CIBC CEO touts private-sector fund to back growth
Plan would help companies stay alive if they ‘hit a wall’ in terms of funding
The Canadian Imperial Bank of Commerce and other financial institutions are in discussions to build a “sizable” private-sector fund offering long-term financing to high-growth businesses not served by traditional lending or venture capital, the bank’s chief executive Victor Dodig said Thursday.
The proposed Canadian Business Growth Fund would be similar to one that exists in Great Britain, and would cater to growing companies that “hit a wall” when funding is no longer available to them, he said in a speech about trade and innovation delivered to the Canadian Club in Toronto.
“They want to continue to control their company and grow their company, so they can’t really tap the (public) capital markets ... They need long-term patient capital,” Dodig said.
The fund would be a wholly private-sector initiative, he added.
“It’s financial institutions coming together to help the small and medium-sized business sector, and generate a return for our shareholders,” Dodig said. “And the government has simply, simply come together to convene us. To say, ‘We think this is a good idea, we think you should go do this.’ ”
The proposed fund was outlined in a report by the federal Advisory Council on Economic Growth earlier this month, with a suggested size of $1 billion.
The report said it could focus on established revenue-generating firms looking for deals between $7.5 million and $25 million to finance their next phase of growth. Capital would be provided in the form of minority equity or loans for small and medium-sized enterprises.
“We believe this could make a significant improvement in the identified gap while mitigating any risk of crowding out other sources of capital,” the Feb. 6 report said.
Partners, such as the big banks, would contribute meaningful sums to the fund, and an independently run entity would manage it on behalf of shareholders, Dodig said.
As well, the proposed fund would compile a database of “expert advisers” to help these companies with, for example, access to talent and mentorship, he added.
The proposed fund has merit, as evidence has shown that Canada is a great place to start a business but a challenging place to grow one, said Craig Alexander, chief economist at the Conference Board of Canada.
Under existing rules, banks must hold significant capital on a risk-weighted basis when lending to small and medium businesses, said Alexander, as there is inherently more risk. As a result, it is more profitable for banks to lend to companies where less capital is required, he added.