Canada's Big Banks Ease Lending Terms for Small Businesses Amid Government Pressure

Strategic Insights -

Canada's major banks are moving to reduce the financial risk of entrepreneurs and small business owners by relaxing their lending terms, a significant shift in approach given the federal government's push to encourage more loans to this sector. Amidst this backdrop, the Toronto-Dominion Bank has announced that it will reduce the personal guarantee required for loans made under the Small Business Loans Act to 10% of the original loan, a reduction from the previous 25%. This move follows hot on the heels of similar announcements from Bank of Montreal and Royal Bank of Canada. Bank of Montreal has allocated $1 billion for small business loans this year, with the majority going towards conventional loans. Royal Bank of Canada, meanwhile, has announced new appointments and other moves to foster lending to emerging "knowledge-based" small and medium-sized companies.

Key Takeaways:

  • Toronto-Dominion Bank is reducing the personal guarantee required for loans made under the Small Business Loans Act to 10% of the original loan, from 25%.
  • Bank of Montreal is allocating $1 billion for small business loans this year, with the majority going towards conventional loans.
  • Royal Bank of Canada has announced new appointments and other moves to foster lending to emerging "knowledge-based" small and medium-sized companies.
  • The federal government's push to encourage more loans to small businesses has led to a significant shift in approach from the major banks.
  • The reduction of personal guarantee at TD is attributed to customer requests, although the Liberals' election platform also sent a "strong message" on the matter.
  • Bank of Montreal has instructed lending officers not to demand any personal guarantee under the program except under exceptional circumstances.
  • Competitors and observers are skeptical about how the guidelines will play out in the field, with some questioning whether the banks will truly implement these changes.

Statistics:

  • $1 billion allocated by Bank of Montreal specifically for small business loans this year
  • 25% of the original loan previously required as personal guarantee under the Small Business Loans Act
  • 10% of the original loan now required as personal guarantee under the Small Business Loans Act
  • $1 billion allocated for loans to small businesses in 1993 by Bank of Montreal

Sources:

  • The Globe and Mail
  • Toronto-Dominion Bank press release
  • Bank of Montreal press release
  • Royal Bank of Canada press release
  • Canadian Federation of Independent Business