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CFIB, the voice for Canadian small business, on what fintech means for them
December 15, 2021

What do small businesses have to say about accessing capital in Canada? Corinne Pohlmann from the CFIB weighs in

Corinne Pohlmann is Senior Vice-President, National Affairs and Partnerships at the Canadian Federation of Independent Business (CFIB), a not-for-profit organization representing more than 95,000 small and medium-sized business members across Canada. We had the chance to sit down with her to discuss the financial challenges facing small businesses in this country, how Canada compares to other jurisdictions and what it will take to close the gap.

Q: Corinne, you deal with small businesses every day. What would you say are the systemic challenges for them in accessing credit or capital? 

It is a big challenge. Generally speaking, about  25 to 30 per cent of our members are dealing with access to financing issues at any given time. And that increases in a more difficult economic environment.

The biggest issue is that small businesses are often seen by banks as high risk. As a result, they face a much higher incidence of rejection and, when they do get loans, they are usually at much higher interest rates. So they end up paying a lot more for the money that they borrow.

The other aspect of that is access to options. There aren’t many in Canada. There’s basically the traditional banking system, of which there’s only five or six major players. It’s difficult to know where to go if those don’t work out.

A lot of businesses end up relying on family and friends and their own savings and they have to give personal guarantees for loans and credit cards. That creates another barrier for many of them because now they’re tying their personal credit ratings to their business. That doesn’t always sit well with a lot of small business owners. If a bank requires a personal guarantee, even if you have an incorporated business, that means they have access to your personal assets for collateral.

Q: How will progress on the financial services front – like open banking and fintech – help to address some of these challenges?  

Well, the most important piece of all of that is competition. Competition will create more opportunities for small businesses. The good news is that, for a lot of fintechs, the target is the small business because that’s where the gap tends to be. But fintechs have really struggled to get a hold in Canada, whether for regulatory reasons or access to the market, or because they get bought out by the big players.

On the open banking front, it could bring some very needed change to the industry. I don’t know that small businesses really understand yet what it means for them because it’s not in place and there’s lots of pushback coming from some of the big financial institutions. But, anybody who understands open banking knows that there are some great opportunities that will stem from the competition it will bring to the market. It will definitely help many small businesses deal with some of the biggest barriers they face, from access to financing to piles of paperwork, but there is a long road ahead in terms of helping them understand what that looks like for them. It’s one thing to talk conceptually about the benefits of open banking and a whole other thing to have a tangible experience with it.

Q: What will help a small business get over the hump on open banking and the competitive fintech services that are emerging?

The right level of support. Shopify is one example. They didn’t just have an incredible platform, early on they had dedicated business advisors who stuck with the business customer for up to six months from the day they joined .  That way they knew the customer and they could guide them through things and help them be successful. Shopify actually had people that small businesses could talk to if they needed help – they weren’t just stuck in front of a computer trying to figure everything out for themselves.

Q: What do you see around the world that you wish small businesses in Canada had access to?

Again, competition. Canada is probably the least competitive financing market for small business in the world. Look at the US, the UK, Europe and even developing countries and there is a lot more competition out there to help small businesses in all sorts of ways.

I think we’re a little bit stuck here in Canada. Banks are still giving out toasters when they should be giving out loans. I joke, but we’re not much beyond that. We are stuck in the traditional way of doing things. Yes, it got us through a pretty terrible recession after the financial crisis, but we are more than a  decade away from that now. Technology is evolving so fast. To me, that’s probably the biggest and most important thing that open banking can bring. It will enable new market entrants with products prime for the small business market, which will make the banks more limber and innovative too.

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