Opinion: Credit freeze or media frenzy?

It went little-reported in the wider media when released a few weeks back, but a recent survey by PricewaterhouseCoopers contained some rather intriguing insights.

The most surprising, though, was about the credit freeze panic, which as we all know has racked up incessant headlines since 2008. Indeed, the debate about the lack of available capital for businesses, especially, has dominated news coverage and chatter for the better part of two years.

But according to PwC's 2009 Business Insights survey, which polled nearly 500 Canadian companies – 47 per cent of which had revenues of $5 million to $10 million, and the rest over $10 million – 88 per cent of respondents said their business plans for 2009 haven't been affected by a lack of access to financing.

Further, another 66 per cent said their banks have not tightened lending covenants over the past six months (with another 23 per cent adding that while their bank had tightened covenants, they were tightened only slightly).

Further, 74 per cent of participants indicated they already had business loans, and 67 per cent of participants said they saw stability or even an increase in their credit facilities.

Those are notions that seem to jibe with another report released just last week in the U.S., indicating that the bigger problem in credit markets is that many companies simply aren't looking to borrow right now.

"The demand for credit is in short supply; there is not a major shortage of credit supply," said William Dunkelberg last week, chief economist at the U.S.-based National Federation of Independent Business. His organization released a survey indicating that only four per cent of companies say financing is their biggest current problem. "What small business needs is customers," he said.

Similarly, a report released by the Federal Reserve last week indicated that big companies in the U.S., as well, have slowed their demand for capital.

"Our data shows that the fact that credit-worthy borrowers can once again tap the debt market on reasonable terms doesn't mean that many of them are eager to do so for any reason other than refinancing their existing debt," said Oleg Melentyev, a debt analyst with BofA Merrill Lynch Global Research, in a statement last week.

Cliff Taylor, a partner with PwC's tax practice, said economic observers shouldn't be surprised at these latest sentiments by business owners. "The headlines around the world have screamed that there's a lending freeze, but what we've seen across the country is that a majority of private company leaders in fact didn't have trouble accessing capital," he said.

"Was it blown out of proportion? When we look back, probably," he continued. "But when you look at some of the large institutions, probably not – look at Lehman Brothers. It failed. And that was something that nobody expected."

Mr. Taylor did acknowledge that the survey is likely indicative of certain sectors more than others – services, real estate, construction and the like. "(But) if you spoke with some manufacturing companies, I'd imagine they may have had a lot of problems accessing capital," he said.

He also agreed PwC's survey results may have been different, had the firm surveyed more small businesses.

"But certainly I think we were all a bit surprised at these findings, simply because of what we'd been told by the media," he said.