CFIB's bad habit

Ms. Tripp claimed officials leaked the arrest in retaliation for her key role in the impeachment proceedings against Mr. Clinton. Stephen Kohn, one of three lawyers who represented Ms. Tripp, would not disclose how much of the settlement she will receive after lawyers' bills and other expenses have been paid.

National Post
November 5, 2003

CFIB's bad habit
A recent Canadian Federation of Independent Business survey is not only misleading — it's meaningless. The facts clearly show that big banks are serving the needs of Canada's small- and medium-sized businesses
John Turley-Ewart

Some habits are hard to break. Take bank bashing for instance. Every three years the leadership at the Canadian Federation of Independent Business (CFIB) indulges in this nasty little practice when it "surveys" its 95,000 members about Canada's financial sector. On Tuesday, the House of Commons standing committee on science, industry and technology heard the CFIB's Brien Gray discuss this year's especially unfair report, Banking and Competition: Results of CFIB Banking Survey.

Here are the basics of the CFIB's tale of woe: Business owners have not seen any improvement in banking competition over the past three years; credit unions, HSBC bank and Alberta Treasury Branch Financial are the strongest in terms of servicing the small business market; there has been a recent increase in the bank loan rejection rate from 10.5% in 2000 to 16% today; the demand for bank financing remains relatively low; bank market shares for the small business market have changed.

If you now believe that our five big banks don't really want to do business with small- and medium-sized enterprises (SMEs) in Canada, which comprise 95% of the 2.2 million business entities in this country, you get the point of what the CFIB's leadership is saying. However, you should know that it is unadulterated bunk.

Consider the following: the CFIB's "survey" methodology. There's none to speak of. Sending out an e-mail survey to 95,000 CFIB members and only having roughly 10% of members respond is a sure way to generate data from a self-selecting group, rather than information that is broadly representative. Back in 1985, the CFIB, using a snail mail survey, persuaded 20,000 members to respond. Today, using more convenient technology, it can't even rely on half that number to participate. The falling rate of participation is telling.

Our banks are in business, and like any enterprise, big or small, 95% of the country's market for commercial financial services is tremendously important to them. SMEs understand this. Over the past decade, following reduced federal regulatory restrictions, Canada's banks have been building strong and more productive relationships with SMEs while competition for SME business has increased. This conclusion appeared on the CFIB's own Web site last October and comes from Path to Prosperity, a study sponsored by the CFIB, the Canadian Manufacturers and Exporters Association (CME) and RBC Financial Group. The financial "industry [in Canada] is a world leader on multiple measures of access to business financing," reads the report. "The hard evidence on this matter speaks for itself despite misperceptions that have been created in recent years."

The CFIB's management comes up short when recalling "hard evidence" about financial competition; it suffers the same defect when it complains about banks losing SME market share and the rising number of small business loan applications banks are rejecting.

Truth about bank lending to SMEs paints a different picture. At Bank of Montreal, the share that bank has of SME loans has increased 54 basis points, making it the number two SME lender in Canada. It is hot on the heels of RBC Financial Group, where over the last seven years the number of SME loans, those less that $1-million, grew by 5%. RBC business customers who have borrowed less than $100,000 comprise three-quarters of that bank's borrowing base and together hold authorized loans amounting to about $4.4-billion.

But let us agree for argument's sake that the banks are not approving as many SME loans today as they did in early 2001. Back then, Catherine Swift, the CEO of CFIB, responded to an 85% satisfaction level among CFIB members with their lending institutions by pointing to the strong economy rather than anything the banks were doing. "Given a good economy in many parts of the country," she told The Vancouver Sun, "… it is not surprising satisfaction levels are up." But given the bad economy following 9/11, the war on terrorism, SARS and mad cow disease, should it be any surprise satisfaction levels with loan approvals are down? Yes, says the CFIB. Credit-scoring and the "bank's inability to build on their small business client relationship" are the culprits, not the economy.

So bad are the banks, claims the CFIB, SMEs fear even asking for loans. Pointing to the early 1990s recession when SMEs had difficulty sustaining credit lines, the CFIB's survey suggests that "those small business owners who were abandoned by their bank are reluctant to put themselves in that situation again." The most recent Statistics Canada survey on financing SMEs, completed in 2001, offers a better explanation. StatsCans' methodologically sound survey showed roughly 86% of SMEs did not apply for financing because they did not need it. A meagre 2% did not apply for fear of being turned down.

Back in the 1980s, bankers were not afraid to dismiss flawed CFIB surveys as "grandstanding" to swell CFIB's membership rolls. Today, bankers shy away from confrontations. Lost is a full discussion in the media of what SMEs need to prosper, such as improving their strategic planning, learning to better communicate their company's investment potential, creating external networks and fewer government regulatory barriers to capital, all of which and more are discussed in Managing For Growth, released this October and sponsored by Queens School of Business, the CME and RBC Financial.

There is no merit to the CFIB's recent survey. Lack of interest suggests CFIB members know better than to waste their time playing to their leadership's desire to kick sand in the banks' faces every three years. There is also much to suggest that the CFIB's management does not take its survey conclusions seriously. Credit unions and HSBC are said to better serve the small business market in the survey. Yet, a quick search of the CFIB's Web site does not reveal any effort to direct members to HSBC or credit unions. Instead, the CFIB refers its members to Scotiabank, one of the big five, which offers what HSBC and credit unions don't — preferred banking services for worthy CFIB members.

John Turley-Ewart is a member of the National Post's editorial board. moc.tsoplanoitan|trawe-yelrutj#moc.tsoplanoitan|trawe-yelrutj

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