A bank line of credit can look cheap and still cost you clients. Michael Yasny explains factoring, vendor deals, CRA debt, and which three advisors to hire early. For Canadian SMB owners who need financing and a plan.
GROWTH PILLAR: Leadership & Ops
WHO THIS IS FOR: SMB owners, solopreneurs, and leaders building systems
WHAT THEY'LL GAIN: A clear way to compare bank loans with factoring, a script for keeping a vendor supplying you, and a simple team to build before trouble starts.
Most owners think the cheapest loan is the best loan. It isn't. Hit your credit limit and you lose the clients you worked hard to win.
The problem Michael solves: how to fund growth when a bank line of credit is not enough.
Michael Yasny, founder of Money Consultants and author, has helped business owners find financing for more than 30 years. In this East Trade Winds talk, he explains why bank loans are not always the best fit for a business. A bank line of credit can cost less, but it can also cap your growth. He shows how factoring and other growth capital can fill the gap. He also shares how to keep a key vendor supplying you when you owe them money. He covers how to handle taxes, the CRA, and collection agencies too. His advice is to build a team early: a lawyer, an accountant, and a business advisor. This talk is for new, growing, and struggling business owners who need financing options and a plan.
Key topics covered
• Why a 3% bank line can cost more than a factoring deal
• Private money, factoring, purchase order finance, leasing, BDC and EDC
• Keeping a vendor selling to you when you owe them money
• Why to incorporate early, and the question to ask your accountant
• How unpaid CRA taxes grow, and how a garnishment works
• Lenders who tie you up, and how to handle collection agencies
Guest links
• Michael's book on Amazon: So, You Want to Start Your Own Business
Full write-up: Read the full write-up
Supporting persons mentioned: None named in this talk.
Past episodes: Browse all episodes
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Next Steps
• Email: info@kreativinsight.com
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Michael (00:05)
so my company is Money Consultants, and I've been helping businesses for more than 30 years get the financing to grow their business, arrange the financing, anything for that other than a bank line of credit. So there's many opportunities to finance your business.
And bank financing is not important to the financial success of your business, but financing is. Where do you get it? Well, there's lots of different places. There's private money, there's your own private money. There's factoring companies and purchase order finance companies, there's leasing companies. There's the BDC, EDC.
Michael (00:37)
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Michael (00:39)
There's everybody's out there looking to help you. But which companies really do help you? Those are the companies.
That want to succeed with you. Not everybody does. When you speak to people, a lot of times it's just about them succeeding. How can they give you money? And then, and it's generally a salesperson because they don't even worry about whether they're going to get paid back because they work for a company and that's the company's problem. So
Money is very important to your business, but how you use it is very important. You need to use it to grow your business. And again, I earlier said that the interest rate that you're paying is not that important. What you're doing with the money and how much money you're making is what's important. So in my book, I discuss how a bank line of credit at 3% a year.
Can be much more expensive than a factoring company at 45%. So how does 45%, how is that cheaper than 3%? Well, a bank has limits. They give you a line of credit that has a limit. When you get to it, they say when you pay it down, you can use it again. And that hinders your growth. So even though you're paying 3% on the money, if you're losing clients because you don't have enough money, they're more expensive.
Where a factoring company who's charging, and they don't charge 45% interest anymore, but that's what the yield was, it used to be, when I first started there. If that factoring company who's charging what equals out to 45% interest is allowing you to continue to sell to your clients, not turn away business, and turn that money into hundreds of thousands of dollars of profit, does it really matter that you spent $50,000 when you made a quarter of a million?
It doesn't because the bank who only charge you for the same, you know, line of credit, giving you that that $100,000 line and your hundred thousand in cash where the other company had a hundred thousand in cash and factoring, the bank limited your growth. You've lost clients. You only paid a few hundred dollars in interest, but you were limited how much you made, but you lost the clients. And now, yeah, you made sixty thousand. I'm just
I won't tell you the numbers, but you made 60 against making up $250,000. And it's about using it wisely. Use debt, use financing wisely. Factoring is not debt, there's just selling something at a discount. Now, you also have to deal with: are you the vendor selling to somebody that isn't paying you? Or are you the person that isn't able to pay back the vendor? But you still need them to grow your business. You still need them. How do you?
Negotiate with somebody to continue to sell to you when you haven't been able to pay them the old debt. And that something fell into my lap after COVID when I'd have clients come to me. I'm in trouble. What am I going to do? I need this supply to keep supplying me, but I owe them $100,000 and I can't pay them. But I need them or I'm going to go out of business. And the vendor is saying, I need my $100,000, or I'm not going to sell to you anymore.
So this where you have to look at things realistically. You have to pay the $100,000 back, but you can't pay it if you don't get the goods. So what I did is I went to the vendor and said, listen, you owed $100,000. You've lost clients because of COVID. You still have a client that's alive and owes you money. You can't get the money if they're not in business. So why don't we do something that helps both people? Why don't you sell to the client, COD?
And will surcharge the invoice five or ten percent to pay down the debt. You're not getting paid in 30 days, you're not getting paid in 60 days, but you might get paid all your money in six months, a year, year and a half. But in between, you've made money because you've sold COD, you've kept the client alive, and you've had the opportunity to recollect on your hundred thousand dollars. Now, originally, you know, people would say, No, no, we're gonna sue. I said, So sue. They're gonna take their money and go to another supplier. You're gonna sue them.
And you're gonna win in two or three years. Court costs, lawyers costs, and you have to hope they stay in business in order to pay you when you get the judgment. In between you didn't make any money.
So let's look at how do we fix a problem? Let's look at it realistically and see if we can sort it out. And when people don't come to the table, too bad for them. Come to me, I'll fix the problem. Because there's a solution to the problem. And if that vendor won't help you, too bad for the vendor. We'll move on because there's lots of there's a lot more alternatives you have.
to fix the problem than the vendor does to collect the money from you.
So growing your business is important. Doing it properly is important because if you grow with the wrong money, you're going to go out of business. Go with the right money, you're going to grow your business. And then when you want bank financing, you're going to be able to go into a bank and ask them for less expensive financing because you don't need any financing. You already have the financing. You just want less expensive financing. And I can tell you this.
A bank loves taking business away from other lenders. They don't want to be first to the table, but they love being second and third because if somebody else is lending you money, they want to get in on it. So get help from your accountant, get help from your business advisor, get help from your lawyer. I talk about those three people in my book as very important when you're starting a business. But it's also important throughout your business to have those professionals around you.
That have no emotion for your business. They have their business, they have their expertise, and they're going to help you. And I can guarantee you, if you go to them when you're starting your business, you're going to have a lot less costs down the road than when I have to come in and fix your business. So think about things correctly when you're starting a business. How can you protect yourself at the beginning? You know, I tell people all the time, you know, when you pick a lawyer, you want somebody that has commercial experience.
You want somebody that has litigation experience, or at least they're somebody in their office does. You want to pick an accountant. This is really important. This is one question I ask, and it's one answer you're looking for. Do I need to incorporate when I first start? And if the accountant says yes, that's your accountant. And if they say no, you're too new, you too, you don't need it yet, find a new accountant. Because incorporation.
Is the first line of your insurance for your business and you personally. When you don't incorporate for the little amount of money it costs to corporate incorporate, you can do it in Ontario, you can incorporate yourself on the internet in 10 minutes, probably for $400. I believe it's $400 unless they raised it. You can go to a lawyer to do it for you, probably for $1,000 to $1,200. This is insurance because if you're a sole proprietor and you sign your name to anything.
You're personally responsible for the lease or anything else you get involved with, or if anybody sues you. But if you're incorporated, now you have a chance to keep your assets separate from your business, personal assets. And then third, the business advisor. A business advisor is a person that you can go to that has bankruptcy experience, litigation experience, financing experience. Had businesses probably in their past, they understand the cash flow problem.
I know in the factoring business, when I look for salespeople, the best salesperson was a person who owned a business that went bankrupt. Because that person understood cash flow and the problems with cash flow. And they were able to help, they were, they were on the same line as the person they were going in to sell money to and finance. They understood how important financing was and the right financing to keep a business in business.
So look for those three kinds of people to help your business. They're less expensive at the beginning than they are down the road when you get into trouble.
Taxes. You have to stay on top of the taxes. Now in Canada.
The CRA
It's the most incompetent organization I find in financing.
And they could fix it overnight. And I can guarantee that fixing it overnight, they would the companies out there that owe the money would owe them eighty percent less money than they do now. Overnight. Because the government is the easiest place to borrow money from. You don't have to apply and you can't get turned down. You just don't send in your taxes. Now the problem with that is after two months, now you can start paying your taxes. You don't do it because you're scared of the government.
So you don't pay because nobody's called you. But if you were buying from a vendor and you're only paying in 30 days or 45 days, they're on the phone and they stop selling to you in 60 days. Not the government. They're not going to call you for six months, 12 months, 18 months. Now, instead of you owing $40,000, you owe $400,000 and they're screaming and yelling and they're threatening. Most of the threats are not real. But the big problem is they can garnish your bank account, and now you're in free fall.
So your accountant can help you set up with the taxes, make sure that you're on top of it, and make sure you protect yourself because that's the number one thing that's going to destroy your business is when the government comes in totally incompetent, not thinking about you surviving, just thinking about closing the file and getting as much money from you, or letting you go bankrupt. They don't care if you go bankrupt. They just want a solution to the situation.
And they're coming at the wrong time and they're not helping you because they don't understand business. if you garnish somebody, and please believe me, most people who get garnished deserve to get garnished because they try to hide from the government. But if they garnish them, if they don't play by the rules of the CRA that's right in their handbook, or the income tax department, the the laws of the of taxes, which a lot of them don't, you're finished.
So you have to understand those rules. So you need to find somebody that understands those rules if you get into trouble. Because it is the job of the CRA agent to help you pay back the government. They won't tell you that, but that's their job. And it's to keep them in business, keep you in business so you can pay back the taxes. So having the right people around you will protect you because every business, no matter how successful it is.
Has ups and downs. Bell Canada has ups and downs. IBM has ups and downs. And they don't have any financing problems because they're too big for the banks to pull the plug. But they still have financial problems. But they understand finance. They people all around them that are taking care of their financing. You need that for your business. How can people around you help you move forward and succeed? And if you pick the right people,
You will have less problems. You will succeed. You will be a better business, a stronger business, a business other companies want to do business with. So pick the people around you with great effort. Get referrals, understand, have your questions ready when you're talking to those people. Because those professionals will help you stay in business. They will help you when people put things in front of you, when lenders put things in front of you.
There's lots of different loans out of them. Some of them are bad. Some of them are good. Some of them you take advantage of. But you have to understand them. And there's no reason why you as a business owner.
Understands all the different financings out there or how they work for your business. Not everything works for everybody. And sometimes you need a combination of financing. It doesn't have to be just one, but you need somebody to help you make sure that one financing doesn't interfere with another financing. And if you have somebody that's helping you, they will protect you from that lender tying you all up. Because sometimes a lender
Is not really a good person. And they will lend you the money and tie you up that you can't get out, even if you find other financing, because unless you can pay them off 100%, they say no, we're not paid off, we're not giving up security. And that's again why you need a lawyer to explain security to you. It's for you to understand that. What can you do? What happens when somebody isn't paying you? Anyone that sends lawyers letters is wasting their money.
Nobody's going to pay on a lawyer's letter. Nobody's going to pay a collection agency unless it's a benefit to them to pay the collection agency. A collection agency has no authority whatsoever to the debt that you owe. And the easiest way to get rid of the collection agency is to write them one simple email. Tell your client I dispute the debt, they can sue me in court.
And you are never allowed to call me again. You can write to me at this address and I'll respond to you in seven to ten business days. And the collection agency can never call you back. However, sometimes the collection agency is a good thing for you. And here's an example. I had a friend, client, who owed American Express $200,000. American Express doesn't want to go to court. So they sent it to a collection agency. The collection agency's opening bid.
was 65 cents in a dollar. So all of a sudden, American Express is willing to take a $70,000 haircut. Now the collection agency calls up, my friend got me involved, and I offered them 30 cents in a dollar. And they came down to 60 and 55 and 50% and 45%. But when they got to 45%, and this is where understanding financing, bankruptcy, law, and what people can do is really important.
I went back to my friend and I said, let's take the 45%. Now I had offered them 30% at $5,000 a month for 12 months. No interest, that's it. We'll give you cheques and call it a day. But on the first phone call of the collection agency, I said, You and I have to be friends. Because the first time you're not my friend, my friend is going to write you a letter telling you go sue him in court. So if you want to make any money, remember they're making 25 or 30% of what is ever collected.
So all of a sudden the agent reverses their position because now I've made it clear you're not getting any money unless I say you're going to get any money. So we made a deal at 45% because I was still offering them cheques
From the company. The problem, the whole thing is that the person owed the money personally. Even though the company used all the money, he was on the hook personally. Which means in order to pay off the debt, he had to earn money, pay income tax, and pay off the debt. But the collection agency doesn't care about anything, they just care about money. So we wrote the cheques from the business. My friend didn't have to declare it on his personal income tax. And the company paid off the money in 18 months because we still stayed at $5,000 a month.
This is where it's important understanding debt, understanding bankruptcy laws, understanding security, and what people are willing to do. Most lenders do not want to go to court because they do not want to expose what they do and how much they charge. So when you have people that understand that, you're in a much better position. He owed $200,000. He owed it personally. He got off at $90,000.
And he got his company to pay it when he owed 200 personally. And he would have had to earn whatever, maybe $400,000 to pay off the $200,000. Here, his restaurant just paid $90,000. So understanding those things, having the right people around you is going to help your business succeed faster and smoother because there is always going to be bumps in the road.
So I thank you for your time, But anybody can find me with anybody they know with their clients or how their clients need to help collect from other people or how they need to prepare and go forward with their business to grow it.