Firms optimistic despite credit crunch

VIRGINIA GALT
October 17, 2008

Credit concerns are "gathering speed," with 28 per cent of small and mid-sized companies reporting problems getting access to bank financing, up from 26 per cent a week ago and 18 per cent a month ago, the Canadian Federation of Independent Business reports.

Nonetheless, small-business owners are somewhat more optimistic about their long-term prospects as a result of co-ordinated actions by governments around the world to backstop the banking system - even though the credit taps haven't opened up yet.

"Although the balance of opinion remains cautious, pockets of strength remain," Ted Mallett, the CFIB's vice-president and chief economist, said in releasing results of a survey of 639 business owners.

The CFIB "business barometer" survey found that 34 per cent of business owners canvassed this week expect their companies to perform more strongly in the next 12 months, up from 28 per cent a week ago.

"Only 5 per cent expect to be much weaker in 12 months, but a large number of business owners, 29 per cent, expect to be somewhat weaker."

Mr. Mallett said employment markets "appear to be reasonably stable for now," with 25 per cent of business owners expecting to add full-time employees in the next 12 months.

The sector is more nimble and better positioned than big business to adapt to changing economic realities, Mr. Mallett said in an interview.

One of the inherent advantages of small firms is that they are able to change and react to market changes much faster than their larger competitors," Mr. Mallett said.

"Large firms are . pretty hardwired with respect to what their product lines are, what their marketing plans are. They have lots of people and machines dedicated to specific tasks. Larger firms tend to be more of a boom/bust scenario. They feel the business cycles much more severely than the small-business sector as a whole," Mr. Mallett said.

Fred Withers, a managing partner in Ernst & Young's Western Canada practice, said smaller firms "are the first movers around opportunity.

"They first people, typically, to add employees because they see the opportunity . they are the people who get things started, and they tend to be more optimistic by nature," Mr. Withers said.

Small-business operators also have "a lot of emotional and financial investment in their companies" - a powerful incentive to push ahead, even in a faltering economy, said Beth Wilson, Canadian managing partner of KPMG Enterprise, which advises small and medium-sized businesses.

And because most small and medium-sized enterprises are privately held, "they don't have the same governance processes . they don't have the pressure of a public company reporting results quarterly," Ms. Wilson said.

"They do have the ability to think long-term and be more strategic, without that outside scrutiny on a short-term basis."