Province lends millions in 2 months to companies coping with downturn

New Brunswick companies coping with the effects of the global credit crunch and vicious bear market are beginning to pile up loans with the provincial government as it attempts to soften the impact of the economic downturn.

Since the first signs of the credit crisis and massive losses on equity markets developed in September, four companies have been approved for $5.1 million worth of financial assistance from the provincial government.

Business New Brunswick Minister Greg Byrne said there are at least another 10 companies that are in the system, seeking help to avoid shedding jobs or cutting back their operations.

Byrne said financial institutions are severely curtailing access to capital, even to companies with strong track records.

"It is having a serious impact. These are viable businesses that we are looking at," Byrne said. "They have had strong financial performances in the past, we have every reason to believe they will perform well in the future. But it is important they continue to invest in their business operations."

IPL Inc. in Edmundston has received a five-year forgivable loan guarantee worth $750,000 to help with capital expenditures, which is intended to maintain 183 jobs. LuminUltra Technologies Ltd. received a direct loan worth $200,000 that has a six-year term so it can access working capital to maintain 10 jobs.

The province offered Ocean Pier Inc. an $800,000 loan guarantee to access money and a $425,000 loan that is repayable over eight years. The financing is designed to keep 95 jobs.

Sunny Corner Enterprises has received a $3 million loan guarantee to maintain 170 jobs.

Premier Shawn Graham instructed Byrne in September to develop a process to help companies that were suddenly confronted with problems borrowing money. The dilemma of offering financial rescue packages to companies is a growing concern for provincial governments. Another high-profile example is how Ontario will deal with its ailing auto sector.

Byrne said his departmental officials have been busy since September adapting its arsenal of financial tools to deal with the specific problems caused by the constricting capital markets.

"Since September, we are seeing more applications for access to capital. Previous to that, many of our applications dealt with new start-ups, investment attraction and expansion," the business minister said.

Traditionally, businesses have looked askance at governments handing over loans to potential competitors.

However, David Plante, vice-president of the Canadian Manufacturers and Exporters division in New Brunswick, said corporate executives are shifting to a mindset where short-term deficits and direct corporate loans might be good for the economy.

"I think because this is a short-term and a rather exceptional issue that companies do realize that extraordinary measures will have to be put in place," Plante said.

"This isn't necessarily a case of bailing out fundamentally weak companies, it's actually a case of ensuring our economy remains solid when this storm does pass."

Plante said he's hearing companies starting to complain about problems with borrowing, and he expects that to ratchet up significantly in the near future.

The business group official said this bear market is a "once in a 50- or 100-year event" that is starting to worry companies.

"There is real concern when you start hearing about deflationary pressures," he said.

The province's business minister said the government will evaluate each funding request individually but he stressed the global economic problems are not the fault of companies that are now struggling.

"New Brunswick companies aren't immune from the difficulties in the financial markets and that is manifesting itself in tightening up of some of the export markets and the access to capital, primarily," Byrne said.

"Although the [low Canadian] dollar is helping, it isn't fully offsetting some of the other impacts."