Small-business owners have long complained about the difficulty of getting bank loans. The process has often been slow and bureaucratic, and many small companies, particularly those without hard assets, say rejections for funding have been all too common.
But in recent months, some banks – nudged by upstart competitors in the fintech space – have unveiled new platforms to serve small business. They claim to make it easier for these customers to access money, but do they live up to their promise?
We figured the best way to gauge was to apply for loans on the platforms. Andrew Zakharia, a small-business accountant and founder of AZ Accounting Firm in Toronto, agreed to put in loan applications with the Bank of Montreal and the National Bank under his own business name.
This would allow him to learn about new lending options to assist his clients. And if his own business could get a better rate than the 6.08 per cent Mr. Zakharia currently pays on his RBC line of credit, he’d consider switching.
Mr. Zakharia believes he’s an excellent candidate for funding, given he’s a professional with good credit and little debt. While each business owner’s situation varies, we felt his experience would provide insights for entrepreneurs interested in these services. After, we checked in with the banks to see if they felt Mr. Zakharia’s experience was reflective of what other clients have experienced.
BMO BUSINESS XPRESS (launched October, 2018)
The promise: “BMO Business Xpress reduces approval time from weeks to minutes for small-business loans.”
The experience: Mr. Zakharia couldn’t find a way to apply online, and after calling the bank, he was told he would have to go to the branch to apply in person. To get more information, he e-mailed a previous contact at the bank, and after following up several times over the next few days, was told he’d need to provide various documents. These included a personal net worth statement from each shareholder, an article of incorporation, confirmation of personal assets, a notice of assessment, financial statements and tax returns for each shareholder.
However, Mr. Zakharia was informed he was not eligible to apply since he has a line of credit at another bank and BMO needs to have first claim on his assets. While some lenders, such as the Business Development Bank of Canada (BDC) and Lending Loop, are okay with being second in line, Mr. Zakharia says banks typically want first claim.
The bottom line: “To be in first position, I would have to close my operating line with RBC but also transfer the mortgage on my office,” Mr. Zakharia says. “So although they may have made the process faster – which I cannot verify – the stringent rules that exist for BMO are still there and it doesn’t help businesses like me borrow more funds.”
The bank’s response: “When considering any application for a small-business loan, we look at the overall financial standing of applicants on a case-by-case basis, and are open for business to those who may have relationships with other lenders,” says Arun Kumar, BMO’s head of small-business banking. “Since the launch of BMO Business Xpress, we have significantly reduced the approval period for small-business loans, and feedback from staff and our customers has been very positive.”
THE NATIONAL BANK’S LENDING-AS-A-SERVICE PLATFORM (launched September, 2018)
The promise: “New Lending-as-a-Service platform powered by Thinking Capital enables SMEs to apply to National Bank online for financing and receive a decision in just a few minutes."
The experience: Mr. Zakharia went on the National Bank site to apply for a loan, but when he got to the final stage, the website went down. The next morning, he tried again but the system still had an error. He did receive a call from a National Bank account manager in Quebec who asked some questions about his company. The account manager said the application looked good and the local branch would follow up.
The local branch rep called several days later and said he would likely be able to approve the $100,000 loan. Mr. Zakharia was told he would need to close his operating line at RBC, but could keep his current mortgage at BDC. He would also need to provide various documents, including an article of incorporation, three years of financial statements, personal notices of assessment, a copy of investment statements, municipal property assessments and mortgage statements.
After a week without further news, Mr. Zakharia checked back and was told the bank would get in touch early the following week. The representative told him his application had been removed from the new Thinking Capital program because he can qualify for lower rates under the conventional borrowing path.
A month after he applied, Mr. Zakharia was verbally told by the representative that he was approved for the $100,000 line of credit at an interest rate of 5.95 per cent, which is 0.13 per cent lower than his current rate. But there was a catch – to qualify, he would have to move all his commercial banking to National Bank. Given that his current account at RBC offers free electronic transactions, Mr. Zakharia estimates his fees would rise by more than $800 a year if he made the switch.
The bottom line: “They are giving me $25,000 more credit, which is very little, and doesn’t make the additional costs worth while," Mr. Zakharia says. "Also, I will have to move all of my banking deposits over to them, which is administratively time consuming.”
The bank’s response: “That experience does not seem to be representative of the experience of most small businesses with basic financing needs, whose requests are usually processed transparently and quickly,” said Marie-Pierre Jodoin, senior manager of public affairs at National Bank. “That said, we’re continuously working to improve our processes. Please note that the nature of the product requested may require a current National Bank account.”
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