The Bad Side Of Regulatory Banking

In short: Less competition.

Let me explain. Across Canada, there are basically five big chartered banks - referred to as Schedule 1. There are also another bunch of (six or seven) albeit smaller - second tier or in some cases Schedule II - banks. All governed by the Bank Act. The choice, as a result, to do business with is limited to about a dozen banks.

Yes, Canada has the "safest and most efficient" banking system in the world, but it comes at the cost of less competition.

For example, when I shopped around for a loan/line of credit for my business, every single bank rolled with the same script. If you don't fit the script, you're screwed.

It would be nice to know there are institutions willing to not be restricted by arbitrary ratios and narrowly defined criteria. Access to capital is, in other words, is a challenge.

What about credit unions? I can't speak for other provinces, but Quebec's largest credit union is actually more restrictive than the Schedule 1 banks.

The other thing I learned is small-business have little chance. Even in a growth business like daycare I was treated like I was opening a high-risk restaurant. I got lucky with a bank but not before I signed personal and got a co-signer. Your best bet is to save money (I poured in $80 000-$100 000 of my own), borrow from friends and family (which I did), and/or find private (or angel) investors. There's plenty of capital out there if you go this route. You just have to find it.

Worse, in addition, the banks lend only to subsidized daycare - which is patently absurd and unfair.

And what about asking for an extension? Again, all sorts of criteria before they consider it. You literally can be growing and expanding and on the cusp of success and the banks will let you down. Of course, they would come after your house once they permit you to fail. Instead of just saying, "well, all he needs is x-amount and we get paid in a win-win" they say, "you don't meet our ratios and will take your house in return for defaulting."

The personalized approach to banking is dead. This ain't "It's a Wonderful Life" anymore where you could just ask the owner for money; where character and reputation meant something. Today, you have an army of "reps" who can't really do that much for you since they have to answer to headquarters. If they do something, they have to fight tooth and nail with credit departments.

It's just the way it is.

Just offering a different view on things.