Business growth and innovation would not succeed without entrepreneurial risk and commitment. At Merchant Advance, we’ve come to know hundreds of businesses who are ready to make that commitment to growth, and to build a foundation from which they can move forward more confidently. In their recent announcement of the Canadian Business Growth Fund, the federal government has also shown commitment to small businesses – but can they tolerate risk?
As Jack Mintz at the University of Calgary notes, Canada is one of the poorest investors in the private sector in the OECD community. On the surface, the allocation by the Canadian Business Growth Fund of up to $1 billion in future investments in small and medium-sized business growth appears to be aimed at reversing that trend. However, Canadian major banks have been notably cautious about lending to small business in the past. Unless the new fund is willing to take risks seen as unacceptable by each of the financial companies involved individually, yesterday’s announcement may be little more than an exercise in public relations.
The tendency for banks to stay conservative on small business lending has spurred the growth of alternative lenders in Canada, whose ability to lend to small businesses has been bolstered by significant investment growth: in the first three quarters of 2016 alone, a total of $2.5 billion was invested in financial technology companies in 446 deals.
It remains to be seen whether the effect of the Canadian Business Growth Fund will be fully realized and have a meaningful impact on small businesses across the country. However, if it fulfils its mandate, the Fund will no doubt become an engine for the much-needed support of small businesses and their owners. Until such time, businesses have every incentive to work with an alternative lender to help finance their growth.