Owe CRA? Fix it before you apply for financing

Plenty of healthy, growing businesses fall behind on HST or payroll remittances during a busy stretch. It feels like a cash flow problem. To a lender, it's a much bigger deal, and it's one of the most common reasons strong applications stall.

Why lenders care so much

When you collect HST or deduct income tax, CPP and EI from employees' pay, that money is legally held in trust for the government. If it isn't sent to CRA, a "deemed trust" applies. Outside of bankruptcy, CRA can reach into the business's assets ahead of secured lenders to collect it. For unremitted payroll source deductions, that priority can survive even a bankruptcy.

In plain terms: if you owe CRA, a lender's security may be worth less than it looks. CRA can also issue a requirement to pay to your bank or customers, pulling funds before your lender sees them.

What lenders check

• Whether you're current on HST and payroll remittances.
• Whether any balance owing is under a formal payment arrangement.
• Whether all returns are filed, even if a balance is owing.

What to do before you apply

1. File everything. Unfiled returns are worse than unpaid ones. Get every HST and payroll return in.
2. Get the real number. Pull your statement of account from CRA's My Business Account.
3. Set up a payment arrangement if you can't pay in full. Keep proof of the arrangement and of payments made.
4. Tell your advisor up front. A known, managed CRA balance can often be worked with. A surprise found during underwriting usually ends the deal.

Can financing pay off CRA?

Sometimes, yes. Some lenders will fund a loan that pays the CRA balance directly as part of the deal. It depends on the size of the balance and the rest of your file, which is exactly the kind of thing an experienced advisor knows which lenders will consider.