CHAPTER VIII. Trade and Project Financing A. Brief Description of Banking System At the end of 1993 there were 65 banks with licenses to operate in Canada, but the banking sector is dominated by the six largest "Schedule I" banks (widely-held Canadian-owned institutions with capital in excess of C$750 million). In descending asset size, these banks are the Royal Bank of Canada, Canadian Imperial Bank of Commerce (CIBC), Bank of Montreal, Bank of Nova Scotia (Scotiabank), Toronto Dominion Bank, and National Bank of Canada. These institutions accounted for 90 percent of total banking system assets at the end of 1993. The remaining 59 banks are Schedule II banks (closely-held institutions with capital not exceeding C$750 million). The Schedule II banks include 54 foreign bank subsidiaries, of which 12 are U.S. bank subsidiaries. B. Foreign Exchange Controls Affecting Trading The Canadian dollar is fully convertible. Canada has no restrictions on the movement of funds into or out of the country. Banks, corporations and individuals are able to deal in foreign funds or arrange payments in any currency they choose. C. General Financing Availability The financial markets in Canada are stable, mature and accessible to everyone. There are two primary methods of financing a business: equity financing and debt financing. Most businesses obtain their financing using these two sources of funds. However, there are a number of other sources of financing, such as leasing, fixed asset financing, accounts receivable financing, and inventory financing. There are also extensive government financial assistance programs available to business at the federal and provincial levels. In addition, consumer credit is used extensively, and several systems facilitate consumer borrowing in Canada. Revolving charge plans are issued on approximately the same terms as in the United States. As well, Canadian banks have become sensitive to the growing financial needs of franchised operations. Various loan and repayment plans for franchise operations are now offered by Canadian chartered banks. Depending on the need of the franchise or business in question, bank services can also include payroll and cash management services. D. How to Finance Exports/Methods of Payment 1. Export Financing (a) Sources of Financing There are no U.S. Government programs available for financing U.S. exports to Canada. Neither EXIM Bank nor OPIC maintain programs for the Canadian market. However, the political, economic and commercial systems in Canada are so stable and similar to those in the United States, that the lack of government financing should pose virtually no problem to the overwhelming majority of U.S. firms seeking to export to Canada. Private financing should be easily available from a U.S. firm's own bank in the United States, or from a Canadian bank with branch operations in the United States or associations with U.S. banks, under terms similar to what that firm would find in the general U.S. financing market. Venture capital is not readily or easily available in Canada, especially to non-Canadian firms. U.S. firms seeking sources of funding are more likely to find success with those efforts in the United States. In general, U.S. exporters may find the financing of exports to Canada in many ways similar to financing of shipments to another state in the USA. (b) Credit Information Credit information on Canadian firms is available in World Traders Data Reports (WTDRs) provided by the U.S. and Foreign Commercial Service of the U.S. Department of Commerce. WTDRs include information on the type of organization, year established, relative size, number of employees, general reputation, territory covered, language preferred, product lines handled, principal owners, financial references, and trade references. Each WTDR also contains a general narrative as to the reliability of the foreign firm. The fee is currently US$100 per report. For more information on WTDRs, contact the nearest U.S. Department of Commerce District Office. Many private firms, such as Dun & Bradstreet, provide credit information or other market research data on potential Canadian clients. (c) Consumer Financing Consumer credit is used extensively, and several systems facilitate consumer borrowing in Canada. Revolving charge plans are issued on approximately the same terms as in the United States, and all major U.S. credit card companies are active in Canada. Canadian banks have become sensitive to the growing financial needs of franchised operations, with various loan and repayment plans for franchise operations are now offered. 2. Methods of Payment Although terms vary from one industry to another and among trading channels, U.S. manufacturers exporting to Canada generally give a discount for cash purchases of one or two percent of the invoice if paid within ten days. U.S. firms exporting to department stores tend to offer 8.5 percent to ten percent cash discounts for settlement within ten days. Normal precautions in dealing with a first-time customer should be exercised, and safeguards instituted wherever possible at least until a satisfactory relationship has been established over time. The many bank branch offices on both sides of the border should help maintain maximum flexibility of methods of payment and facilitate the settlement of accounts. The disposition of charges on export collections or letters of credit through normal banking channels should be resolved between the exporter and the buyer at the time of sale. Canadian buyers will often accept these charges, but an unexpected bill may cause irritation and, if there has been no prior consent to the charge, the foreign buyer has the right to refuse to pay. When this happens, banks are entitled to deduct the collection charges from the remittance under the terms of the "Uniform Rules for the Collection of Commercial Paper" developed by the International Chamber of Commerce. E. Types of Available Export Financing and Insurance U.S. firms exporting to Canada will not find any strong need for government operated or backed financing and insurance against exigencies that may be typically found in many third country markets. The U.S. Export-Import Bank is not active in financing U.S. exports to Canada, nor are Overseas Private Investment Corporation (OPIC) programs available in Canada. With proper application of sound business principles, however, U.S. firms should be able to avoid most of the problems that require extensive export financing insurance, and rely on commercial banks much as they do in the domestic U.S. market. U.S. firms established in Canada are eligible to participate in the export credit and insurance programs of Canada's official export credit agency, the EDC. F. Project Financing Available, Including Lending From Multilateral Institutions and Types of Projects Supported Canada is not eligible to receive financing from multilateral development banks. G. List of Banks With Correspondent U.S. Banking Arrangements All of Canada's largest banks have branches in the United States. Twelve U.S. banks have subsidiaries in Canada. With this kind of physical presence, correspondent banking relationships are less important. A list of Schedule I banks in Canada can be found in Appendix C.