TORONTO (Reuters) - Canadian commercial lending was steady in the first quarter, suggesting a stable borrowing environment where businesses are cautious about the economy yet ready to take advantage when demand picks up, according to data released by PayNet Inc. on Tuesday.
The Canadian Business Lending Index, which tracks the creation of new loans, was unchanged from the fourth quarter when the data showed its first uptick in new lending after a two-year decline, said PayNet, which reports on the commercial lending industry.
Commercial lenders include many manufacturers of construction, farm or medical equipment, whose loans and leases to customers are secured against the products sold.
William Phelan, PayNet’s president and founder, told Reuters that the current index is about 30 percent below the high reached in late 2007.
“There is plenty of capacity to grow,” he said. “Canadian businesses are set for growth. They really just need demand to return to the economy.”
Canada’s economic recovery has been gaining steam, although it is still patchy in some sectors. Manufacturing sales data recently came in at the highest quarterly level since the start of the recession, but the latest purchasing activity and housing starts figures have been unexpectedly soft.
Skokie, Illinois-based PayNet also produces the Thomson Reuters/PayNet Small Business Lending Index. Changes in that index have tended to presage changes in the overall U.S. economy by two to five months.
Until last quarter, the Canadian Business Lending Index had steadily declined for two years, suggesting thousands of small and medium-sized businesses were holding back on investment. But not now.
“That stability is a very positive first step forward for growth. You have to stabilize before you can grow,” said Phelan.
He said the Canadian index was showing similar stability as the U.S. index, and predicted job growth will soon follow.
“So we’ve seen that stability occur, which is very, very good news for Canadian businesses,” said Phelan.
“When they start to grow again, they are going to need people to run those machines, they are going to need people to man the plants, they’re going to need people to get the equipment operating on a daily basis.”
While the PayNet data showed promise for Canadian economic expansion, its flat reading in the quarter was echoed in separate data that showed Canadian venture capital investments continued to struggle in an extended funding drought.
According to data compiled by the Canadian Venture Capital and Private Equity Association and research partner Thomson Reuters, venture capital investments totaled C$315 million in the first quarter, roughly in line with the year-ago period.
Still, other PayNet data released on Tuesday showed that arrears in Canada’s commercial lending industry were well below year-ago levels, and down moderately from the fourth quarter.
The decline in this data is encouraging because it shows “tremendous improvement” in the financial health of Canada’s small businesses, Phelan said.
PayNet said moderate commercial loan delinquencies, defined as being behind at least 30 days, fell to 1.64 percent in March from 1.73 percent in December. In February, delinquencies dropped to 1.47 percent, the lowest level since PayNet began collecting the data in 2005.
Severe delinquencies, defined as loans behind more than 90 days, slid to 0.49 percent in March from 0.63 percent in December.
Reporting by Ka Yan Ng; editing by Rob Wilson and Jeffrey Hodgson