Will the COVID-19 inspired Federal Business Credit Availability Program exclude many credit union members? The Federal government is to be commended for its substantial response to the crisis, but it’s big initiative for small business is being delivered, almost exclusively, through banks.
Small and mid-size credit unions need to apply to Export Development Canada (EDC) to be ‘approved lenders’ – a time consuming process that will leave many small businesses unable to access the government support for weeks or months.
The new Federal programs are to be delivered through an enterprise’s ‘primary banker’. The program includes a loan guarantee up to $40k, and a co-lending program, and it is linked to the Canada Emergency Business Account. These are the cornerstone ’emergency’ credit & guarantee offerings for small business. These programs are to be administered by the EDC and the Business Development Bank of Canada (BDC), crown agencies. But, as of this writing only BC’s two largest credit unions are ‘approved lenders’ with EDC. So the vast majority of credit unions are not in a position to sign businesses up.
What does that mean? More than 50% of BC credit union members do not have access to these programs. Thousands of small businesses, particularly outside the lower mainland, are out in the cold.
The Canadian Credit Union Association (CCUA) is pressing for accommodations to be made at EDC to facilitate the registration of other BC credit unions as ‘approved lenders’. Such a process will create a stream of individual credit union applications that will possibly take months to process. On April 3rd CCUA indicated that most credit unions will wait for weeks as an expedited EDC application process is implemented, that gives priority to larger credit unions. This, apparently, is the best deal the CCUA could broker. *
This leaves many businesses and credit unions in rural BC in a jam. Many up-country credit unions will be squeezed to make loans to bridge the period until the Federal guarantees are available. The credit unions will take on the credit risk. They also take on the risk that they may not subsequently be ‘approved’ by EDC. And many businesses may be wound up because they are not able to get this emergency government help soon enough.
Beyond that, other businesses that choose to bank with smaller credit unions in more urban centres are also left to wait. All credit unions will suffer a reputation loss.
Perhaps the better option is to get Central 1 ‘approved’ at EDC, with the understanding that they would act as an intermediary agent for BC (and Ontario) credit unions. Other centrals are registered with EDC. If Central 1 was registered with EDC it could act as the conduit to the government program, and Central 1 should be able to do so quickly!
Lastly, credit unions are more important than ever. They are here to help all the members with cash flow dilemmas arising from these ‘lock downs’, not just small business. This kind of crisis is the reason why communities have created their own credit unions. Credit unions will step up, they will not be sidelined.
[*Ironically, the Prime Minister explicitly said “banks and credit unions” when he spoke about these programs early today, in his daily public update.]