Why More Than 60% of Small Businesses in Toronto Are Being Rejected by Big Banks

With a quick walk down Queen Street West, Danforth, or the Financial District, Toronto appears to be a bustling economic hub. But beyond the doors of those establishments and windows of offices, there lies a silent credit crisis. Taking a cue from industry data, almost 60% of small and medium enterprises in Toronto are denied the application for loan by Canada’s top financial institutions. In a time when commercial real estate prices have increased tremendously and the inflation rate has completely changed their profit margins, a simple “No” from the bank seems like a sentence of death. Why such a difficult barrier and how Toronto entrepreneurs are circumventing it? For more details regarding a business loan in Toronto, you can visit the best accountant in Toronto. 

The Perfect Storm: Why the Big Five Say “No” 

In order to understand the rejection ratio, one must consider how conventional banks assess risk. The economy has changed, but banks have not adjusted their algorithmic models. 

1. Debt Overhang 

There are thousands of GTA businesses saddled with accumulated debt due to difficult economic periods. Although a business may be turning a profit today, banks consider debt-to-equity ratios overall. If your books are messy, then your application gets tossed. 

2. The Rigidity of Algorithms 

No more pitching your idea to a local bank manager who knows your neighborhood. Credit approval procedures for Canada’s largest banks have become algorithm-based. Unless you meet very precise credit criteria, the algorithms automatically reject your application. 

3. The Problem with Collateral 

Traditionally, banks would require collateral for business loans in the form of tangible assets such as land or buildings. Due to the real estate situation in Toronto today, a lot of young and foreign entrepreneurs lack such assets. Without the security of a million-dollar mortgage, business loans are difficult to obtain. 

The Hidden Cost of Waiting 

For a small business, a bank loan can be more than hard to secure, but also very time-consuming. Usually, the process of getting approved for such a loan in a conventional bank can take anywhere between four to eight weeks. With today’s business environment requiring quick decision-making, any two-month delay in securing funding could spell disaster. For instance, a boutique in Toronto would have to miss its market window if it required stock for the summer holidays period. 

Where Toronto Businesses Are Finding Capital Instead 

Although the high rejection rate by banks hasn’t discouraged entrepreneurs in Toronto, it has instead spurred an enormous exodus towards other sources of finance. This has been made possible through two major channels. 

1. The Fintech and Alternative Lending Wave 

Banks such as OnDeck Canada, Merchant Growth, and Accord Financial in Toronto have stepped into the breach created by traditional banks. These lending institutions have no interest in any real estate collateral. They assess the strength of your business in real time based on the following criteria: 

• Revenue-based Financing: Your POS and online transactional activity. 
• Review Time: The approval process takes only 24-48 hours, compared to several months. 

2. Hacking the Bank System via the CSBFP 

In case you have a need for interest rates at bank levels without any collateral, the shrewd businessmen of Toronto have actually been applying for the Canada Small Business Financing Program (CSBFP). Under the Canadian government program, the Government of Canada will guarantee up to 85% of the loan amount to the banks. With this shield against risk legally provided to the bank, the safety of your personal belongings is ensured during tough times for your business. For a mortgage in Brampton, you must contact the best accountant. 

Conclusion 

The refusal of a major bank in providing loans does not necessarily indicate whether your business is viable or not; it only indicates your attempt at making a modern-day business succeed under the traditional lending system. With an array of options available through alternative online lending services and through government schemes that offer you loans to buy expensive machinery or make renovations, you can finance your business in the GTA. For a mortgage in Toronto, you should visit the best accountant.