At the moment, the interest rates are rising in Canada, so taking a loan that has no interest at all or it is significantly low, becomes quite an appealing decision for many. The companies are taking these additional loans to cover the expenses that have been made over the years and provide additional financial support.
One of the ways you can do this in Canada is by taking a shareholder loan. By doing so, you will have the opportunity to make your finances much more flexible. However, we can see that taking one of these means that you should understand all the tax impacts and all the implications that can happen over time.
The reason is quite simple, they can seem like a good idea for small businesses, but when you scratch the surface, they might not be the best thing to do. Therefore, understanding all the important elements of a shareholder loan is an absolute must. Without further ado, let’s take a look at all the relevant elements of these loans.
Contents
The Basics
Naturally, we need to explain the concept before we can talk about it in greater detail. A shareholder loan is an amount that a shareholder owes to his company. The way this one is paid is through dividends or salaries. As you probably know, dividends are paid from after-tax corporate profits, and all of them are taxed at a personal level.
Of course, these deductions should be paid promptly. Naturally, the shareholders can use all the corporate funds for their personal needs at every time of the year. It is even possible to take these even when you’re not taking them from elements such as formal dividends or traditional salaries.
Also, it needs to be said that these can be made to your own company or the company that has correlations with your company. Before you can choose the latter option, you would need to create a partnership between these two. So, you can see that some sort of connection must exist between the two companies.
Interesting Rate Changes
Source: financebuzz.com
It needs to be said that interest rate changes are determined by the federal government. In this case, we are talking about the one in Canada. Of course, the Canadian government does so by taking all the aspects of the financial market into consideration. These are determined a couple of times per year, but generally, when the situation is stable, these are done only once a year.
By doing so, the government wants to provide financial support for businesses and whole industries. So, you can see why this is such an important thing to pay attention to since it determines a variety of things on the market. If you’re interested in the history of interest rate changes in Canada, you can find these online without investing too much effort.
Now, we want to take a look at the benefits of taking shareholder loans.
1. Additional Financial Support
Naturally, the first and most important benefit of this approach is the fact that your company will get additional financial support to fund all the projects needed. In some cases, this can be the ultimate way to be successful with some of these projects, and sometimes, this is just a way to ensure additional financial flexibility.
In both cases, inserting fresh money into the company will ensure that the projects you are working on can function without too many challenges. Online, you can find a plethora of stories where this approach has been proven successful.
2. Financing the Project
Source: online.imt-pm.com
Projects, especially those that tend to be costly for a variety of reasons, need constant additional funds to function properly. We are talking about all the projects you can come across, in all the industries out there. Therefore, being able to provide them with some fresh funds might just be the way to ensure them being successful.
We all know that the world of business is not the easiest one to control, and it can easily happen that some of the projects can fail due to the lack of finances. Of course, shareholders taking a loan from the company, and investing in a certain project ensures that the company will not have a lot of foreign debt.
3. Credible Loans
By shareholders taking out a loan from their respective companies, they will ensure they are not in any financial danger. The reason is quite simple, the loans someone takes from their company mean that these loans will not endanger their financial stability. We cannot stress how important this is in this day and age.
At the same time, they do not need to worry about interest almost at all. Sure, the parties can agree on an interest that will suit them both, but it will not be nearly as high as it is on the financial market. We’ve already said that companies don’t have any influence on these rates since they are determined by the central government.
What About Employee Loans?
Besides shareholders being able to take loans from a company, the employees also can take one of these. Naturally, not all the companies out there can offer this possibility, especially if employees are not the shareholders, which is simply not as common in this day and age.
Employees take these for a variety of reasons, but we can see that the commonest ones are housing and automobile loans. Just think about it, employees can reap significant benefits by not going to the banks, but instead, taking money from their respective companies. They will not feel as pressured as in the case of banks, you can be sure of that.
In Conclusion
As you can see, shareholder loans are quite a good way to ensure financial stability. In this article of ours, we’ve provided you with all the relevant information about this concept, what are its benefits, and why we think this is the best way to conduct yourself in your time of need. We do not doubt you will find this insight useful in the future.
