Owners of smaller Canadian businesses faced some heart-stopping moments during the 2008-09 financial crisis, and have faced a tough slog in the so-so recovery since then. But they should thank their lucky stars they haven’t had to deal with the prolonged credit crunch their peers in the U.S. and Europe have endured over the past several years.
A new study by the Canadian Bankers Association (CBA) shows that bank lending to SMEs continued to expand—although slowly—even as the economy shrank during the worst of the crisis. And since then, according to figures from the CBA and Statistics Canada, banks’ lending to SMEs has expanded substantially. Overall, as the chart below shows, this lending grew a bit faster than the overall economy from Q4 2006 to Q4 2012. (Authorizations measure how much credit banks have approved, while credit outstanding measures how much companies have actually borrowed.)
Does this mean the bankers that you love to complain about are suddenly your best buddies? I wouldn’t go that far. Complaining about the banks is a fine Canadian tradition, and there’s no reason to give it up.
But the study does show that the banks’ promise to keep lending during the recession wasn’t just PR hype. True, the growth rate in lending slowed dramatically. And during the darkest days of the crisis anyone seeking new bank financing faced tougher scrutiny. For instance, banks stepped up their due diligence, asking clients for a more thorough analysis of how they stacked up against rival firms and taking a zero tolerance stance for lateness or inaccurate reporting to them.
Still, they kept on lending.
In fact, they increased their lending a bit—even as the Canadian economy contracted by 7.1% in late 2008 and early 2009. That was in stark contrast to the experience of entrepreneurs south of the border or in the EU.
And by 2010-11, bank lending was growing at a good clip. An Industry Canada study released this past February showed that in 2011 banks approved 90% of debt financing requests from SMEs. The approval rate was a sky-high 97% for businesses with 20 to 99 employees. But even for businesses with 5 to 19 employees, banks green-lighted the overwhelming majority of requests: 89%.
Why were our smaller companies more fortunate than others in the developed countries? Above all, it was due to the famous stability of our banking system, where not a single bank failed or had to be nationalized. Just how stable is our system? During the Depression, while 14,000 banks went bust in the U.S., none did in Canada.
The other key is that the financial crisis has made the banks keener to do more business with SMEs. They realize that this is a great way to spread risk over a larger number of borrowers. So they’re competing harder for your business.
And that’s the best news of all.