What’s new in commercial lending? Not much. Several observers note a distinct lack of innovation — and, indeed, enthusiasm — among business bankers, especially compared with the breathless passion they professed eight years ago when the banks were lobbying Ottawa for permission to merge.
More recently, the chartered banks have cut red tape and simplified their lending processes — introducing such innovations as low-cost, unsecured credit cards with $50,000 of credit — after entrepreneurs started receiving unsolicited loan applications from aggressive U.S. lenders. Today, says Catherine Swift, president of the Canadian Federation of Independent Business (CFIB), her members aren’t talking much about the banks, except to grumble about the continuing migration of decision-making upstream to regional offices.
That could change. With the soaring Canadian dollar and spiking energy prices, observers say the banks are already cracking down on credit in the auto sector, and could start tightening generally by the second quarter of this year. “There’s no question they have concerns,” says Glenn Agro, a Mississauga, Ont.-based partner with accounting and consulting firm BDO Dunwoody LLP. “We already see an increase in the number of monitoring situations.”
Still, the CFIB has engineered some progress on another eternal bugbear, high service charges. Scotiabank recently developed a service package for CFIB members that cuts many bank fees by 20% and could save some businesses as much as $2,000 per year. Swift says many of the federation’s members have switched banks to take advantage of the deal, while others are using it as leverage to negotiate better terms with their own bankers.
Indeed, business consultant Andrew Patricio, a partner with Toronto-based Biz Launch, says more entrepreneurs should get tougher about arm wrestling: “Many small-business owners don’t know they can negotiate with the bank. Deposit fees, how much you pay for cheques — all of these things are negotiable. Nobody tells you that.”
For a look at the future, Patricio directs entrepreneurs to Zopa.com, a year-old U.K. website that allows ordinary Britons — it has 40,000 members — to lend to each other. It’s a hassle-free peer-to-peer marketplace in which borrowers pay interest of 4.9% to 9%, depending on their creditworthiness. Zopa, run by experienced London financiers, is said to be eyeing a U.S. landfall this year, and Patricio is sure it would work in Canada: “I think it’s where the money is going to be coming from in future.”
© 2006 Rick Spence
