Wednesday, July 01, 2009

On Guard for Whom?

Happy Canada Day!

Kudos to Wellington Financial for identifying a worrying trend yesterday: a steep decline in bank lending.

In their blog post, Bank business lending down for 5th consecutive month, the Toronto-based supplier of bridge financing & venture debt dug into the latest Bank of Canada data and discovered that "the stats aren’t pretty."

Here are the totals of “Business loans to Canadian residents for business purposes:”

December 2008: $191.967 billion
January 2009: $186.086 billion
February 2009: $184.168 billion
March 2009: $184.5 billion
April 2009: $182.228 billion
May 2009: $180.619 billion

As Wellington points out, "A 5% drop in drawn business credit in the space of 5 months."

And as they ask, "what’s a $100 million line of credit program from the Business Development Bank of Canada (only for “strong balance sheets”) going to do in the face of a 5-month, $12 billion withdrawal from the system? By the time the program is up and running, loans will have been reduced by another few billion dollars."

As Wellington concludes, "The free market is doin’ its thing, and there is nothing anyone can do to stop it." Though that strikes me as a non-entreprneurial sentiment.


J. B. Loewen said...

Lots of American funds here in Canada eager to invest money in smaller and smaller companies.
Peer - to - Peer lending also big.
BDC is doing its best and I am very empathetic to them.
They are driven by the tax payer, not by profit. My brother works for Govt and he is quite right in saying when you are spending tax payer money, you cannot be driven by deadlines and profit. You are driven by the factors set by the tax payers and you have to be far more cautious.
There are many former Private Equity people in the BDC who are terrific and have helped clients of mine in a terrific way.
Also - the head of the BDC is a very exciting ex private equity fund manager who worked with Richard Ivey, another exciting supporter of entrepreneurs.
So these BDC key players are not the govt bankers of old. They get it. The BDC wants to get out there, but they have stumbling blocks not familiar to private business.
If anything, SME owners need to listen to the head of the BDC who says owners of SMEs need to think M&A to double or triple in size. They need to be big enough to be able to manage the incoming global comeptition, they need to think of being global coprorate leaders rather than selling out to foreign companies, they need to grow markets beyond the USA (and they have sales trip loans to support companies). Good advice from a dynamic leader.

Rick said...

Thanks, J.B. Methinks there's a good story there.