Banks Increase Loan Provisions As Recession Deepens


Talk of Canada surfacing from the current recession has begun to fade. In its place is the stark reality that this recession hasn't hit rock bottom yet. Instead, tougher times are expected to come, and Canadian businesses will suffer as a result.

The next few months will prove to be "tougher and deeper (Globe and Mail)" than the last few months have been - and those have been no walk in the park. In response to this recent news, Canadian banks are creating more loan provisions than ever before.

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Both large and small businesses can expect to be faced with tighter lending terms in the near future. In addition to more fine print, traditional lenders will not give out as many business loans as they have been. The news that "...profits will remain weak...unemployment rates likely will remain elevated into next year, and consumers will save more and spend less...(Globe and Mail)" only worsens the situation.

Small and large business owners know that they will be hard-pressed to gain much needed loans. This is precisely why many Canadian business owners are beginning to turn to alternative lenders. While traditional lenders are in the process of drafting up endless pages of loan provisions, private lenders are holding onto a tried and true theory.

Private lenders believe in the (well-founded) notion that Canadian businesses keep the economy thriving. This is the main reason why these lenders keep lending necessary funds to those businesses in need -even if their financial track record is less than stellar.

Most major private lenders don't require a squeaky-clean credit report in order to grant a business loan. While some private lenders will check credit reports, most of them do not rely on this information in order to approve credit applications. Instead, these lenders work on a collateral principle, which turns out rather well for most small and large businesses.

Running a business in today's economy is tough. While businesses still need funds to survive, banks are no longer willing to bet on true entrepreneurs. Thankfully, the option of a private lender exists for those business owners that need cash right away.

Contrary to earlier optimistic reports, Canadian banks are expected to tighten the reins on new business loans, much to the dismay of small and large business owners. In no manner is this news good news, though those that require additional funds in order to stay in business will find solace with private lenders.


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