LOAN This is a rather simple question but the answer appears to be complex According to the Canadian Bankers Association, banks are major lenders to entrepreneurs, and as of 2017, banks had approved credit in excess of $225 billion to small and medium enterprises. The association points out that approval ratings are quite nigh at 87 percent, and the average loan is in excess of $300,000 The banks through their national association state they are important partners in small business Financing in Canada So, based on these statements above, you may assumo thot banks are strong supporters of Canadian entrepreneurs The Canadian Federation of Independent Businesses Lane V. Erickson/Shutterstock.com (CFI) begs to differ The non-profit agency completed a report titled Battle of the Banks in 2017. CRIB surveyed 11,400 small business owners and concluded access to financing was problematic for small businesses and particularly problematic for smaller firms. For example, on a scale of 1 to 10, micro-businesses, firms with fewer than five employees, ranked their access to bank financing as almost non-existent in the survey, every bank scored under 4.6 out of 10 for access to financing with the three lowest ranking banks being HSBC (9/10). Royal Bank (3.5/10) and TD Canada Trust (36/10). CFIB'S report did conclude that access to capital appears to increase with firm size and the age of the firm, but ultimately concluded that banks need to do more to assist small Canadian firms. CFIB CEO Dan Kelly says, access to banking services is important to small business success and the CFB is challenging banks to better their small business offerings. Evidence both statistical and anecdotal appears to back up Kelly's assertion that banks are not overly supportive of smaller businesses and startups. While the banks boast on 87 percent loan approval rate, the CFB research indicates smaller firms have actual rejection rates as high as 223 percent. As discussed earlier in the chapter. banks supply approximately 30 percent of tunds to startup companies and of this most, if not all, of the money is guaranteed by personal assets of the business or the entrepreneur. Additionally, the provincial and federal governments have all invested in various funding programs to assist Startup enterprises that cannot access traditional capital through banking institutions as stated by serial entrepreneur Chris Neville, banks really are not interested in lending money to startups or small companies. Raymond Luk, founder of Hockeystick a Toronto-based data management company says bariks will not assist entrepreneurs unless their company is worth in excess of one million dollars. Anecdotal evidence that banks do not lend money to aspiring entrepreneurs or small business is much stronger and perhaps best summed up by Michael Duck, CEO of SureShot Solutions, a growing Halitox company that manufactures restaurant equipment. Duck says, "Some people have this idea in their heads, they go into a bank with a business plan and good credit, the plan has strong projections and he will sell himself and his idea to the banker. Based on his business idea and credit, the bank will lend the entrepreneur the money. This is not how it works. Banks don't lend money based on business plans. They lend money based on assets, what the owner can pledge against the loon. If they cannot pledge anything, then they do not get any money. It's that simple. Co-CEOs Nik Gigic and Karl Gannon owners of FourQuest Energy Inc. an Alberta-based energy service company, ocho Duck's comments. The pair, who have extensive experience in the oil industry, developed a clear business plan identifying a very large opportunity for their potential company. Yet when they started visiting banks, they couldn't find anyone willing to lend them money. In the end they settled for a $1 million loan from BDC, which was half of what they had hoped to raise Even today as the company has grown to over $50 million in states in a short time, they note they still struggle to find lenders Kevin Carmichael, a business columnist for the Financial Post.writes the banks traditional lending practices may harm the digital economy. He states that digital companies do not have traditional assets and, given their need for capital, many are being restrained by Canadian banks' aversion to risk Discussion Questions 1. Do you think banks should be willing to lend money based on a strong business plan and credit scores alono? Why or why not? 2. Since many angel investors make a healthy return on investing in start-ups, are banks missing out on an opportunity for profits by not Investing in new or small companies? Why do you think banks are not doing this? 3. Since Canadian banks tend to be highly profitable and appear to benefit from some federal laws that limit competition, should they as a group be more willing to invest in small business given its importance to the Canadian economy. Do you think rather than invest in small business themselves that government should stipulate a percentage of bank loans be made to new businesses? Why or why not