Small companies must get creative to find credit
(Toronto, 11 April, 2011) Getting credit is still no easy feat for small companies post-downturn despite improved lending conditions that mostly benefit their larger counterparts, according to Credit availability in Canada, a just-released executive research report by the Canadian Financial Executives Research Foundation (CFERF), and sponsored by Ernst & Young.
The survey of Canadian senior financial executives, combined with insights gathered at an executive research forum, clearly shows that credit conditions have improved since the 2008 crisis and the subsequent recession, says Michael Conway, Chief Executive and National President of Financial Executives International (FEI) Canada: “Our survey respondents indicated that the situation will improve some more, particularly for the small business segment. Whether the credit landscape has changed permanently remains to be seen, but companies will have to think on their feet and look for more innovative ways to access capital.”
CFERF, the research arm of FEI Canada, surveyed 176 senior financial executives across the country and completed the project with a roundtable discussion with CFOs in Calgary and Toronto in February 2011. The report shows that in 2009 and 2010, small companies still reported trouble accessing working capital and long-term financing. However, more small companies anticipate a better outlook for the credit market, with 77% of respondents in this category saying they expect credit to be available or very available by September 2011. Small public companies (50%) and small private companies (49%) also say that credit came at a higher cost, while significantly fewer large public (23%) and large private (32%) companies say credit was costly.
“These less-than-stellar lending conditions included lower credit offered at higher rates, tighter restrictions around terms and requests for more detailed business cases,” says Brian Allard, Transaction Advisory Services Partner at Ernst & Young. “In 2009 and 2010, many small companies felt that they hit rock bottom and that credit markets and lending conditions could only improve. Conditions have now improved significantly, but companies should focus on building meaningful relationships across a broad spectrum of financial sources.”
Finally, the respondents indicated that government assistance programs proved less useful, particularly for small public and private companies. Overall, 31% of respondents say they’re not familiar with these programs at all. Just a mere 4% say that they are very familiar with them. Specifically, many small companies find these programs ineffective, citing problems dealing with government bureaucracy and the complexity of lending requirements as key reasons.
The Canadian Financial Executives Research Foundation (CFERF) is the non-profit research institute of Financial Executives International Canada. The foundation’s mandate is to advance the profession and practices of financial management through research. CFERF undertakes objective research projects relevant to the needs of Canada’s senior financial executives in working toward the advancement of corporate efficiency in Canada.
Financial Executives International (FEI) Canada is the all-industry professional membership association for senior financial executives. With 11 chapters across Canada and more than 2,000 members, FEI Canada provides professional development, thought leadership and advocacy services to its members. The association membership — which consists of CFOs, audit committee directors and senior executives in the finance, controller, treasury and taxation functions — represents a significant number of Canada’s leading and most influential corporations. feicanada.org.
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