Like thousands of other small-business owners across Canada, Susan Bellan complains that her bank got a lot tougher with her after the economy plunged into a recession in 1991. Bellan, 41, owns a popular artsand-crafts shop in downtown Toronto, and she says that in the fall of that year, her bank threatened to revoke her revolving $65,000 line of short-term credit. Bellan did not just get mad, she fought back. She complained loudly and publicly to bank executives, federal regulators, reporters and anyone else who would listen. The bank retreated, and actually increased her line of credit to $100,000. But Bellan did not stop there. She agreed to head up a committee on banking issues for the Edmonton-based Canadian Organization of Small Business. She now lobbies on behalf of other small-business owners who, she claims, are also being squeezed by tightfisted bankers—an assertion that bank executives vigorously dispute. And however severe the credit crunch may be, politicians—with a federal election looming this fall—are rushing to champion small businesses with policy proposals designed to make it easier for them to obtain loans. Bellan, though, does not expect any quick
relief. “Everybody loves small businesses,” she says. “But nobody wants to lend them any money.” Last week, the federal Liberal party jumped into the fray with both feet. At a news conference in Ottawa, party leader Jean Chrétien, Montreal MP Paul Martin, the cochairman of the party’s platform committee, and Toronto MP Dennis Mills, the Liberals’ small-business critic, unveiled a small-business plan. Among other things, they vowed to reduce bureaucratic red tape, to redirect $100 million in existing spending over four years into a Canada Investment Fund for “leading-edge” companies and to establish more information-sharing networks between small companies. Catherine Swift, senior vice-president of the 85,000-member Canadian Federation of Independent Business (CFIB) in Toronto, said that the plan was “very short on specifics.” But she added: “Aren’t all election platforms?”
The Conservatives are also trying to woo the small-business vote. In April, the federal government increased the portion of eligible bank loans guaranteed by Ottawa under the Small Business Loan Act to 90 per cent from 85 per cent and introduced several other reforms—moves that they claim will channel an additional $1 billion in loans to small businesses this year.
But as the politicians race to offer help, bankers counter that the small business credit crunch has been greatly exaggerated. In fact, the Canadian Bankers Association says that the Big Six chartered banks actually increased their small-business loan portfolio by four per cent—to $24.4 billion—in the fiscal year ended October 31, 1992. “Sometimes we have to say, ‘No’, ” said Warren Walker, vice-president of commercial banking at Scotiabank and past chairman of the association’s independent business committee. “But you don’t hear about the thousands of times that we say, ‘Yes.’ ”
Still, even Walker acknowledges that some of the small-business owners’ complaints are at least partially justified. Among other things, he says that the banks are still wrestling with the task of how to lend money to start-up companies in the burgeoning computer software industry and other knowledge-based sectors in the so-called New Economy.
The Liberals propose to attack that problem with their investment fund and by encouraging greater co-operation between small businesses and universities and more export alliances between companies. As well, Martin told Maclean’s that Ottawa should “jawbone” the banks to lend more money to small businesses, even if that means threatening them with more competition from trust companies, credit unions or foreign banks if they will not co-operate. However, Walker and other bankers argue that forcing the banks to lend more money to small businesses could backfire. He notes that five of the seven largest banks in New Hampshire failed after that state relaxed such lending rules in the mid-1980s. Said Walker: “None of the other stakeholders in the banks—the regulators, our depositors, our shareholders—have an interest in us positioning ourselves at the far end of the risk curve.”
The federal Conservatives, in turn, dismiss the Liberal proposals as mostly a rehash of their own policies. Stephen Stewart, a senior policy adviser to newly appointed Science and Small Businesses Minister Rob Nicholson, says that, for one thing, the Tories are already encouraging co-operation between small businesses and academics through 15 Centres of Excellence involving several Canadian universities—although thenFinance Minister Donald Mazankowski cut funding for that program in his April budget.
As for the Liberals’ proposed $100-million investment fund, Bellan and other smallbusiness owners dismiss it as a drop in the bucket, CFIB president Swift also complains that neither party is proposing deep cuts in what she says are excessive taxes on small businesses. But with the Liberals and the Conservatives both vowing to reduce the federal deficit as well, it is clear that neither party has much to offer small businesses beyond encouraging words.
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