Banks Show Little Interest In Lending

Earlier this week, the Financial Post had a lot to say about the current state of banks and their lending policies to small business owners in Canada. And it’s bad. Business owners are finding it increasingly difficult to secure money through business loans as banks are seemingly taking less risk than they ever have before.

And while the Synergy Merchant Services Blog has visited this issue a number of times before, it is becoming more and more noticeable that the mainstream media is catching on to this trend.

In addition to John Greenwood’s “Stifled Growth” article from this past Monday’s edition of the Financial Post, Dan Kelly, the senior vice-president of legislative affairs for the Canadian Federation of Independent Business, weighted in through his “Banks Taking Risk Less Often” article.

He comments upon the glaring reality that businesses with less than 50 employees are especially finding it difficult to gain financing through banks. Writes Kelly: “It appears the smaller the business, the wider the moat that separates it from the financial institutions upon which it depends to help create jobs and stimulate economic growth. This raises the question of how good or bad Canadian banks are at serving the needs of small business.”

As we previously reported, the CFIB recently conducted a survey of over 12,000 owners of Canadian small and medium-sized businesses. In a report entitled “Banking On Better Service”, the group evaluates the experiences of these owners to gauge the lending practices of banks for micro (0 to 4 employees), small (5 to 49 employees) and mid-sized (50 to 499 employees) businesses.

The results convincingly revealed that the big banks are not as reliable as they were once thought to be. Says Kelly: “As anyone with a rudimentary understanding of business knows, without sufficient access to financing, the staying power of a given business, not to mention its potential for growth, becomes jeopardized.”

Loan applications from small and mid-sized businesses are being rejected at the highest rate since 2000, he continues. In fact, one in five applications are being turned down. Clearly, this is not promising news to Canadian business owners who are considering getting some extra capital for renovations, expansion, new inventory or equipment and advertising.

The growth of small businesses in Canada, evidently, is not being well-supported by the nation’s big banks. As a result, two of them – CIBC and Royal Bank – have lost a large amount of their market shares. As Kelly notes, this indicates that “they have been neglecting their small business clientele.”