Canada Small Business Financing Program (CSBFP) Awareness and Satisfaction Study
Industry Canada commissioned Phoenix SPI to conduct a survey among small and medium-sized enterprises to better understand the experience of businesses when they try to obtain financing, as well as the extent to which they are aware of and satisfied with the features of the Canada Small Business Financing Program (CSBFP). Two distinct survey populations were included in this research:
- CSBFP Borrowers: This sample consisted of client SMEs that had obtained a CSBFP loan within the previous year. A total of 502 interviews were completed with this group.
- General SME Sample: This sample consisted of representatives of SMEs with characteristics similar to CSBFP borrowers, whether or not they recently obtained financing. A total of 503 interviews were completed with this groupFootnote 1.
Interviewing took place by telephone June 8-28, 2007. Based on samples of this size, the overall findings for each population group can be considered to be accurate to within +/- 4.4 percent, 19 times out of 20.
Large and almost identical majorities of borrowers and representatives of SMEs (71-72 percent) indicated that their business uses only one financial institution for their banking and other financial arrangements. Among financial institutions used by borrowers, the Royal Bank of Canada led the way (24 percent), followed by the Bank of Nova Scotia and Toronto Dominion-Canada Trust (20 percent each). Co-operatives including Caisses populaires and Credit unions were also identified relatively frequently (15 percent each) (multiple responses accepted). The Royal Bank also led the way among financial institutions used by SMEs (19 percent), followed closely by Toronto Dominion-Canada Trust (17 percent). A cluster of other institutions was also identified relatively frequently (11-15 percent) including Credit unions, the Bank of Nova Scotia, the Canadian Imperial Bank of Commerce, Caisses populaires, and the Bank of Montreal.
Term loans were, by far, the financing option used most often by CSBFP borrowers (71 percent) during the previous five years. Identified less frequently, but still by substantial numbers, were lines of credit (40 percent), followed at a distance by credit cards (27 percent). Lines of credit are the most commonly used financing option among SMEs (42 percent), followed by term loans (28 percent) and credit cards (24 percent). A substantial proportion (26 percent) indicated that their firm used no external financing during the previous five years.
CSBFP borrowers and SME representatives differed noticeably concerning applications for a term loan from a financial institution during the previous 12 months. Two-thirds of borrowers said their business applied for a term loan during this period compared to only 16 percent of representatives of SMEs. The fact that one-third of borrowers said that their firm did not apply for a loan is noteworthy in light of the fact that all of them would have received a CSBFP loan during the past year. However, this is relatively consistent with previous research. Compared to 2001, the number of borrowers who acknowledge having applied for a loan has decreased (66 percent vs. 82 percent in 2001). However, it is important to note that in 2001 borrowers were asked if their firm had ever applied for a loan as opposed to a loan over the previous 12 months (the way it was asked this year).
Among respondents who acknowledged loan applications from a financial institution, CSBFP borrowers were much more likely to indicate receipt of a loan for the full amount requested (82 percent vs. 59 percent of representatives of SMEs). Representatives of SMEs were much more likely to indicate that they were turned down for a loan (28 percent vs. 5 percent). Among this same group of borrowers, the vast majority indicated that the loan in question met most or all of their financing needs. The largest proportion of CSBFP borrowers (43 percent) said the loan met all their financing needs, one in five said it met between 76-99 percent of their needs, and 28 percent said it met between half and three-quarters of their needs. Relatively few (8 percent) said the loan met less than half their needs. Results among SME representatives were similar.
Awareness and Use of CSBFP
Total awareness of the CSBFP among borrowers is 25 percent. In other words, one-quarter of executives of businesses that received a loan under this program acknowledge awareness of the program by name. Moreover, awareness is much more likely to be aided than unaided. In all, only 4 percent of borrowers identified the CSBFP by name in an unprompted manner. In addition, 51 percent claimed to be aware of federal government loans programs in general. That is, they knew that there was one or more federal programs that share the risk with financial institutions, even if they knew nothing else about such programs. Finally, 24 percent percent were not even aware that there were any such programs.
Awareness was much lower among representatives of SMEs. Only one in five (19 percent) claimed awareness of the program by name, almost all of whom were able to do so on an aided basis only. In addition, 20 percent claimed to be aware of federal government loans programs in general (i.e. knew there was a federal program that shares the risk with financial institutions, even if they knew nothing else about it). The clear majority, 61 percent, were not aware that there were any such programs.
Among borrowers who claimed to be aware of the CSBFP, over one-third (40 percent) said they knew nothing about it. The most frequently identified aspect of the program was that it is designed to help small business get financing (27 percent), followed by the perception that losses are shared by government (17 percent) and that fewer guarantees are required to secure the loan (14 percent). A majority of SMEs who claimed to be aware of the CSBFP (58 percent) said they knew nothing about the program. As was the case among borrowers, the aspect of the program identified most often was that it is designed to help small business get financing (22 percent). All other responses were provided by very small numbers (6 percent or less).
CSBFP borrowers were most likely to have learned about the CSBFP through a bank officer (41 percent), followed at a distance by a friend or colleague (22 percent). Representatives of SMEs were most likely to have learned about it through a friend or colleague (26 percent) or a brochure/pamphlet (25 percent). In contrast to borrowers, relatively few SME representatives (9 percent) learned about the program through a bank officer.
A majority of borrowers aware of the CSBFP (52 percent) indicated that when seeking financing the lender identified the program to them for consideration. Just under one-quarter (22 percent) said they themselves asked about the CSBFP, while 17 percent said they neither asked about it nor was it brought to their attention. Among representatives of SMEs, three-quarters (74 percent) said they neither asked about it nor was it brought to their attention, while most of those remaining (15 percent) said the lender identified the program to them for consideration.
Satisfaction with Financing
A majority of borrowers (55 percent) and a near majority of SME representatives (45 percent) whose firms received loans during the previous 12 months expressed overall satisfaction with the financing options available to them, although satisfaction was more likely to be moderate than strong. Borrowers who did not express satisfaction were more likely to be neutral (28 percent) than dissatisfied (16 percent), while SME representatives who did not express satisfaction were just as likely to be neutral or negative (24-26 percent).
CSBFP borrowers that acknowledged receiving a CSBFP loan in the previous 12 months were most likely to be satisfied with the financing they received relative to their request (75 percent). Almost two-thirds (61-64 percent) were satisfied with other aspects of the application process and the approval time. More than half also expressed satisfaction with the securities and guarantees needed, the availability of program information and the administrative requirements (55-58 percent). Satisfaction was lowest concerning fees associated with the CSBFP loan, including both the registration fees (37 percent) and the annual administration fee (31 percent).
The large majority of borrowers (90 percent) and representatives of SMES (84 percent) whose firms received loans during the past 12 months indicated that their business would be at least moderately likely to use the same lender for financing in the future.
Perceptions of CSBFP Parameters
Focusing specifically on a number of CSBFP features, there was widespread agreement among both borrowers and SME representatives (79-83 percent) that the maximum amount of financing of 90 percent is about right. Two-thirds in each population (66-68 percent) also agreed that the maximum loan size of $250 000 is about right. In both groups, most of those who did not agree with this felt that the amount is too low. As well, over half the borrowers and representatives of SMEs (59-62 percent) felt that the cap on the interest rate at prime plus 3 percent is too high (nearly all the rest, 34-39 percent, think this is about right). Finally, over half the borrowers and representatives of SMEs (52-56 percent) felt that the 2 percent registration fee is too high; virtually all the rest (42 percent in each population) felt it is about right.
Asked about the reasonableness of certain features of the CSBFP, strong and nearly identical majorities in both populations (80-83 percent) regarded the restriction to term loans and the financing restrictions as at least somewhat reasonable. By contrast, borrowers were much more likely to regard the loss-sharing arrangements as at least somewhat reasonable (82 percent vs. 66 percent of representatives of SMEs). Representatives of SMEs were almost twice as likely to regard this feature as lacking reasonableness (32 percent vs. 17 percent of borrowers). Most of the borrowers who acknowledged receiving a CSBFP loan in the previous 12 months said that they were satisfied with the program's rules and procedures.
While majorities of both borrowers and representatives of SMEs regard the CSBFP as potentially useful to them if they were having difficulty obtaining financing, borrowers were much more likely to think this: 80 percent of borrowers rated the program as useful (57 percent said very useful), compared to 62 percent of SME representatives.
Conclusions and Implications
Consistent with the 2001 survey, and as one might expect, the results for CSBFP borrowers and the general SME sample were very different in terms of awareness of the CSBFP. While 25 percent of CSBFP borrowers were aware of the program by name (prompted and unprompted awareness), only 19 percent of the SME group claimed the same level of awareness. The gap is considerably larger when one looks at total awareness of the program – whether by name or not – where 76 percent of borrowers claim to be aware of the program, but only 39 percent of general SMEs.
Differences in awareness notwithstanding, it is noteworthy that only three-quarters of the CSBFP clients recalled the program in general, and only 25 percent by name – despite the fact that all of these companies received a loan under the program during the previous 12 months. Such lack of awareness is underscored by the fact that 72 percent of CSBFP borrowers that acknowledged having received a term loan in the preceding year said they were aware that it was covered by a federal program that provides a guarantee on loans to small businesses (a proportion almost identical to what it was in 2001). Moreover, only two-thirds of CSBFP borrowers even acknowledged having applied for a term loan in the preceding 12 months (down from 82 percent in 2001, although the time period in the earlier survey was ever, while that in the current survey was in the last 112 months).
Taken together, the results suggest low awareness of CSBFP among the SME population in general, but also, to a lesser extent, among CSBFP borrowers – where awareness could be expected to be relatively high. While somewhat surprising, this pattern is largely consistent with the 2001 survey results.
In terms of actual knowledge about the program, relatively few respondents aware of the program, in either group, identified program specifics (e.g. maximum financing amount, registration fees), instead offering general statements about it, such as “it is a government program to help small businesses”. In terms of sources of information about the program, borrowers tended to hear about it from bank personnel (41 percent), while SMEs pointed most often to friends/colleagues or brochures. Of CSBFP borrowers aware of the program by name, only half (52 percent) said the lender identified the program for them for their consideration when discussing financing options.
The results suggest that financial institutions are not identifying the CSBFP to potential borrowers with any consistency, including even to those who obtain loans covered by the program. Beyond the lenders themselves, there are no communications channels or tools that have had a significant impact in terms of increasing awareness of the program.
Turning to the CSBFP loans themselves, of those borrowers who acknowledged having applied for one, the vast majority (82 percent) said they received a loan for the full amount requested, while an additional 10 percent received part of what they were looking for. These results are almost identical to the 2001 findings. Only a minority of borrowers (43 percent), however, said the loan met 100 percent of their financing needs, although over 90 percent said it met half of their needs or more. In short, it appears that while the CSBFP-covered loan did not meet the full financial needs of all clients, it did address most of the needs for almost all firms that obtained a loan.
When the focus is on the financing options used in the last five years, a variety of tools or instruments were used by both groups. However, only a limited number were used with any frequency. For CSBFP borrowers, the use of term loans headed the list, as would be expected. And while lines of credit were also frequently used (40 percent), their use is only about half of that reported in 2001. Credit cards were the only other method used with some frequency (27 percent, unchanged since 2001). All other methods were much less widely used compared to 2001, including capital leasing for equipment, operational leases and venture capital. The situation is similar with the general SME population, although lines of credit were the financing tool used most by this group. All financing methods were used by smaller proportions of SMEs compared to 2001. It appears that a narrower range of financing options is being used by businesses at this point in time compared to 2001.
Executives exhibited moderate levels of satisfaction with the financing options available to small businesses (asked of those whose firm had used one or more of the financing options). While a majority of borrowers and near-majority of SMEs expressed satisfaction overall, many others were dissatisfied (16 percent and 24 percent respectively) or simply neutral or undecided (28 percent and 26 percent). When the focus was on specific aspects of financing, satisfaction varied widely for both groups – highest for amount received vs. amount requested, application processing time, and lender service quality, and lowest for service fees and variety of options available (with CSBFP borrowers adding in interest rates, and SMEs adding in guarantees needed). As well, dissatisfaction for specific financing issues was often over 25 percent. Conclusion: decidedly mixed levels of satisfaction with the financing options available to the small business community.
Interestingly, one of the top-rated items – lender service quality – and one of the lowest-rated items – variety of options available – were two of the three most powerful drivers of overall satisfaction with the financing options available. Despite the mixed levels of satisfaction with their financing experience, most executives in both groups said their business would likely use the same lender(s) for other sources of financing in future.
Turning specifically to the CSBFP loan that borrowers received during the previous 12 months, satisfaction was also quite varied – highest for the financing received relative to their request, other aspects of the application process, and the approval time – and lowest for the fees associated with the loan, including both the registration fees and the annual administration fee. Dissatisfaction with these fees was quite high (27-31 percent). Despite this mixed satisfaction, two-thirds of CSBFP borrowers said they were satisfied, overall, with the rules and procedures of the program.
Despite mixed perceptions and satisfaction levels about the financing options available in general, and the rules/procedures of CSBFP loans in particular, businesses appear to be largely content with the lenders and/or program used. That is, areas of dissatisfaction do not appear to be sufficient to translate into changed behaviour.
When attributes and rules of the CSBF program were identified to borrowers and SMEs, most features were seen to be reasonable by most executives. This extended to some of the amounts that were explored, seen to be 'about right', with the exception of the interest rate and registration fee – majorities in both groups viewed these as too high. As a summary measure, 80 percent of borrowers and 62 percent of SMEs rated the program as at least moderately useful to them if they were having difficulty obtaining financing for their business in future. As a whole, therefore, surveyed executives – especially CSBFP clients – view the program as a useful tool in the financing toolkit available for small businesses.
- 1 back to footnote reference 1 While the SME survey population was designed to match the CSBFP borrowers sample on key characteristics, the area where the samples are least similar is with respect to the age of the firm. Please see the table in the introduction that compares the two samples according to key characteristics.
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