Closed SMB - COVID-19

Opinion: Small businesses are dying. Why isn’t the government leveraging fintech to save them?

We are doing everything we can to support small businesses during this unprecedented time of crisis. We applaud the federal government for taking action and announcing a plan to provide financial support to those impacted by COVID-19. But since their announcement, we have strongly recommended that they leverage our expertise in getting funds into the hands of small businesses as quickly as possible. Many of which won’t survive long enough to receive the very financial support that’s been pledged to them.

The following opinion piece is a collaboration between OnDeck Canada and Thinking Capital, Canadian fintech leaders in small business lending.

As leaders of the two largest FinTech small business lenders in Canada, we are directly witnessing the staggering toll the COVID-19 crisis is taking on Canadian small businesses. Our companies form part of a vibrant Canadian FinTech ecosystem that stands ready to assist both the government and traditional financial institutions in supporting small businesses in urgent need of help.

These circumstances are unprecedented, and all levels of government in Canada deserve to be recognized and applauded for their actions to date. The government has announced over $107 billion in federal aid so far, including $65 billion in business loan programs.

However, success will not be judged by announcements, but rather the effectiveness and timeliness of getting the money into the hands of small businesses. Without effective execution, the Canadian small business community remains at risk of irreversible damage that will fundamentally change the fabric of local communities across the country.

There are three critical shortcomings in the programs announced to date: they are too slow in providing the immediate assistance needed, they leave too many small businesses out, and they are not built to sustain a post-COVID recovery.

While many details are yet to emerge, the government thus far seems to be relying on large traditional financial institutions to deploy the capital they have allocated to small business. While government institutions and banks represent a safe and traditional choice, these organizations are simply not built to move fast enough to address mounting small business cash flow needs in the timeframe required.

According to the Canadian Federation of Independent Business, one in three small businesses say they won’t last more than a month without relief, and more than half have begun laying off staff. Restaurants Canada estimates that almost 800,000 jobs have already been lost in that sector alone.

But this crisis transcends statistics – these are life stories. Our two companies collectively support tens of thousands of small business customers, and we are on the phone with hundreds of them daily. In many cases, next month or even next week will be too late. These businesses need financial support today.

One of our customers owns a small retailer in Ontario. She’s in her seventies, and has lived and worked in the same small town her entire life. Forced to close her doors two weeks ago, she contacted the BDC for support, but their minimum lending amount was more than she was comfortable taking on. She then went to her local bank branch, but was told by front line staff that they had yet to receive any information or directives regarding government loan programs. She doesn’t know where to turn, and isn’t sure she’ll ever be able to re-open if she can’t find support soon.

Another customer is a multi-generational family restaurant in Quebec. They submitted an application for government funding over three weeks ago, but have yet to receive an approval amount or any timeline for when funds might be available. They too are facing imminent business failure.

Canada has a well-established FinTech industry with technology that can help get much needed funds to small businesses quickly and reliably.

While major financial institutions are well-suited to process large business loans, they are not equipped to handle the administrative challenge of rapidly and simply issuing funds to local small businesses. This is the business of FinTechs, who use modern lending technology, including fully digital applications, and automated processes to avoid fraud. FinTech lenders can deploy funds to borrowers within 24-48 hours from the time of application. This is the kind of speed small businesses need today.

Our two companies have collectively provided billions of dollars of capital to more than 20,000 Canadian small businesses. We work in partnership with chartered banks, credit unions, and payment processors that have rigorously vetted the quality and security of our platforms to support their small business clients. Why wouldn’t the government leverage platforms like this to get badly needed funds to small businesses while they can still be saved?

The government programs announced to date also leave many businesses out. For example, the Canada Emergency Business Account program provides up to $40,000 for businesses with payroll of less than $1 million. This means that any business with more than 20 employees is likely ineligible. According to Statistics Canada, there are over 100,000 small businesses in Canada with between 20-49 employees. These businesses need financing solutions too.

Larger government loan programs are subject to very strict lending criteria. Often, they require that the principal owner of a small business have a prime credit score. As many hardworking entrepreneurs know – it’s simply not easy to maintain perfect credit while you’re investing in your business.

Canadian FinTechs have developed sophisticated lending models that can look beyond credit score to identify strong, viable businesses that often do not fit rigid government and bank lending parameters. These businesses were viable before the onset of COVID-19 and they are due the support to be viable post COVID-19.

Outside Canada, we see examples of countries that are leveraging FinTech partners. In previewing the US Paycheck Protection Program (under the CARES act), Treasury Secretary Steven Mnuchin stated, “Any FDIC institution will be able to do this. Any credit union, existing SBA lenders and FinTech lenders.” The goal is clear – get funds into the hands of small businesses through all effective channels. Within hours of its launch on Friday, over 9,970 loans valued at approximately $3.2 billion had been processed.

Lastly, the existing programs do not plan for a world after COVID-19. Once government crisis programs are exhausted, surviving small businesses will need growth capital to finance Canada’s economic rebound. FinTechs like ours were born out of the 2008-09 recession, addressing a vacuum created by traditional financial institutions that were incapable in supporting small businesses that were not large or profitable enough to warrant their attention.

For a decade now Canada has invested significantly in building a world-class Financial Technology sector that continues to innovate and promote Canadian entrepreneurialism across the globe. As an industry, FinTech lenders in Canada have been at the forefront of best practices. And during these unprecedented times, we’re doing everything we can to support our small business customers, including giving payment relief to struggling customers, despite not having nearly the resources banks have at their disposal, and facing meaningful challenges ourselves.

Small business owners will again need a place to turn when it comes time to hire back employees, catch up on a rent, and re-invest in inventory. A strong Canadian FinTech community will be necessary to provide them with the support that banks and others won’t. A strong Canadian FinTech community then means an involved Canadian FinTech community today.

Much has been said about supporting small business, but we see the reality on the ground. For a large percentage of Canadian small businesses, survival is counted in weeks. The government knows this. Canadian FinTechs stand ready and able to rapidly support these businesses and their employees today. Our businesses have been built for this moment.

We’re here to help. We’re extending our hand. For the sake of Canadian small businesses, we are asking the government to take it.


By Neil Wechsler, CEO of OnDeck Canada and Stéphane Marceau, CEO of Thinking Capital