Even well established companies are seeing a rapid decline in their borrowing capacity due to the downturn over the last 9 months. As earnings disappear and/or losses mount, balance sheets -- and retained earnings specifically -- erode, destroying the ratios on which bank lending decisions are made.
The rapid erosion of financial statements means many prospective borrowers no longer meet bank lending criteria. Unfortunately, our federal government has funnelled most "stimulus" capital through banking channels (with the exception of BCD and EDC, who with limited additional resources, simply cannot respond in a timely manner): http://www.fin.gc.ca/bcap-pce/participants-eng.asp
To my knowledge, there has been no stimulus support at all for the 'B' and 'C' credit markets that accommodate earlier stage companies or enterprises with weaker financial results. These companies are a substantial component of the overall economy and also tend to be drivers of innovation and job creation. Besides the higher risk leasing funds we offer, broader scale funding support and incentives need to be made available to the companies still willing to move forward in this environment; there is an urgent need to find higher risk funds for promising ventures -- before they fade away.
Another concern, based on what we are seeing in the leasing industry -- primarily through the resolutions of principal underwriter Sun Life -- is a virtual moratorium on equipment refinancing. This restriction on lending means equity in equipment cannot be freed up to help operators with current liquidity challenges (including paying taxes). The freeze on refinancing is across the board, regardless of corporate or personal financial strength, or the verifiable equity levels in the equipment. Supporting refinancing of working assets (based on readily available, published liquidation values) would be an easy way to create real stimulus with limited cost and government involvement.
Have you seen any evidence of government stimulus in the small to medium enterprise market? Please let me know -- perhaps I am missing something.
