Richard Martin, 64, worries his business will never be able to borrow from a major bank again.
Things with his lender suddenly soured in 2020, after sales at his company, Dynamo Playgrounds, plummeted during the COVID-19 pandemic.
Based in a township near Ottawa, Dynamo manufactures outdoor playground structures with intricate designs that feature ropes and nets, offering an alternative to traditional monkey bars and slides.
In 2019, Dynamo secured roughly $3 million in lines of credit from one of the Big Six banks. (Martin asked the Star not to name the bank as he fears legal and financial reprisal.)
The following year, he was shocked to discover the lender was demanding immediate repayment of $1.6 million plus interest.
The bank cited concerns around Dynamo’s finances and alleged the company had broken its credit agreement. Martin said he did everything he could to pay off this debt, but it still resulted in the bank eventually ending their relationship.
“We had never bounced a cheque, missed any kind of payment whatsoever,” said Martin. “But when we produced our financial statements, I mean, it was looking a little bleak because of the entire situation of COVID.”
Canadian small and medium-sized businesses have traditionally struggled to obtain financing from banks, which are notoriously risk-averse lenders.
Now, in a bid to incentivize more and cheaper lending to smaller businesses, Canada’s banking watchdog is considering relaxing capital requirements for those types of loans.
That means financial institutions would need to reserve less capital and could use the funds to lend or invest more.
Last week, the Office of the Superintendent of Financial Institutions (OSFI) launched a consultation on the new guidelines, which would come into effect about a year from now.
“We believe that the changes support competitiveness while maintaining stability and soundness in the financial institutions,” an OSFI spokesperson said in a media briefing last Thursday.
Carl De Souza, analyst at credit ratings agency Morningstar DBRS, believes OSFI wants to be aligned with the federal government’s push to boost investment in the Canadian economy amid U.S. President Donald Trump’s trade war.
Small businesses account for more than 98 per cent of Canadian employers, according to the Competition Bureau, and drive economic growth by innovating and putting competitive pressure on larger businesses.
“Encouraging business lending to these types of entities will help those initiatives,” said De Souza, speaking of the government’s ‘Canada Strong’ plan.
Small businesses are faced with a myriad of barriers when it comes to borrowing. Most small business owners get stuck with higher borrowing costs than larger firms, and this gap is bigger in Canada than in other countries, according to the Competition Bureau.
At the same time, big banks have significantly shrunk commercial lending over the last few decades, according to Morningstar DBRS. Banks perceive business loans as riskier than personal loans, given losses are generally larger in case of defaults, said De Souza.
Corinne Pohlmann, advocacy lead for the Canadian Federation of Independent Business, is supportive of OSFI’s move.
“Providing every opportunity for a bank to look at a business and maybe a little bit more incentive to provide that loan,” said Pohlmann, “I suspect that’s all part of the bigger plan, right? To encourage that investment here in Canada.”
Unable to repay the $1.6 million right away, Dynamo entered into a forbearance agreement with the bank in Jan. 2021. According to Martin, the company significantly reduced its debt in the years that followed.
“Although we were keeping them happy,” he said, “it was strangling the company.”
Still, in March 2023, the bank demanded repayment of the remaining $680,000 plus interest, emphasizing concerns around Dynamo’s finances. In a statement of claim against the firm and Martin, among other guarantors, the lender said it was entitled to Dynamo’s property in the Ottawa region as collateral.
Martin sold some machinery and was able to repay the loan. The suit was eventually dismissed, but the whole debacle deeply impacted Dynamo’s ability to continue operating while investing in its future growth.
“There was not another bank around that would ever look at me,” said Martin. “Still, till this date, I’m operating without a bank line of credit of any kind.”
Dynamo now relies on financing from the Business Development Bank of Canada and the Federal Economic Development Agency for Southern Ontario.
Martin founded Dynamo three decades ago, inspired by his brother with special needs and his former job as a playground repairman for a school board. The company now sells equipment to Canada, the U.S., and countries around the world.
He was frustrated that his bank and others couldn’t see the firm’s potential despite the pandemic-related challenges.
“There’s not too many banks anymore that are willing to give a person a chance.” he added. “They’re in the business of making money and not taking risk.”
