88% say their plans have not been compromised by lack of access to
TORONTO, Sept. 29 /CNW/ - Not all private companies have had a tough time accessing financing through this recessionary year. In fact, contrary to popular perception, the majority of private companies in Canada surveyed for PwC's 2009 Business Insights report said they have not noticed any significant changes over the past year when it comes to accessing capital. Eighty-eight percent say their 2009 plans have not been compromised by lack of access to financing. So why the disconnect? Canadian private companies on the whole have tended to be more conservatively financed and were not the primary recipients of high leverage financings that were typical during the last merger and acquisition (M&A) boom.
According to the survey of 466 Canadian private company leaders, 74% have a business loan with a financial institution. Eighty-one percent of companies say that their borrowings have either decreased or stayed the same in the past year.
"This likely means that companies for the most part are still able to service their debt and manage through a challenging economic environment," Eric Castonguay, a Managing Director with PwC Corporate Finance. "Certainly cash generated from reduced working capital levels due to lower sales volumes has helped some companies manage within their existing facilities."
Eighty-seven percent of respondents say that interest rates and fees were not increased or only slightly increased. While interest rate spreads on new loans have increased significantly over the past year, the increase has generally been offset by a 2.5% decrease in the prime rate and a similar decrease in Banker Acceptance rates, which are the basis for many business loans. The net result is a minimal impact to the effective interest rate paid by the private company respondents with solid balance sheets.
"What we have seen and continue to see is a 'back to basics' shift in lending practices," says Mr. Castonguay. "In recent months, there has been a notable thawing of the credit freeze, with many lenders exhibiting an increased appetite for new business. While activity has increased, lenders are taking a cautious approach to new accounts and we have seen a return to more conservative and traditional deal structures."
The full PwC Business Insights data and report will be published in the fall of 2009.
For more information about PwC's private companies services please visit www.pwc.com/ca/pcs
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