With everyone feeling the brunt of todays struggling financial climate, many Canadians are thinking of ways to both make more and save more money. Times are especially tough for small business owners who continue to work tirelessly to keep their businesses competitive in todays market place.
Unfortunately, when small business owners are looking for money to help their businesses with payroll, inventory, advertising and any other necessities to keep running, they are often met with opposition. Apparently, its no secret to a small business owner that banks are and have, for a long time, been very difficult to work with.
In an article entitled “Where To Go When The Banks Says (sic) No” from the September 2007 issue of Enterprise Magazine, author Bruce Smith insists that small businesses tend to not fit into the “strict lending criteria” of major banks. In addition, Smith notes that bank managers rarely sympathize with small business owners simply because most of them have never been in business for themselves. As a result, they are unable to relate to the pressures associated with owning a business like processing orders in a timely manner or making payroll.
Canadas major banks also tend to “cherry pick” who they give loans to, according to Georgian Bancorp Inc. Chairman, Sinclair Stevens. In his article “Big Banks Have Broken Faith With Canadians” from the Friday, May 29, 1998 issue of The Toronto Star, Stevens reveals that Canadian bankers work to maintain a “mature system” where most of the loans provided are “large and to a favourite few”. It is “sheer hell” says Stevens, for small businesses to deal with Canadas eight major banks.
In “Lending Competition Crucial To Small Business”, also from The Toronto Star, Catherine Swift of the CFIB (Canadian Federation of Independent Business) provides some shocking statistics. She notes that there was significant growth in the number of small businesses that were refused financial assistance from banks in the 1980s to the 1990s. 20% of small businesses reported problems getting financing in the 80s. This grew to 40% in the early 90s. This rate of refusal has only dipped to approximately 30% in recent years.
Such statistics are especially startling, says Swift, because “small businesses continue to be the most robust job creators in our economy and this trend will likely accelerate in the future”. Nevertheless, funding for small businesses has flatlined at $17 billion yearly over the past decade, while loans to larger businesses have increased from $60 billion to $84 billion during that time.
Smith contends that such trends make alternative lending options a much more viable choice than the traditional bank loan for small business owners. This is especially true for owners of new businesses who have either poor credit or lack collateral. He lists “factoring” as a method that can help a business owner who, for example, is unable to pay employees on payday. His example of an owner getting an advance of 85% of the money owed to him in order to pay his staff speaks to a better method for small businesses to stay in business, remain competitive and become more successful.
While Stevens notes that major banks find it a “nuisance to bother” with small loans, it should not be an annoyance for small business owners to attain working capital. Cash advances seem to be the most worthwhile option for small businesses. While the merchant cash advance industry in Canada is relatively new, the need for merchant cash advances has long been in existence. As the industry grows, hopefully the “nuisance” of dealing with banks will lessen. Small business owners need not be “bothered” again.