Some Canadian banks are looking to make changes to their loan criteria so that small businesses hit hard by COVID-19 can access a new loan program designed by the government to help them, says Export Development Canada.
Over the past week, banks started rolling out the federal government’s $40-billion business credit availability program (BCAP). One of its programs involves banks directly giving small- and medium-sized businesses loans of up to $6 million. Export Development Canada (EDC) guarantees 80 per cent of the loan in the event the company goes bankrupt and can’t repay it.
But one family-run business told CBC News that even though EDC said it should qualify, its bank isn’t allowing it to apply because it isn’t offering the loans to small businesses.
“This is wrong,” said François Bruneau, president of DFC Woodworks. “The banks are strictly going for the big fish.”
EDC said the fastest and easiest way to extend credit to a large number of companies during the pandemic was through the banks, which have existing relationships with companies. But since the money is being delivered through those banks, each financial institution can follow its own criteria and decide which businesses are eligible.
‘I was very disappointed’
For the past 40 years, Bruneau has been building deck chairs in Kemptville, Ont. and exporting them around the world. It’s a trade his father passed down to him and a business he planned to grow.
But the pandemic shut down his company at the busiest time of year and slashed sales by 75 per cent. He said that while he was losing hundreds of thousands of dollars a month, he had to let his seven employees go.
Bruneau said an EDC representative told him he should be eligible for its loan guarantee program. But when he emailed Scotiabank, Burneau’s bank manager said he didn’t meet the conditions to apply.
“I just found out that Small Business clients will not be eligible for the EDC BCAP program, it will only be extended to Commercial banking clients,” says the email his company received from Scotiabank.
“This came to me by way of internal memo, but I just checked our website & it confirms that the EDC BCAP program is only available to Commercial customers … General criteria for a Commercial client are revenues of over $15,000,000 and borrowing requirements in excess of $1,000,000-$3,000,000 (depending on the industry).”
Bruneau said he was surprised.
“Obviously, I was very disappointed, but then I talked to my EDC representative and they were just as surprised as I was,” he said.
Banks ‘set their own criteria’ — EDC
Scotiabank didn’t answer CBC’s questions about its eligibility requirements. In a statement, the bank said it encourages businesses to speak to their small business advisers or relationship managers to apply for the program that best meets their unique needs.
“As Canadian businesses continue to feel the impact of COVID-19, Scotiabank is committed to standing by our clients to support them through these challenging and uncertain times,” said Scotiabank communications manager Caitlyn Veiga in a statement.
EDC’s chief strategy officer Todd Winterhalt said financial institutions do set their own “criteria to some degree.”
“Because this is done in partnership with the financial institutions, it really is up to each financial institution to set its own criteria and engage with its own definition … of what a small business person would be,” he said.
Winterhalt said EDC hasn’t received a lot of negative feedback so far about the new program, which only recently opened for applications. But he said banks have told him clients are asking for a broader range of eligibility to help smaller businesses. Several financial institutions are looking to change their eligibility requirements now, he said.
“A number of banks are willing to look at those eligibility requirements and potentially tweak them so that loans could be provided in amounts as low as $100,000 to companies that I think would be more on the small side of the market here,” he said. “And from my perspective, that would certainly be a great start.”
Both Bank of Montreal and TD Bank confirm to CBC News they are mainly using the EDC relief program to help medium- and large-sized businesses. TD added that it will also work with businesses of all sizes on a case-by case basis. BMO said most of its small businesses instead are applying for an interest-free loan up to $40,000 through the Canadian Emergency Business Account.
For Chad Jakeman, CEO of Jakeman’s Maple Products, $40,000 isn’t enough to cover his operational expenses during COVID-19.
He received that federal funding Wednesday, but is waiting to find out if he will qualify for a $500,000 increase to his small company’s line of credit through the EDC’s loan guarantee program.
Jakeman says it’s been a “nightmare” applying.
“You have to prove to a bank that you can pay it back and they want forecasts,” he said. “In fact, I think it’s even getting harder than it was before to access money, because they’ve asked for a forecast on [a] volatile period [when] we have no idea what the future holds with COVID.”
Jakeman said his bank, BMO, has been asking for assurances that he’ll be profitable at the end of the crisis. He sells his maple syrup to airport shops and exports it internationally; his sales have dropped 75 per cent. He said his family business has been operating for 143 years and he wants to keep its legacy alive.
“The banks want to make sure that they’re going to get their money back in the end,” he said. “I kind of understand that, but at the same time, we’re hurting as a business and so are many other small businesses.”
BMO said this program is intended to provide businesses with “additional short-term liquidity support, where needed, after other relief measures have been explored.”
“With the EDC program, businesses are required to qualify for the loan and must meet their bank’s adjudication criteria,” said a BMO spokesperson in a statement.
Ian Lee, associate professor at the Sprott School of Business, was once a commercial banker who lent millions of dollars to small and medium-sized businesses. He said banks still have to investigate loan applicants, government guarantees notwithstanding.
“A government guarantee is not a substitute for the requirement of due diligence or loan investigation,” said Lee.
If a loan doesn’t qualify under regular conditions, it won’t qualify now, he said. He also said the bank would still be on the hook for 20 per cent of the loan if it can’t be repaid.
Treasury Board President Jean-Yves Duclos said Finance Minister Bill Morneau and Small Business Minister Mary Ng are talking to banks and small firms daily.
“Our understanding from the ground is that the speed and the efficiency of the relationship between small businesses and their banking institutions, that’s going well,” Duclos said. “But there would certainly be individual challenges, as we expect in such a large program and a large impact.”
Ng’s office is asking businesses to work with their banks to figure out which programs they can access.
“We continue to work with banks to ensure our programs are delivered quickly and effectively to the most amount of businesses in need,” said press secretary Ryan Nearing in a statement.
“We are still listening, and we will continue to work around the clock to ensure small and medium-sized businesses are supported through this crisis.”