What Is A Consumer Proposal and Tips For Dealing With Small Business Debt

A consumer proposal is an agreement between you and your creditors to settle your unsecured debts. The document is filed through a Licensed Insolvency Trustee (LIT) and states that you’ll repay your creditors a portion of the total money you owe.

This legal process is a boon to small business owners in Canada because it’s a more viable alternative than filing for bankruptcy. You get to lower your debts while ensuring that you get to continue your enterprise.

Things to Know About Consumer Proposals

The Canadian government crafted the Bankruptcy and Insolvency Act of 1985 to regulate business and financial operations in the country. It protects debtors and ensures that their bankruptcies are administered fairly and orderly.

Depending on your province or territory, you may encounter different requirements on when you can file a consumer proposal. In some cases, you can apply for one even with just a debt of 1,000 CAD.

The maximum by law, however, is 250,000 CAD. If you go over that amount, you won’t be eligible for a consumer proposal. One way to work around this limit is by filing jointly with your spouse, which increases the threshold to 500,000 CAD.

A consumer proposal can clear the money you owe for a lower amount, like unsecured debt from credit cards as well as bank and payday loans. You can even get rid of some student loan debts, depending on your region.

You must work with a LIT to help determine whether you are qualified to file for a consumer proposal. The licensed trustee will assess your financial situation and verify your eligibility. They can also explain the advantages and disadvantages of applying for this settlement as well as discuss the other options available.

Once you’ve filed your consumer proposal, your debt will temporarily stop accumulating interest. Afterward, there are two possible ways for you. It’s either your application gets approved, and you can pay a portion of the money you owe, or your request is rejected, and the interest gets going again.

Ways to Deal with Small Business Debt

Most people start their enterprises by acquiring some form of debt. Borrowing money is a normal part of the business. Nonetheless, managing your finances well can ensure the success of your venture.

Some ways to deal with your debt include:

1. Reviewing Your Budget

The first step to tackle debt is to know your current financial situation. Have a look at where all your money is going. This way, you can figure out the next steps on how to repay the money you owe to lenders.

Creating a budget is one of the best ways to finally get out of debt. By facing your responsibilities head-on, you can tackle this financial burden more effectively.

2. Keeping Track of Your Dues

Have a list of all your debts, including those from business loans, credit lines, and unpaid bills from vendors. Details like interest rates and how much you’re required to pay monthly should also be found in the record.

Doing so can help you determine which amount to pay off first. A lot of people begin with the one that has the highest interest rate. This makes sense because you don’t want to keep on losing money on interest by prolonging your debt.

3. Increasing Your Income

The most straightforward route to take if you’re going to eliminate your debt is to increase the amount that’s coming in your business. This means trading a lot of products. You can also give yourself a quota on how many items you should sell each month to accommodate your financial obligations.

4. Economizing Where You Can

Another option is to cut back on business costs without sacrificing the quality of your service. This can mean going paperless, which allows you to save on the price of paper and helping the environment.

5. Paying with Cash

Once you’ve increased your income and cut back on some business costs, you may want to pay your vendors using cash in the meantime. If you keep using your business credit line, you risk accumulating more debt, which can lead to higher interest rates as well as a lower credit score.

Paying with cash temporarily can give you time to reduce the amount that you owe and keep up with your financial obligations.


A consumer proposal is one of the options for business owners who are struggling to repay their debts. It’s a debt settlement agreement between the lender and borrower stating that the latter can repay only a portion of the amount owed.

While borrowing money is normal in business, you should manage your finances well to avoid drowning in debt. Don’t wait until you have no choice but to stop your enterprise because you can’t keep up with your financial obligations.

Adam Hansen

Adam is a part time journalist, entrepreneur, investor and father.