The Situation
The clients, a married couple, have owned their business, their home and a second property for over twenty years. The company, incorporated in the early 1990s, does about $4 million a year in revenue and roughly $490,000 net after salaries, rent and cost of goods. The home sits on five acres in the Agricultural Land Reserve, with about $250,000 of renovations completed two years earlier, carrying a mortgage of roughly $1.67 million.
The Challenge
CRA debt inside a corporation is a lender's red flag, and this one had grown through the pandemic to about $270,000. The personal side carried another $100,000 of high-interest balances that had pushed one credit score down to the 650s through utilization alone. The company's commercial lender had warned that it would close the large operating line if the business's risk rating did not improve. The acreage is ALR land, which some lenders will not take at all and most cap more tightly, and the existing mortgage carried a three-month-interest penalty to break. Taken together, the mortgage, the cards and the tax debt were costing the family a blended rate more than four points above what a single new mortgage would.
The Solution
We placed the residential mortgage with an alternative lender under its bank-statement program: twelve months of the company's deposits documented the revenue, and the net income after operating costs qualified the file where a T4 would not have. The lender accepted the ALR acreage at about 75% loan-to-value on a 35-year amortization and a three-year fixed term, at a rate below the one the clients' prime lender had been charging on the old mortgage. The new mortgage of about $2.24 million paid out the existing lender and its penalty, roughly $1.7 million, settled the $270,000 corporate CRA debt, cleared the $100,000 of personal debt, and left about $170,000 for closing costs and reserves. We sent the approval directly to the company's commercial lender as evidence that the tax debt was being settled and the owners' finances restructured, and it kept the operating line open.
The Outcome
The CRA balance is gone, the company is clear with the tax authority, the operating line stayed in place, the cards are at zero and the credit score has room to recover, all on one mortgage at a lower rate than the bank's. With the cards and the tax debt no longer running at their own rates, the household's blended borrowing cost fell by more than four percentage points and cash flow improved by many thousands of dollars a month. For a business owner, tax debt handled early is a refinance; tax debt left to grow becomes a lien, a demand and a far more expensive private file.