As the alternative lending ecosystem in Canada evolves, so have the needs and priorities of its small business customers.
When the industry was still in its infancy, the top priority for small business customers was rates because alternative lending prices were often higher than those of traditional lenders, according to data compiled by Company Capital.
As the competitive landscape evolved, however, many of the original players went out of business, new ones arrived from the United States and elsewhere, and rates have lowered and grown more consistent between competitors. As a result, the Victoria B.C.-based small business lender found that Canadian small businesses now have different priorities.
“When this industry first started out, with rates all over the board, consumers were looking for the best possible price,” explains Bruce Marshall, the Vice President of Company Capital. Marshall has been polling roughly 125 small business clients every 12 to 18 months since 2014, and between that first survey and 2016 “lowest rates” always topped the priority list.
“Over time, as some of the higher priced players have left, the rates have become pretty similar across the board and therefore it’s not as important,” he says. “Rates are always going to be important, but as everyone levels off other issues become more and more important.”
“These days everybody is fast, everybody is flexible, prices are the same, products are the same, you can do it all online, it’s all very similar,” explains Marshall, adding that Canadian small business customers now put more value on other factors. In recent years, for example, being a Canadian company has become increasingly important to survey participants, which Marshall believes is a direct result of changes in the alternative lending ecosystem.
“A few big companies out of Wall St. came to Canada—they’re opening Canadian offices and employing Canadian people but they’re still U.S. lenders—and to a certain segment of Canadian consumers, dealing with a Canadian company is extremely important,” said Marshall. “At least 85% of our customers rated it five out of five in terms of importance.”
When these large American incumbents arrived in Canada they came with multi-million dollar advertising budgets, which Marshall says helped bring awareness to the industry as a whole. At the same time, however, many Canadian small business clients are still keen to work with fellow Canadian small business providers, rather than a major international competitor.
“That’s not a lending industry thing, that’s a good ol’ Canadian societal thing; People are making an effort to buy local,” he said, adding that Company Capital currently has 10 employees. “We promote the fact that we are also a small business , and they like that.”
Furthermore, after only being the fourth-highest priority for small business customers in 2015 and 2016, “personal service” ranked second in 2017, and topped the list in 2019, a trend Marshall credits to the rise of automation.
“While automation works for a lot of the big guys, and it does work for us to some extent, we’re finding that our customers actually like to talk to somebody and explain why they’re requesting the capital,” he said. “They feel its necessary that they talk to a real person.”
While automation does help improve speed and efficiency, customers still put a high premium on personal service. For example, Company Capital uses some automation to help speed up the application process, but ensures that every single customer is put into contact with an actual staff member before receiving a loan. “There’s certain things you just absolutely cannot explain to an algorithm,” he said.
Marshall adds that Company Capital is growing their employee count as the company grows, at a time when others are using automation to do the exact opposite.
“We make sure we have the right number of people so we can have a real person talk to every single client,” he said. “Most of the more automated ones are trying to reduce headcount, we’re actually increasing headcount as our company grows, so we’ve got the right number of people to serve the client base.”
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