Canadian companies are increasingly confident a recovery is taking hold, but lingering difficulties faced by some smaller firms in accessing loans could temper the rebound.
A Bank of Canada survey released Monday found that businesses in the fourth quarter experienced the loosest credit conditions since the summer of 2007, just before the collapse of the U.S. subprime mortgage market. However, the bank said the improvement has so far mostly benefited larger companies that "source their financing from capital markets" and, moreover, "the degree of easing has been modest in comparison with the extent of the tightening that has taken place since the onset of the financial crisis."
A separate survey of financial institutions showed a stabilization in lending conditions, although "significant differences were observed across borrower categories," the bank said, particularly for small businesses in industries that present "ongoing concerns" for lenders.
The results were not surprising, according to Ted Mallett, chief economist at the Toronto-based Canadian Federation of Independent Business, since smaller companies have a harder time accessing credit at the best of times. Still, while Mr. Mallett said his group understands that some industries - such as the transportation and hospitality sectors - may be higher-risk than others seeking loans, the inability for some companies to expand more quickly may "act as a bit of a brake" on the economy.
"I don't think it will turn it around or send us backward, but it does slow down the improvement," he said.
Nancy Hughes Anthony, president and chief executive officer of the Canadian Bankers Association, said by e-mail that while the country's banks have been working to boost the amount of credit extended to small-and medium-sized businesses, "some businesses that are high risk borrowers and, because of that, will have to pay more for credit or will face other requirements such as more collateral." Noting that banks only make up about half of the lending market, Ms. Anthony also said the institutions' "prudent" lending practices had helped them escape the turmoil in other countries' financial systems, and thus would need to be maintained.
David Ross, chief financial officer of Bonnett's Energy Services Trust, said in an interview that looser credit has not yet reached smaller companies such as his.
"For the small guy, it's not there," he said. "It hasn't trickled down."
Mr. Ross, whose company supplies oil-field services from its base in Grande Prairie, Alta., said business has improved slightly, but customers and would-be creditors are still very cautious because of concerns current oil prices can't be sustained.
Bigger companies, meanwhile, tell a different story.
"Conditions have improved a great deal," said Leslie Herr, chief executive officer of Empire Life Insurance Co. in Kingston, Ont. "Credit spreads are much better ... certainly more so for bigger, more secure firms."
In fact, he said, corporate borrowing spreads are currently not far off their 10-year average, a remarkable recovery after the runup in borrowing costs that began in 2008.
Overall, 26 per cent of executives in the Bank of Canada's quarterly Business Outlook Survey said they had seen some easing of credit conditions over the past three months while 14 per cent saw tightening. The accompanying poll of senior loan officers, which measures a balance of opinion by subtracting the weighted percentage reporting easier credit conditions from the weighted percentage of those reporting tighter credit conditions, found a negative balance - indicating more willingness to lend - for the first time since 2007.
The business survey, based on about 100 interviews conducted between Nov. 16 and Dec. 11, also found 70 per cent of senior managers polled predict sales will grow at a faster pace in the year ahead, the most in records dating back to 1998, and more firms plan higher spending on machinery and equipment and increased employment.
"The results of the winter survey provide some evidence that confidence in the recovery is growing," the central bank said in the report.
Nonetheless, while the percentage of companies saying they would have trouble meeting an unexpected increase in demand was higher than in the October survey's record low, the result - 29 per cent - reflects that most "still have excess capacity and anticipate that this situation will persist for at least the next six months, consistent with the expectation that demand will recover only gradually," the bank said.