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Entrepreneurs' financial health improves, BDC showing strong results

By Daniel Kosir

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As Canada's economy began its slow recovery from the recession and the flow of private sector credit available to small business gradually improved, Canadian entrepreneurs continued to receive strong support from the Business Development Bank of Canada (BDC).

According to BDC's annual report, which contains financial statements for the 2011 fiscal year ending March 31, BDC clients accepted a sum of $3.3 billion of financing and consolidated net income reached $346.7 million. BDC also authorized over $95 million in venture capital investments, $150 million in asset-backed securities and started 2,300 consulting mandates.
 
"Close to half of our profitability this year is attributable to the reduction of the amount of money we set aside for potential losses, which means that our clients' financial positions have improved since last year," says BDC President and CEO Jean-Rene Halde. "We are delighted with what our profitability tells us about the rising financial health of our clients."

Over the past year, the Canadian economy emerged from recession and has been fighting an uphill battle, beginning a slow and uneven recovery with modest growth. Attitudes toward the economy have generally been positive, with business investments gaining momentum and entrepreneurs remaining optimistic about their firms' prospects.

Economic Recovery Loan

As entrepreneurs were adjusting their operational priorities from recession to recovery, lacking the capital to finance day-to-day activities or longer term projects became a major concern. As a response, BDC developed the new Economic Recovery Loan, a flexible pre-approved working capital loan that over 3,700 of its clients have taken advantage of.

"In this case what we saw was a number of entrepreneurs hoping to rebuild their inventory and get going again, because we are now in recovery mode," says Halde. "What we said to entrepreneurs is 'if it's going to help your business, just pay us the interest and delay paying the capital by six months or nine months. That way instead of paying us you can buy inventory or buy whatever is required to help your business, and then pay us afterwards'."

According to Halde, this kind of flexibility is what separates the BDC from the other guys.
 
"One rule we've got is that we're a development bank, not a bank. We're trying to help the entrepreneurs, we're prepared to take more risk than most financial institutions and we're there for the benefit of Canada."

Lending activity springs back

Fiscal 2010 saw BDC increase their lending of money to entrepreneurs by 53 per cent due to deteriorated credit conditions. But as credit conditions improved through fiscal 2011, the dollar volume of BDC's lending activities returned to pre-recession levels. BDC clients received $3.3 billion in financing in 2011, down from $4.4 billion in 2010 and up from $2.9 billion in 2009.

"Private sector financial institutions now have more liquidity available for business financing, which is good news for Canadian entrepreneurs," says Halde. "This also means that BDC did fewer deals this year than last year, when the economic crisis was at its most severe. This is to be expected given our complimentary mode of operation."

Financing with the BDC

Entrepreneurs who are looking to finance may find that the BDC's services are slightly more expensive than alternative options. Though Halde concedes that in some cases it may be pricier, he also notes that there are reasons for the discrepancy.

"We try to price for risk appropriately. Another reason is we try to be complimentary to other financial institutions," says Halde.

The terms for BDC services also provide a fair amount of flexibility that other institutions may not offer.

"The one thing we do that's not always obvious when you look at price is [offer] all of the terms that come with that. For example, if you're in a cyclical industry we'll allow you to delay payment during the low months of your industry and wait until your business is active again," said Halde.

"We try to customize everything to the need of every entrepreneur that's out there. It's less of a cookie cutter approach… flexibility is the name of the game."

BDC Fiscal 2011 highlights

Despite recording losses on some fronts, the overall numbers show that BDC remains a commercially viable and profitable organization. On June 30, 2011, a total of $50.1 million dividend was paid to its sole shareholder, the Government of Canada, mainly based on fiscal 2011 performance.

BDC reports on five business lines: Financing, Subordinate Financing, Venture Capital, Consulting and Securitization. For access to the fiscal 2011 highlights for each of these, read BDC's annual report.



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