What happened: The Canadian Lenders Association has inked an open letter to federal cabinet, urging them to rethink parts of a $82b COVID-19 relief package
Why it matters: Industry association fears may small businesses may be prioritized at lower level for capital deployment since may loans are relatively low
Financial technology firms and alternative lenders fear support for thousands of small businesses may fall by the wayside of the federal government’s COVID-19 relief package.
A small group of parliamentarians is being recalled to Ottawa to vote Tuesday (March 24) on an $82 billion funding bill.
Beyond $27 billion in direct support, the federal government will also let small and medium-sized businesses to tap into at least another $10 billion in credit through the Business Development Bank of Canada (BDC) and Export Development Canada.
But the president of the Canadian Lenders Association (CLA) said the stimulus package may not be enough for throngs of restaurants, retail stores and auto repair shops.
In a March 24 open letter to Prime Minister Justin Trudeau and other cabinet members, Gary Schwartz said tens of thousands of businesses don’t meet traditional financial institutions’ credit requirements and the relatively small loan amounts they require would likely place them at a lower priority by those responsible for deploying the relief capital.
He added the sheer volume of time-sensitive requests could overwhelm traditional financial institutions and underwriting processes.
“These local businesses are currently being serviced extensively by the non-bank, financial technology sector,” Schwartz wrote, referring to the sector his industry group represents.
“Canadians may be faced with the prospect of leaving behind those truly small businesses which are most affected by this crisis, and are most likely to fail.”
He said CLA members have made $2 billion available to small businesses the past several years at loan sizes typically in the range of $25,000-100,000.
“Under a government-backed loan program, the CLA estimates that its member companies can quickly reach and provide credit to over 100,000 small businesses, that may not be served by traditional financial institutions,” Schwartz said.
“To expedite capital flow to these small businesses, the CLA and its members propose to work with the BDC (or any other entity) to leverage our platforms in deploying government-backed funding. This would include collaborating on eligibility criteria and determining operational mechanics of the program. Time is of the essence and we are committed to implementing a program in as soon as three to five business days.”