dollar is a contributing factor.

While Mr. Lane views global financial recovery as moving forward, and Canadian recovery as one of the leaders, he remains cautious about committing to a complete recovery in the third quarter.

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September 16, 2009

Canadian Taxpayers Association: Alberta Should Cut Spending

Filed under: investing in Canada,natural resources,recession,small business — corpcentre @ 9:18 pm

As Alberta’s deficit continues to grow, political pundits and economists have much to say about the cause and effect of the province’s financial woes.

According to a recognized expert at the University of Alberta, Alberta is the highest-spending province in Canada. A major blunder has been the financing of all this spending in an irresponsible fashion. The primary funding source has been income from the province’s non-renewable natural resources. Non-renewable indicates that the income will stop flowing when the resources are no longer present.

A recent statement issued by the Canadian Taxpayers Association calls upon the province to cut its spending immediately. While the province intends to finance its deficit from emergency savings funds, this will literally wipe out these funds, leaving nothing out aside for a “rainy day.”

Alberta Premier Ed Stelmach has stated unequivocally that he has no intention of raising taxes, nor does he intend to cut jobs from the province’s payrolls. Moreover, he has announced that the province intends to move forward with $20 billion in building projects planned for the next five years. The province’s population has grown by more than one million residents in the last two decades. More schools and hospitals are needed as well as assisted living facilities for a growing elderly population.

While numerous companies in the private sector, facing financial hardships, have worked with their employees to take a rollback in wages rather than face job loss, the province’s employee unions have yet to be approached officially to discuss wage concessions. Considerable savings to provincial spending could be realized by coming to agreements with the province’s 21,000 employees.

The provincial leadership has been rather reticent about necessary cost-cutting measures. Experts feel that residents may not take kindly to having surprises revealed at the last minute. Recovery may take several years but few feel that it will happen without specific government intervention.

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September 15, 2009

Evaluating Canada’s Inflation: More Buying Power for Small Business

Volumes have been written in the last few months about Canada’s inflation rate, currently sitting at 0.25% annually, and the interest rates set by the Bank of Canada. As the 2009 recession is seemingly coming to an end, according to many government and private analysts, speculation exists as to how the interest and inflation rates will be affected.

According to the chief economist for the CIBC, Avery Shenfeld, there should not be any expected growth above non-inflationary potential until sometime in 2011. The economic slack created by the recession is quite large and is expected to persist for a couple of years. Although the Bank of Canada is rather optimistic in its projections, Shenfeld feels that inflation will still feel the downward pressure of a sizable output gap well into next year.

Shenfeld explained that the core inflation rate did not decelerate this year as much as the Bank of Canada predicted. The reason for this deceleration slowdown is due, in part, to a process that economists call the income effect. Essentially, the Bank of Canada has excluded most of the volatile items that have been deflating from the Consumer Price Index (CPI).

Putting aside economic evaluation, the real question is what this means for the average consumer. In real terms, a negative year-on-year inflation rate means an increase in buying power of the average wage. With lower gas prices at the pump, and new, lower mortgage bills, average Canadians will have more money in their pockets when they go shopping. Also important is the strength of the Canadian dollar. The strong dollar is having a dampening impact on retail prices of imported goods.

Mr. Shenfeld’s report does not see the projected US recovery as having much benefit for Canada. The US stimulus programs, while spurring economic growth in that nation, contain trade barriers with Canadian manufacturers that historically have benefited from trade with the US. Thus, US recovery may actually dampen some of Canada’s economic advancement.

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