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Wednesday, 30th September 2020 | Personal Loan

Home improvement: What you need to know if you’re thinking about getting a home renovation loan

Thinking of renovating your home? Here's what you need to know about renovation loans, HELOCs and borrowing to renovate.

There are all sorts of compelling reasons to renovate your home. Perhaps you’re making room for a new addition to your family or seeing someone off to college. Kitchens and bathrooms especially appreciate regular updates. Or maybe you’re just protecting your investment. Whatever your reason for considering a renovation, you’ll have to work with a budget to get the job done. For most, this means looking into a home renovation loan. If you have questions about how to take out a loan for your home renovations—or even if you should—you’ve come to the right place.

What is a home renovation loan?

As the name suggests, a home renovation loan is money borrowed to do home renovations. It’s a personal loan, and at most lenders, iCapital included, it’s secured against the equity you have in your home. Another term for this is a home equity loan.

Home equity loan vs mortgage refinancing vs a HELOC

Some borrowers find money for renovations by refinancing their mortgage. This method also uses the equity in your home as collateral but in the case of refinancing, the idea is to pay off your mortgage and take out a new mortgage—ideally at a lower rate. This option isn’t well-suited to those who intend to sell in the shorter term.

Like mortgage refinancing, home equity loans give you access to a lump sum of money, and they use your home as collateral so they tend to offer a lower interest rate than unsecured personal loans.

A third borrowing option is a home equity line of credit (HELOC). Imagine a HELOC like a credit card with your equity representing your limit where you can borrow small amounts as you need them. HELOCs are offered by all of the major banks and are typically based on a variable interest rate.

Ultimately, the product you choose will depend on your circumstances but all of these loans can be used towards a home renovation.

Is now really a good time for renovations?

The COVID-19 pandemic has thrown a lot into question for a lot of Canadians. Some have had their hours reduced or lost jobs altogether. Others have seen their investments tank. If you’re struggling with the idea of borrowing money for a home renovation you’re not alone. It’s wise to go into a borrowing agreement informed and now is a time of great uncertainty. That said, there are valuable opportunities for those in the position to seize them.

Individual Canadians are not the only ones living with financial uncertainty, and that means lenders are offering notably low rates. A personal loan for homeowners at iCapital can be financed for as low at 9.99%.

Other factors to consider are that you and your family might have more time to dedicate to a renovation and even be able to funnel some funds earmarked for something else (like travel for example) into the project. No matter what else is going on, it’s always a good idea to protect your investment by keeping your home in good shape so now might be an ideal time to take care of maintenance and updates.

Is a home renovation a good investment?

Your home is likely one of your biggest investments so it makes sense to care for it. That said, some renovations promise a higher potential return than others. If you’re thinking about your renovation as an investment on your resale value, skip the accessories and think about the basics. A new roof or furnace will go further than countertops or interior paint—particularly if you don’t intend to move for a while during which time styles may change. That said, deep renovations on kitchens and bathrooms that include up-to-date appliances can provide the “wow” factor to command a higher asking price.

What you need to know before applying

Before you apply for a home improvement loan you should have been able to prove your financial solvency and ability to pay back the loan. Generally, you’ll need to show a regular income, a bank account, and a permanent address. A good credit score is important as it shows lenders that you have a record of repaying your loans. Also, a better credit score will sometimes get you access to a lower interest rate.

In addition to the loan amount, you will also need to negotiate the amortization period—that is, the amount of time you have to repay the loan—and the terms. At iCapital, the amortization periods can range between 9-60 months, and repayment is done through a regular, scheduled automatic debit from your account.

Whether you’re considering renovations as an investment or to simply increase your own enjoyment of your space, there are compelling reasons to make the leap now. Favourable interest rates and a bit of free time don’t generally come along simultaneously. With the right preparation and plan, you can go after a home renovation loan with confidence.

Getting a personal loan if you are unemployed or underemployed
If you’ve lost hours or even your job, there are still options available to you. Working with the Government of Canada, several banks have made the commitment to work with Canadians who have experienced COVID-19 related challenges such as:

pay disruption due to COVID-19
childcare disruption because of school closures
illness from COVID-19

The participating banks are:

Bank of Montreal
CIBC
National Bank of Canada
Royal Bank of Canada
Scotiabank
TD Bank

If you’re facing short-term financial stress, the Canadian Government recommends speaking with your bank about relief on certain credit products, fee waivers, or specific supports for seniors and people with disabilities. If applicable, you can also discuss mortgage deferrals.

Should I take out a second mortgage?

At first glance, a personal loan and second mortgage seem indistinguishable but they're not. While they do offer some of the same benefits like receiving money in a lump sum and payment in installments, they differ in terms of the paperwork involved, fees, and amount of time they take to apply for. For more detail, read our blog post on this topic.

If you’re looking for financial help during COVID-19, a personal loan may well be the best option and depending on your employment status and credit score, iCapital might be able to help.

Personal Loan

Quiz: 7 questions to test your cash flow know-how

Does your business look good on paper but not so much in your wallet? Your cash flow management may well be the problem. If that’s the case, you’re not alone. A study of QuickBooks customers found nearly half (44%) of small- or medium-sized businesses who experienced cash flow issues said their problems came as a surprise. Effectively managing your cash flow could save you thousands of dollars, not to mention all the stress, but you need to understand the issue first. Take our cash flow quiz and test your knowledge. We bet you’ll learn something that will help keep your business operating more smoothly.

1. Cash flow refers to the money you collect from customers and use to pay suppliers. True or false?

True. Cash flow is the money coming in and going out of your business within a specific period of time, usually one month. As you might have guessed from the word “flow”, the term refers to the movement of capital. It is not your business’ valuation or profits.

2. If your company has high revenues and high profits, it won’t have cash flow problems. True or false?

False. Even if you have ample money coming in and expect to make a good profit at the end of the year, you may still have to deal with cash flow gaps. This is when more money is going out towards expenses than is coming in from revenue. So, while your company might be doing well in general, a cash flow problem could make it difficult to cover shorter-term expenses like paying staff or purchasing inventory.

3. Profits and revenue affect your cash flow. True or false?

Not quite! Your revenue is the money you have earned from selling products and services and your profit is what’s left over after you’ve paid all of your expenses. While generating revenue and turning a profit are important to the health of your business, your cash flow is affected by your accounts receivable, inventory, and accounts payable. This is because cash flow has to do with available cash in a given time period.

4. Every business needs working capital. True or false?

True. Your business ties up cash because most employees, landlords, and suppliers expect to be paid regardless of fluctuations in your cash flow. Managing cash flow, or tracking where your cash is going, is the first step to managing your need for working capital. Luckily, labour, technology, and materials are easy to track using a standard profit and loss (P&L) statement. At the same time, the faster you can generate revenue, the lower your working capital needs.

5. One way to control cash flow is to change the terms of your invoices. True or false?

True! You might not think something so simple could have an effect on your cash flow but the payment terms and due date on your invoices can be a great tool for bringing in revenue on your schedule. It’s good practice to send your invoices out immediately upon delivering products or rendering services. You can also shorten the time until payment by offering discounts for customers who pay quickly. Finally, make it as simple as possible to pay you and accept payments online.

6. Maintaining cash flow is just about making sure you have as much money as possible coming in. True or false?

False. Good cash flow management requires a deep understanding of your cash conversion cycle. Remember how cash flow refers to available capital over a certain amount of time? Your cash conversion cycle tells you how many days your cash will be tied up, so you can predict and plan for when you won’t have money to purchase inventory or meet other expenses. If, for example, your cash cycle is 45 days, you’ll only have nine cash flow cycles per year. Your employees, however, get paid every 30 days so you’ll need to make extra working capital available every month. Maintaining cash flow is about making sure you have money coming in at the right time.

7. No matter what, businesses should avoid taking out a loan. True or false?

False! Borrowing money to handle cash flow problems is common—and smart. Running out of inventory and failing to pay suppliers or employees puts your business in a terrible light, not to mention the extra fees you could incur. If you foresee problems with your working capital, your best bet is to be proactive. If your issue is a result of the COVID crisis, visit the Intuit COVID-19 Resource Centre, a free resource for business owners. Or, consider taking out a small loan to cover your costs. There are plenty of options with competitive interest rates and simple repayment plans.

How did you do? If you got all seven questions right, congratulations! You’re a cash flow champion. For the rest of us, there’s still hope to be had. Now is a great time to brush up, make a few tweaks to your processes, and give your business a boost.

Accounting

Digital transformation for small businesses

It’s a difficult time for Canadian small and medium businesses (SMBs) looking to maintain their market share. The usual challenges like cash flow, regulatory adherence, and beating out competitors are even more intense in the shadow of COVID-19. Luckily for business owners, one of the most effective ways to stay relevant—digital transformation—will actually improve your position with all these, even during the pandemic. If you’re looking for a way to boost your business in this chaotic time, read on.

Understanding digital transformation

Digital transformation is a phrase used to describe the process of deploying digital technology to solve business problems. Having a website falls under this umbrella, but so too does using cloud computing, application (ie. “app”) development, and the use of a customer relationship management (CRM) tool. Part of the transition involves taking previously manual processes to the digital realm, but it’s important to understand that this change is not simply about hardware or software. A digital transformation will also result in a positive change to your business’ culture.

Why digital transformation matters

If you’ve been in business for a while you might feel like there’s always a new must-do on the horizon. In part, that’s the nature of business but there are some very compelling reasons to take your digital transformation seriously.

In an effort to understand the impact of digital technologies on small and medium-sized businesses, financing company BDC has engaged in five years worth of research. Their results reveal six major trends reshaping Canada’s business landscape:

The workforce is aging
The millennial generation has entered the workforce
The population is increasingly culturally diverse
Virtual marketplaces are growing
Business activities are increasingly automated
The rise of the data economy

Clearly, there’s a profound shift taking place—a shift that your business must acknowledge and respond to if you wish to remain relevant.

You need to evolve—now

There’s an old saying, evolve or die, that’s as applicable to business as to baboons, and there are very real consequences for failing to bring your organization up to speed.

You’ll increasingly lose business to competitors
You’ll be less efficient, and therefore less financially strong than competitors
You’ll be less attractive to employees
You’ll eventually become obsolete

It’s not a pretty picture. Fortunately, a digital transformation can bring you up to speed to meet the changing Canadian business landscape.

Here’s what to invest in

If all this feels overwhelming, don’t despair. Although a digital transformation is layered, these are tasks that can be handled in stages. There are two main perspectives to consider: operations (including tools to increase efficiency), and customer service. Keep these in mind as you prioritize your transformation.

More likely than not, your first few steps will involve your website and your online presence in general.

Website - Now is the time to review your website. Make sure your content is relevant and presented in a user-friendly way. Put product information and details online so your customers have access to everything they need. Get rid of any outdated code or technology (see ya, Flash!). Use popular media like video. Make buying simple, straightforward, and safe. Recognizing the rise of mobile, make sure your website is responsive (meaning it is painless to view on a phone) and, if appropriate, consider building an app.

Online presence - At a minimum, your business needs to be on Google and social media. People are increasingly researching online before they buy, so make sure they can access your hours, information, and customer ratings. This is even more important during this pandemic. If you’re a restaurant, for example, your menu, hours, ratings, and service options need to be online. For shopping sites, include your delivery details. Give customers the opportunity to ask questions and have them answered. You must meet your buyers where they are, so put in the time to find out where is most convenient for your customers to ask questions.

Connecting to corporate culture

Undertaking a digital transformation isn’t just for big businesses. It has a bottom-line impact for small businesses, too. Just remember that companies that pair these changes with a clear strategy, employee training, and a culture of continuous improvement do far better than those who skip this step.

A digital transformation requires a new set of processes and plan for success. Provide training and encourage curiosity. Not only will this improve the experience of your employees, studies have shown that companies that engage with this shift show higher profits.

Digital transformation is a requirement in the current Canadian business landscape. With a considered strategy, these changes will benefit your customers, your employees, and your bottom line.

Management

Cheat sheet: Canadian government support for individuals during the pandemic

Canadians in all corners of the country have been partially or severely impacted by the COVID-19 pandemic. If you are trying to find out what resources are available to you to help you, here is a summary of resources from the Canadian government as of June 2, 2020.

Avoiding layoffs, rehiring employees & creating new jobs

Canada Emergency Wage Subsidy (CEWS) - The Canada Emergency Wage Subsidy (CEWS) supports employers that are hardest hit by the pandemic, and protect the jobs Canadians depend on. The subsidy generally covers 75% of an employee's wages – up to $847 per week - for employers of all sizes and across all sectors who have suffered a drop in gross revenues of at least 15% in March, and 30% in April and May. The program will be in place for a 12-week period, from March 15 to June 6, 2020.

Increased Canada Child Benefit - An extra $300 per child was delivered through the Canada Child Benefit (CCB) for 2019-20. This benefit was delivered as part of the scheduled CCB payment on May 20.

Extra time to file income tax returns - The due date for filing individual 2019 income tax returns has been deferred until June 1, 2020. Any new income tax balances due, or installments, are also being deferred until after August 31, 2020 without incurring interest or penalties.

Mortgage payment deferral - Homeowners facing financial hardship may be eligible for a mortgage payment deferral of up to six months. The deferral is an agreement between you and your lender. Typically, the agreement indicates that you and your lender have agreed to pause or suspend your mortgage payments for a certain amount of time. After the agreement ends, your mortgage payments return to normal and the deferred payments—including principal and accumulated interest–are added to the outstanding principal balance and subsequently repaid throughout the life of the mortgage. To know if you are eligible for a mortgage payment deferral or to learn what options are available, contact your lender.

Temporary 10% wage top-up for low-income essential workers - All provinces and territories have confirmed, or are in the process of confirming, plans to provide wage top-ups for essential workers. This government funding includes up to $3 billion in federal support to increase the wages of low-income essential workers. Each province or territory will determine which workers would be eligible for support, and how much support they will receive.

Special goods & services tax credit payment - A one-time special payment through the Goods and Services Tax credit for low and modest-income families. The average additional benefit will be close to $400 for single individuals and close to $600 for couples.

Extending the Work-Sharing program - The maximum duration of the Work-Sharing program has been extended from 38 weeks to 76 weeks for employers affected by COVID-19. This measure will provide income support to employees eligible for Employment Insurance who agree to reduce their normal working hours because of developments beyond the control of their employers.

There are also over a dozen support initiatives for students, recent graduates, seniors, and indigenous peoples. These can be found on the Canadian government website.

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