True Source of Funding in Canada

In a discussion this week with the owner of another company, I was surprised to hear the following fact:

It’s easier to borrow $5 million than it is to borrow $50 thousand. In fact, if all you want is $50,000 then most lending institutions are not really interested in your business.

Surprised, I went to verify this with someone knowledgeable in the area, and he confirmed it. As a small, business, client, the banks have little interest in your business. The implied reason is because a smaller business is a higher risk than a larger business.

That’s not to say the banks won’t lend you money. However, they require that the business put up an amount equal in size to the amount borrowed. So if a business is looking to borrow $100,000, then they must put up that amount as a security against the loan.

The logic, of course, is flawed. If the business were capable of putting up that amount of money, they wouldn’t need to borrow it.

Additionally, here in Canada the loans are insured up to $100,000 per loan. That means that the true risk for the bank is very little, since the principle is essentially guaranteed.

For all the talk about how stimulus dollars are helping businesses grow, it seems that the reality is that big businesses can get bigger, but small businesses are finding it exceedingly difficult to acquire the capital they need in order to grow and expand.

I would be curious to know your thoughts on this, and whether in your locale you are witnessing a similar story when it comes to hunting for small business loans.