Canada's Banks Hesitant to Finance Defence Companies Over Contract Risk

Canada's banks are facing challenges in financing defence companies as they venture into the sector after decades of neglect. The lenders need to see that defence companies have secured procurement contracts before lending, especially to smaller businesses with uncertain revenue streams and nascent compliance programs.

The government has earmarked over $84-billion in defence spending over five years to rapidly expand Canada's defence capabilities. However, banks are waiting for more details from Ottawa on how the money will be spent.

Business Development Bank of Canada CEO Isabelle Hudon stated that without government guarantees or loan guarantees, it's difficult for banks to lend to the sector from scratch. The federal government has been investing in initiatives to attract funding to the defence industry and has provided additional funding to BDC for loans, venture capital, and advice to smaller companies.

The defence industrial strategy aims to more than triple Canadian defence-industry revenue, boost exports, and create jobs. However, several barriers stand in the way for burgeoning defence businesses, including long procurement cycles and difficulty securing financing.