Business is Getting better? and Me

The Bank of Canada today indicated today that the ' recovery is taking hold ' , with some major commentary around business financing, which is the business of 7 Park Avenue Financial .

Interestingly enough they referenced a survey of ' bank loan officers ' who indicated that lending conditions have stabilized after a period of what they referred to as ' tightening '. Again borrowers ' increased access to financing 'was referenced .

It was good to hear the many business referenced hiring potential and new equipment acquisition .

We deal with a number of these ' loan officers ' and I would agree that , as we have said before, it couldnt get any worse and it does feel better out there with respect to business financing and borrowing . Hello 2010!
Stan

SUBPRIME, CANADA, AND ME

There was a great article on BNET.con today about a fellow named Anthony Hsieh- He founded a number of the large online submprime type mortgage portals in the U.S. - He is starting another one called ' LOANDEPOT.COM' .
I don't think these online portals are anywhere near in use in Canada - we seem to prefer the personal touch I guess! Firms such as HOME TRUST and XCEED MORTAGE seems to be doing ok , and Canada was of course ' relatively' unscathed during the U.S. sub-prime bust - God knows we felt the effects though.
Stan

BUSINESS , 2010, AND ME

As we kick into the New Year ( could 2009 have been any worse for business ? ) it was encouraging to note that the Toronto Star has reported that business bankruptcies are down around 10-15% with construction, mfg, and retail accounting for most of the failures .

If we can get the Canadian business lenders to improve capital flow to Canadian business we can all reasonably expect 2010 to be a better year . We at 7 Park Avenue Financial hope so !

Government loan guarantees and Me

There was a disturbing ( probably only to myself !) article in todays Globe and Mail - I have pasted it in below here around the Canadian governments Small business loan guarantee program, commonly called the CSBFL program . The article , by Dean Beeby - Canadian Press - discusses a study by KPMG around the porgram . The highlights of the article are the larger amounts of defaults , reluctance of some bankers to not introduct the program to their customers (' its a lot of paperwork and admin' ) and the fact the the program might be over utilized in some sectors , ie food, beverage, hospitality, etc .

I personally have always thought this was one of the only shining bastions of real government effort in Canadian business . I have written previously on what I considered a joke in this area, the Canadian Secured Credit Facility which was instituted by the feds at the time of the current financial meltdown, had 12 B allocated to it, did one deal, yes one deal!, and , guess what, the recession is over and thousands of small and medium business got no help whatsoever . Anyway, dont get me started .

I hope the gov't and the banks get their act together and utilized the program to the benfit of all parties, the risk takers and the Canadian business person .

ARTICLE IN TODAYS GLOBE AND MAIL ->

OTTAWA -- An Industry Canada loan program for small business continues to lose money and annoy bankers a decade after it was redesigned to avoid those very problems.

A new report on the Canada Small Business Financing Program has found a loan-guarantee portfolio in sharp decline even as losses to the federal treasury mount.

The program, which reimburses financial institutions for losses on defaulted loans, is a tangle of red tape and inflexible terms that has lenders fleeing, says the KPMG study, commissioned by Industry Canada.

"Lenders have identified a heavy administrative burden, which includes a paper-based system, and difficulties with the claim process, as major obstacles," the consultants' report concludes. "It is not profitable to them."

The result has been a sharp drop in the number of loans, hitting a new low of 9,000 -- about half the number the program supported in 1999 when it was overhauled to put it on a more business-like footing.

The program has so far guaranteed about $10 billion in small-business loans issued by banks, credit unions and others since 1999, and collects fees based on the size of the loan.

The revenue paid to Industry Canada was supposed to cover the default claims paid out, but the math has never worked in Ottawa's favour.

Claims paid out have risen steadily over the decade, and now top $100 million annually, while revenues have consistently lagged, costing taxpayers a net $335 million so far.

Put another way, cost recovery is currently at only about 60 per cent rather than the 100 per cent that was planned, and is in steady decline.

"The gap between claims and fee revenues will continue to exist and most likely expand," predicts the KPMG report, dated Oct. 30 and obtained by The Canadian Press under the Access to Information Act.

The program's portfolio of loans has become ever more risky over the decade, now catering especially to newly established small firms with weak credit scores and little collateral, many in the food-and-beverage sector.

Few small-business borrowers have even heard of the program, so lending institutions have effectively become gatekeepers, able to recommend the option if a standard loan application fails.

But loans officers have generally soured on the program.

"They mention the high amount of forms that need to be filled out ... as a major nuisance," say the KPMG investigators, who interviewed bankers and others.

"It is the lender's perception that the claim staff at the ... program is very strict and focus mostly on reasons not to pay the claims." Some of the loans officials interviewed were "very passionate about not offering the program."

Virtually all the problems cited by KPMG repeat the findings of earlier studies. An Industry Canada report in early 2002 cited the paperwork burden, lack of profit and trouble collecting claims as driving financial institutions away.

The same year, the auditor general of Canada expressed doubts that the program as designed could ever recover its costs.

And a 2004 report the department commissioned from another consultant repeated the findings about the administrative load, disappearing profits and cost-recovery problems.

The 2009 federal budget changed two rules in the program, raising the maximum loan amount by $100,000 to $350,000 and adjusting a claims calculation limit. There was also a vague promise to ease the administrative burden, with no details.

The Finance Department predicted the changes, which came into effect March 31, will increase annual borrowing under the program by $300 million from the current $1 billion.

The KPMG report quizzed bankers and others about the 2009 budget changes. The new loan limit won praise, though with a warning that default levels might also rise. The claims adjustment got a lukewarm response.

A spokeswoman for Industry Canada did not respond immediately to a request for comment.

The Canada Small Business Financing Program covers 85 per cent of loan defaults, and sets the maximum interest rate that can be charged as the prime lending rate, plus three percentage points. Industry Canada collects registration and administration fees set as a percentage of the loan.

An earlier incarnation of the program, the Small Business Loans program, lost at least $275 million between 1995 and 1999 and was scrapped that year.

What didn't happen !

Great article on BNET .COM regarding some predictions, mostly financials, that were supposed to happen as we headed into 2009. I have listed those at the bottom of this posting . I guess the take away lesson is that many predictions seem to be , in hindsight , almost a fear mongering tactic and we must surely wonder who is predicting these things, and, most importantly, why!!
Stan

• Prediction: “Steve Jobs relinquishes the CEO title and remains as Chairman.” (via TheStreet.com) Reality check: Not only does Jobs remain as Apple’s CEO, he is the planet’s best, according to Harvard Business Review
• Prediction: “Chaos ensues in February [of 2009] when U.S. broadcasters cease analog TV signals.” (via BusinessWeek) Reality check:The switch to digital TV was delayed a few months but the transition caused no chaos for the entertainment industry or consumers
• Prediction: “Malls, as we know it, will be dead and most will turn into outlet mall like structures.” (via The Budget Fashionista blog) Reality check: 166 malls went into bankruptcy when General Growth Properties went down last year but the mall still reigns supreme
• Prediction: “[M]illions of newly (and not so newly) unemployed will be scrambling to start their own businesses.” (via the Wall Street Journal) Reality check: There were plenty of prognosticators picking entrepreneurship as 2009’s hot trend but it’s too soon to tell whether more Americans decided to start their own companies last year; I’m going to predict that the well-publicized lack of small business loans, combined with extended unemployment benefits, probably dissuaded quite a few from taking the plunge
• Prediction: Problems stemming from the economic crisis “will lead to increased crime and civil unrest with protests in the streets, bank runs and an increased police and military presence trying to bring stability to cities” (via Seeking Alpha) Reality check: Violent crimes, burglaries and property crimes all dropped in the first half of 2009, according to FBI figures released on December 21

A LEGAL STASH?

The Globe and Mail today had an article on ' NUGGETS FROM MY STASH OF FINANCE BOOKS ' - It was a great article by a John Heinzl of the Globe highlighting some of his favourite financial books . He noted that the books are for both experienced and non-experienced investors . I must confess to not knowing any of these books, but recognized two of them by their authors .

One of my favourite books of all time is a true Wall Street Masterpiece . It is called ' REMINISCENCES OF A STOCK OPERATOR ' and covers the true story of Jesse Livermore, one of the first speculators on Wall Street . Its an incredible story of how Livermore played on investor psychology and created massive pump and dump scams. Many feel he was the cause of the '29 market crash . Its an incredible and humorouos and well written story . The author is Edwin Lefevre .

Interestingly I read this book in the 1980's and then lived through DOT COM era when I was at HP for ten years in the 1990's. In hindsight I had been pre-warned, but neglected the signs!
Stan

BUSINESS SPEAK - I DON'T MISS IT !

There was a great article in FORBES ON-LINE today about how many people detest the business speak jargon that is widely in use in the corporate environment . I worked for large companies for 30 years and can certainly vouch as being an offender . Only when you're on the outside do you realize the uselessness of some of these terms :

Lets cover of some of the most over used ones and let the guilty recognize themselves as appropriate :

touch base
circle the wagons
get everyone on the same page
full service
over the wall
take it to the next level
tee it up
circle back

The article sums it up nicely by saying that people use these words in the corporate environment to sound important but they don't make any sense and just hide inadeqacies.

FINALLY - If you understand the attached call me on my direct line anytime 416 319 5769 to explain!
Stan

' At the meeting we can touch base, circle the wagons, and get everyone on the same page - that way we wont ignore the low hanging fruit and the intellectual needle wont move anywhere. However that limites our bandwidth and the troops want to drink from the high level fire hose . We dont want game changing paradigm shifters, instead lets take it to the next level.