Lori has a small nail and makeup business, but she is very creative and has a large inventory of cool new products in which she tries to interest her clients. Unfortunately, it is a very competitive industry, and it is difficult to determine what would interest her clients. Laurie has not always guessed correctly and her business, which is unincorporated, has struggled. She already has two mortgages on her home to support it. Some of her suppliers allow her to carry their products on consignment. But many do not actually has maxed out her line of credit with the bank. Lori has now come across a new line of hair product which she thinks is very promising for the bridal market which is the cash cow of her business. This hair product uses a special blow set machine which she could buy or rent from the supplier. Laurie intends to carry this product for at least four years and has calculated that the cost of buying the machine at the low financing rate offered by the manufacturer to preferred. Customers is the same as renting it for 23 months. Thus, she would like to buy the machine, but the manufacturer is rightfully concerned about her debt situation. Imagine you work for a small finance company. Lori has approached you to see how she can rearrange her affairs. What might you suggest? You may want to address some of the following issues.
• Due to the COVID-19 outbreak, Lori may qualify for loans in Canada. What do you think?
• As a woman, Lori might qualify for grants and/or loans through the Woman entrepreneur loans and support. Do you agree? Information about the Women Entrepreneurship Loan Fund can be accessed via this link:
https://ised-isde.canada.ca/site/women-entrepreneurship-strategy/en/women-entrepreneurship-loan-fund.
• What are the advantages of entering into an assignment in bankruptcy voluntarily for Lori?
• One could suggest renting or a lease-purchase agreement as some of the available options for Lori. Which one do you recommend and why?
References:
Yates, R. A., Bereznicki-Korol, T., Clarke, T., & Palmer, D. (2020). Business law in Canada (12th Canadian ed.). Pearson Canada Inc.
• Chapter 15: Priority of Creditors
You are Owed Money — Bankruptcy (2015, December 1). Government of Canada. https://www.ic.gc.ca/eic/site/bsf-osb.nsf/eng/br01975.html
What is Unsecured Debt in Canada?(n.d.) https://www.debt.ca/blog/what-is-unsecured-debt
R. v. Fitzgibbon, [1990] 1 S.C.R. 1005
Huff, P. Rogers, L. McIntyre, C. and Cataldo, C. (2022, May 10). Key Developments in Canadian Insolvency Case Law. https://www.blakes.com/insights/reports/2022/key-developments-in-canadian-insolvency-case-law
Lori, a creative entrepreneur in the nail and makeup industry, faces challenges due to the competitive nature of her business. She is burdened with debt, with two mortgages on her home and maxed-out credit lines. Lori has identified a promising hair product for the bridal market but faces difficulties securing financing due to her debt situation. As a financial advisor, we will explore potential solutions for Lori’s financial woes.
Due to the COVID-19 outbreak, Lori may qualify for government loans in Canada. The Canadian government introduced various financial assistance programs during the pandemic, aimed at supporting businesses. Lori should explore these options, as they could provide her with the necessary capital to invest in the new hair product line.
Lori, being a woman entrepreneur, may qualify for grants and loans through the Women Entrepreneurship Loan Fund. This program is designed to empower and support women in business. Lori should consider applying for this fund to access capital at favorable terms, which could help her expand her business and purchase the hair product machinery.
While it’s not an ideal solution, Lori might want to consider voluntary assignment in bankruptcy. This option can provide advantages such as debt relief and protection from creditors. However, it’s important to note that this decision should not be taken lightly, as it can have long-term consequences on Lori’s credit and business reputation.
Lori needs the hair product machine for at least four years. Given her financial constraints, she should weigh the pros and cons of renting versus entering into a lease-purchase agreement.
Renting: Renting the machine provides immediate access without a substantial upfront cost. However, it may be more expensive in the long run, and Lori won’t own the asset at the end of the rental period.
Lease-Purchase Agreement: A lease-purchase agreement allows Lori to make monthly payments with an option to purchase the machine at the end of the term. This option can provide ownership eventually, but it may require a down payment or higher monthly payments.
Considering Lori’s long-term commitment to the bridal market, a lease-purchase agreement may be the most suitable option. It allows her to secure the machine she needs while spreading out the financial commitment over time. Additionally, she can explore government loans and grants, such as the Women Entrepreneurship Loan Fund, to help finance the purchase or lease of the machine. Before making any decisions, Lori should consult with a financial advisor and carefully review her business plan to ensure the new hair product line aligns with her business goals and financial capabilities.
Lori’s nail and makeup business can overcome its financial challenges with careful planning and the right financial strategy. Exploring government assistance programs, considering lease-purchase agreements, and seeking professional guidance can help Lori achieve her business goals while managing her debt effectively. By taking these steps, she can position her business for growth and success in the competitive beauty industry.
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