Canada Small Business Financing Program (CSBFP) Awareness and Satisfaction Study

Financial Dealings

This section reports on the experience of businesses when it comes to their financial dealings, including the financial institutions and financing options they have used, whether they have tried to obtain loans, and their success in so doing.

Most Firms Use Only One Financial Institution for Banking & Financial Needs

Large and almost identical majorities of borrowers and representatives of SMEs indicated that their business uses only one financial institution for their banking and other financial arrangements. Nearly three-quarters (71-72 percent) said this, while identical numbers in each population (28 percent each) said their firm uses more than one such institution.

The proportion of businesses that use more than one financial institution has not changed compared to six years ago.

Variety of Financial Institutions Used

Business managers were asked which financial institution their business uses most often for their banking. As the accompanying graphs show, there was considerable variety in the financial institutions used by respondents, though all the major financial institutions were identified by at least some respondents.

Among borrowers, the Royal Bank of Canada was identified most often (24 percent), followed by the Bank of Nova Scotia and Toronto Dominion-Canada Trust (20 percent each). Cooperatives, including Caisses populaires and credit unions, were also identified relatively frequently (15 percent each).

Institutions cited less often include the Bank of Montreal (7 percent), the Canadian Imperial Bank of Commerce and Business Development bank (5 percent each), and the National Bank (3 percent). Included in the 'other' category are American banks (unspecified), HSBC, ING Direct, and community development programs (unspecified).

These results include institutions used by borrowers on a secondary basis (i.e. if they use more than one institution). With one exception, this more complete list of all institutions used mirrors the order of the list of primary institutions only (i.e. the institution they used most often). The exception was the Business Development Bank, which was not identified as a primary source for financing by anyone. This is because every BDC client has a primary private-sector bank, and obtains from the BDC services it cannot obtain from this primary lender.

With a few exceptions, the list of financial institutions used by borrowers has changed little over the past six years. The most notable changes have been an increase in use of TD-Canada Trust (20 percent vs. 5 percent in 2001) and a decrease in use of Caisses populaires (15 percent vs. 27 percent in 2001). Indeed, Caisses populaires, which headed the list of institutions used by borrowers in 2001, has dropped to fourth place overall in 2007. Interestingly, use of credit unions has increased over this same period (15 percent vs. 9 percent in 2001).

Financial Institutions Used (over time): CSBFP Borrowers

Financial Institution	2007  percent	2001  percent
Phoenix SPI; Industry Canada - June 2007
RBC	24	26
BNS/Scotiabank	20	17
TD-Canada Trust	20	5
Caisses Populaires	15	27
Credit unions	15	9
Bank of Montreal	7	10
CIBC	5	11
BDC	5	4
National Bank	3	5
Other	9	10

The Royal Bank of Canada also led the way among financial institutions used by SMEs (19 percent), although it was followed closely by Toronto Dominion-Canada Trust (17 percent). Moreover, 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. These were followed, at a distance, by the National Bank (4 percent) and the Alberta Treasury Branch (3 percent). Included in the ‘other’ category are HSBC, ING Direct, BDC, and community development programs (unspecified). As was the case with borrowers, these results include institutions used by borrowers on a secondary basis (i.e. if they use more than one institution).

Financial institutions used by SMEs have changed relatively little over the past six years. The most notable change has been a decrease in use of the Royal Bank of Canada (19 percent vs. 24 percent in 2001). That said, the Royal Bank still heads the list of financial institutions used, as it did six years ago. Changes in the use of other institutions tended to be small (4 percent or less), although in some instances these small changes translated into differences in the rank ordering of institutions. For example, while use of CIBC has declined only slightly compared to six years ago (14 percent vs. 17 percent in 2001), this institution has dropped from its second place position among institutions used in 2001 to fifth place overall. Conversely, credit unions have moved up from fifth place in 2001 to third place.

Financial Institutions Used (over time): SMEs

Financial Institution	2007  percent	2001  percent
Phoenix SPI; Industry Canada - June 2007
RBC	19	24
TD-Canada Trust	17	16
Credit unions	15	11
BNS/Scotiabank	14	10
CIBC	14	17
Caisses Populaires	12	9
Bank of Montreal	11	15
National Bank	4	7
Other	10	12

Term Loans – Main Financing Option Used by CSBFP Borrowers

One financing option dominates among borrowers, and is the only one used by a majority of them – term loans. More than two-thirds of CSBFP borrowers (71 percent) had used this option during the previous five years^{Footnote 3}. No other financing options came close. Identified less often, but still by substantial numbers, were lines of credit (40 percent), followed at a distance by credit cards (27 percent). Mentioned much less frequently (6-10 percent) were credit from suppliers, capital leasing for equipment, government grants, and equity financing. Small numbers (3 percent or less) identified operational leases and venture capital. Included in the ‘other’ category are other unspecified loans, general banking services, and capital in general. Relatively few (7 percent) said their firm has used no external financing in the previous five years.

There have been some significant changes in financing options used by borrowers over the previous six years, all of them representing decreases in use. While use of term loans and credit cards remain unchanged, use of lines of credit decreased substantially (40 percent vs. 75 percent in 2001), as did use of capital leasing (8 percent vs. 41 percent in 2001) and use of operational leases (3 percent vs. 22 percent in 2001). Use of venture capital has also decreased (2 percent vs. 12 percent in 2001).

Financing Options Used During Past 5 Years (over time): CSBFA Borrowers

Financing Options	2007  percent	2001  percent
Phoenix SPI; Industry Canada - June 2007
Term loans	71	70
Lines of credit	40	75
Credit cards	27	27
Capital leasing for equipment	8	41
Operational leases	3	22
Venture capital	2	12
Other	3	8

Lines of Credit Used Most Often by SMEs

Lines of credit are the most commonly used financing option among SMEs. A substantial minority (42 percent) have used this financing option, followed at a distance by term loans (28 percent) and credit cards (24 percent). Mentioned much less often were credit from suppliers (8 percent) and capital leasing for equipment (6 percent). Small numbers (3 percent or less) identified government grants, equity financing, operational leases and venture capital. Included in the ‘other’ category are general banking services. A substantial proportion, one-quarter of SME representatives, said their firm has used no external financing during the previous five years.

SMEs are much less likely to use term loans than CSBFP borrowers (28 percent vs. 71 percent)

As was the case with CSBFP borrowers, there have been some significant changes in financing options used by SMEs over the previous six years. Moreover, they all involve decreases in use, the most substantial of which mirror declines in use among borrowers. Use of lines of credit has decreased somewhat (42 percent vs. 59 percent in 2001), as has use of capital leasing for equipment (6 percent vs. 24 percent in 2001) and use of operational leases (2 percent vs. 14 percent in 2001). Use of venture capital has also decreased (2 percent vs. 4 percent in 2001).

Financing Options Used During Past 5 Years (over time): SMEs

Financing Options	2007  percent	2001  percent
Phoenix SPI; Industry Canada - June 2007
Lines of credit	42	59
Term loans	28	36
Credit cards	24	30
Capital leasing for equipment	6	24
Operational leases	2	14
Venture capital	2	4
Other	2	3

Two-Thirds of Borrowers Acknowledge Loan Application During Past Year

Borrowers and representatives of SMEs differed noticeably concerning applications for a term loan from a financial institution over the past 12 months. Two-thirds of borrowers said their business applied for a term loan during this period. This compares 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 previous year.

Compared to six years ago, the number of borrowers who acknowledge having applied for a loan has decreased (66 percent vs. 82 percent in 2001). However, when interpreting these results 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. In other words, the wider timeframe may account in part for the larger proportion of respondents who, in 2001, said their company had applied for a loan. As well, other aspects of the question wording were somewhat different.

Business executives who said their firm applied for a loan during the previous year were asked how often their business had applied for a loan during this period. Among borrowers, nearly three-quarters (73 percent) said their firm applied only once. Most of the rest (17 percent) said their firm applied twice. Relatively few applied more often.

As the accompanying graph shows, the frequency of loan applications among borrowers has changed over time. Current borrowers were much more likely to acknowledge one loan application only (73 percent vs. 44 percent in 2001), while six years ago CSBFP borrowers were much more likely to acknowledge three or more applications (32 percent vs. 8 percent). However, when interpreting these results it is important to note that in 2001 respondents were asked how many loans their firm had applied for over the past two years. The more extended timeframe in 2001 may help explain the greater proportion of respondents acknowledging multiple loan applications.

When representatives of SMEs who said their firm had applied for a loan during the previous year were asked how often their business had applied for a loan during this period, over two-thirds (70 percent) said their firm had applied only once. Nearly all the rest (23 percent) said their firm applied twice. Seven percent said their firm applied three times or more.

Representatives of SMEs in 2001 were more likely to have made multiple loan applications (19 percent making three or more applications vs. 7 percent in 2007). Once again, however, this is not surprising when one takes into account that respondents in 2001 were asked to use the past two years as opposed to one year as their timeframe.

Substantial Majority of Borrowers Received Full Amount of Loan

Among borrowers who acknowledged having made loan applications, the large majority (82 percent) indicated that they were successful in obtaining the loan for the full amount requested. An additional 10 percent said their firm obtained a loan but for a lesser amount, while 4 percent volunteered that they received some loans but not others (multiple responses accepted).

Relatively few (5 percent) said they were turned down completely.

Success rates among borrowers have changed little compared to six years ago.

Among representatives of SMEs who said their firm applied for a loan during the past year, a majority (59 percent) indicated that they were successful in obtaining the loan for the full amount. An additional 4 percent said their firm obtained a loan, but for a lesser amount. As well, 5 percent volunteered that they received some loans but not others. Over one-quarter (28 percent) said they were turned down for the loan(s).

Representatives of SMEs were more likely to say that their firm obtained a loan in full or in part in 2001.

CSBFP Borrowers More Likely to Have Obtained Loan for Full Amount

CSBFP borrowers were much more likely than SME representatives to say their business received a loan for the full amount requested (82 percent vs. 59 percent). Conversely, SME representatives were much more likely to indicate that they were turned down for the loan(s).

Loans Tend to Meet All or Most of Firms' Financing Needs

Among borrowers who acknowledged receiving a loan, the vast majority indicated that the loan in question met most or all of their financing needs. The largest proportion (43 percent) said the loan met all their financing needs, while one in five said it met between 76-99 percent of their needs, and over one-quarter (28 percent) said it met between half and three-quarters of their needs. Relatively few (8 percent) indicated that the loan met less than half their financing needs.

Results among representatives of SMEs were similar. Nearly half (46 percent) said the loan met all their financing needs, 22 percent said it met between 76-99 percent of their needs, and slightly less (19 percent) said it met between half and three-quarters of their needs. Eleven percent indicated that the loan met less than half their financing needs.

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Footnotes

1. ^{3 back to footnote reference 3} The timeframe for this question was adjusted for firms that were less than five years old.