Amid the worst of the economic downturn two years ago, small businesses looking for a loan faced an uphill climb.
The mood surrounding credit access for small companies is beginning to shift in Canada, according to the Bank of Canada's survey of senior loan officers at major financial institutions, released this week. It suggests lenders are loosening their purse strings as they try to bolster their loan portfolios ahead of a recovery.
But the "heightened competition among lenders," that the central bank flagged this week remains weighted toward more-established companies, or those with bigger operations. The competition is indeed heating up, but for the banking business of borrowers who have strong cash flow and a credit history.
"The market has gotten a lot more competitive in the last six months," said Alec Morley, senior vice-president of small business banking at Toronto-Dominion Bank, which continued to lend during the downturn. "In some cases it's getting a bit crazy from a banker's perspective."
The Business Development Bank of Canada also notes a more optimistic tone. "We see it with some of our clients [who have]other options for financing," said Jérôme Nycz, senior vice-president of strategy and corporate development at the BDC.
However, for most small businesses, especially startups or entrepreneurs who are looking for seed funding, the change in mood has not meant a return to the days of more bullish lending. Instead, many have had to find new, more creative, financing options.
When clothing designer Wes Misener needed a few thousand dollars to get his boutique clothing line off the ground in 2009, the banks he spoke to were reluctant to extend a loan. For Mr. Misener, who had no borrowing history as a company and no deals with retailers, it was a near-impossible sell.
These days, even though his business has picked up, the picture is similar. Mr. Misener may one day be able to return to a traditional bank in search of financing, but until then he has found other sources.
To get the funding needed to launch his line of men's T-shirts and underwear, the designer started by taking on debt himself, then applied for a $3,800 loan from the Access Community Capital Fund, a non-profit micro-finance organization in Toronto.
The fund operates a pool of money gathered from investors in the community, who receive a return on their investment. Based on a similar concept introduced in Ottawa, the fund provides loans of up to $5,000 to small businesses at competitive rates.
Most banks are reluctant to take on risks, and lenders prefer financing that is backed by assets. Access took a chance that Mr. Misener was good for the money, though his balance sheet couldn't prove as much.
"We really took a fine-tooth comb through his business plan," said Alex Kjorven, development manager for the Access fund. "But with microfinance you're really looking someone in the eye and saying, 'Is this somebody that has the commitment to pay back the loan?'"
Although an Access loan got his business off the ground, it may not be enough to fuel Mr. Misener's next expansion, since sales more than doubled last year after he landed a deal with a Toronto boutique retailer. His next stop will likely be the Business Development Bank of Canada.
"To this point, I've had to kind of scratch and claw to get anywhere as far as financing goes," Mr. Misener said.
Securing financing has become easier for Ken Leblanc, one of the founders of Property Guys, now that his business is bigger and more established. When his company, which helps people sell their homes without a real estate agent, started in 1998, it was routinely turned away by banks.
It now has 108 branches across the country. Mr. LeBlanc has seen a shift in the attitude of bankers, who seem more willing to lend to companies with fewer assets if they bring other benefits to the table. Even though Property Guys is a service firm with limited assets to put up as collateral, financing is easier to come by now.
"In the past they wanted to see assets, but they've taken things like intellectual property into consideration, and the value of the business," Mr. Leblanc said.
Meanwhile, banks are also seeing more competition from credit unions, including those interested in picking up businesses that have been turned away for financing by banks.
Lindsay Finneran Gingras, a spokeswoman for Meridian Credit Union in Ontario, said credit unions have seen opportunity in the downturn. "Individuals came to us having grown frustrated with the hoops they had to jump through with the banks," she said. "Because of the strict regulations, there was no flexibility."