How does your credit score affect you when entering business in Canada as a new Immigrant?
Many immigrants arrive in Canada with no credit history and those that land in New Brunswick are no exception. Time and time again, our clients come to us with concerns about how to manage their finances and make investments when they do not have any credit score. Please note, we are saying NO Credit score, not a bad credit score. The challenges are similar but different. Often you can build good credit faster from zero than from a bad score but not always.
The majority of our clients are new Canadians looking to either start a business or invest in a new or existing venture. By definition, this includes those who are looking to build a company from the ground up (entrepreneurs), purchase a turn-key business, or partner with an established local business. Most of our clients have been living in our region for only a period of several weeks to less than a few years. At times, it can be a challenge to plan their next move, whether they have business goals in mind or simply looking to settle into a new home with their families. In most cases, banking will become a major component in the decision making process.
Specifically if the client is immigrating using the Provincial Nominee Program (PNP) they may have made a firm commitment to start or buy a business in less than 2 years after arrival so the timeline is very short.
The experience varies and is also dependent on the type of services desired. Shahram Ghanbari, our long standing Hive client, notes:
“It is not that difficult to get a credit card but it’s only limited to $1,000 provided that you know you should not go to [name of bank removed] since they only offer a secured credit card while other banks offer you [an] unsecured credit card. But the rest is not possible easily. For instance, you cannot get loans without a credit history even something as low [as] $5,000 as overdraft protection. To get a mortgage, you have to provide at least 65% and for the rest you can apply, but not guaranteed.” – Shahram Ghanbari, Toronto World Leadership Forum
Expanding upon this, Jay [name changed] was willing to go into detail about his first few years settling in New Brunswick:
“I tried to get a credit card once the bank had all my money deposited for me, but it was a long and difficult process. They would only give me $2,000 in credit on my credit card, meanwhile in my home country, I had a credit card with a $15,000 limit. This was through [an international bank that is well known locally] and I had always paid these credit card statements on time, everytime. The banks didn’t care about that. I told them, if you give me $5,000 credit limit, you can block off $5,000 from my checking account so if I don’t pay it, you can take that right away. They wouldn’t accept this. Finally, after a long time, I was able to get a $5,000 limit. I tried to take part in bank promotions, but was told my credit history wasn’t valid here, even at the same bank that my credit history is with in my home country. They told me the credit system here is different.
It’s not just the banks, I bought a car and they said I don’t have credit history. I had only one option, to pay off the car in cash. I’m a newcomer, I have to manage my cashflow. I have to pay for everything in cash. At that moment I had to either pay 100% in cash or I had to have a co-signer. Someone with a well established credit history here. Very fortunately for me, I was able to have my father co-sign.
In my home country, they would never treat me like that, it was from one extreme [high] to another [low].
In terms of business, I [went] to the bank and ask for financing. I just asked for half of what I had to pay to buy my business. I was willing to pay half upfront. They [the bank] refused. No one offered me financing to buy my business. I showed them the business, it’s not something new [the business is well established with a well established client base]. I had to buy $5,000 in equipment, I asked for financing. They said no, ‘you’re still new’. For only $5,000. So again, I had to pay this in cash.
Luckily for newcomers, most of the banks offer…. You [local residents] could buy a house. You just have to pay 10% or 15% or 20% because you have a certain credit history. But for us [immigrants], we have to pay upfront 35%. This is still good. After buying the house, I feel that the situation is better for me. Now [after two years] I receive letters offering me credit cards. I don’t have to ask anymore. Some financial institutions, they’re giving me invitations for loans and credit cards, but now I don’t want them. It’s not the right time.” – Jay, Anonymous Immigrant Entrepreneur
Jay noted that after a very difficult start, he was able to establish himself. However, the difficulties do remain. After several months of managing with just one credit card, with a limit of $1,000, he was told by the bank that he could increase his credit limit once he surpassed the one year mark. He requested the change at that point, but it took the bank two months to implement the change. For an immigrant, this can be difficult because the majority of their high value expenses will be on travel – whether to visit family, do business, or complete required duties related to the immigration process. On a daily basis, a high limit credit card may not be needed, but for these essential tasks, it can be very frustrating.
We can understand how these challenges can make a tremendous impact on an immigrant’s ability to pursue business opportunities in their new home.
Solutions and Recommendations
From our clients’ perspective, trust is a major component of the settlement process. During our many discussions with immigrant newcomers, both in private and in group settings, immigrants note that they feel a certain amount of distrust coming from locals. This is also applicable to the financial industry. The expectation may make sense to locals, but to an immigrant with assets overseas, it can be a difficult adjustment. It can feel like they’re starting from scratch, when financially and mentally, they are ready to succeed in New Brunswick.
The good news is that our community is becoming increasingly aware of the challenges facing newcomers. Take a look at some of these options.
Seek funding programs targeted towards newcomers or seek alternative funding.
- A) Our Program Partner, ScotiaBank has created a newcomers welcomepacket – the StartRight Program – with targeted information that addresses the key areas of concern for incoming families, investors, and entrepreneurs. Many banks have followed suit and the Fredericton Business Services Centre is working hard to make our client’s voices heard.
- B) There are several excellent organizations in the region that are working with new Canadian investors to make their business goals a reality. One such organization is the Business Development Bank of Canada (BDC) . “The bank caters to new Canadians by allowing them to bypass the credit history roadblock while applying for loans. With a maximum of $50,000 available as a loan, BDC is doing everything it can to help budding entrepreneurs. The bank does demand its clients to undergo a certain amount of training to improve their business acumen and learn about the Canadian business landscape.” Follow the Story HERE.
- C) Here at the Fredericton Immigrant Business Centre, our Business Immigrant Mentorship Program (BIMP) meshes perfectly with this approach, as we do run two cohorts per year and all participants receive a certificate of completion. Make sure to attend networking events and meet people with similar goals. You might just meet your next product supplier, liaison, business partner, or mentor.
Meet with advisors and discuss options.
Ask Questions. For immigrants who have already established a relationship with an international bank, it is important to meet with a representative to discuss some of the options that might not be well advertised.
Credit Transfer May be Possible. There a limited number of banks providing this service; however, we do recommend immigrants look into whether or not they are eligible for a credit transfer. This greatly simplifies the waiting period between landing and building credit in Canada. See current efforts at HSBC.
“By transferring your HSBC credit history, it’s even easier to continue your banking relationship with us. Subject to qualifications, status and local country laws and regulations.”
Start Building Credit ASAP.
Research the best ways on how to build your score as fast as possible. Here is one article to get you started: Canada.ca – Improving your score.
Learn what impacts your credit score.
Take the time to learn how to build credit over time. Even after the initial settlement period, building credit history will enable immigrants to do more. The process is important for all Canadians and can be a challenge for locals as well as newcomers.
“Why does it matter? More landlords are doing credit checks to ensure potential tenants can pay their rent, and some employers want a credit report before hiring a new employee. Lenders are sure to check your credit rating before giving you a mortgage.” See the rest of this Globe and Mail Article.
For the Locals.
As Canadian business professionals who want to welcome future members of our business community, we have to continuously be aware of the challenges facing immigrant entrepreneurs. We should always ask ourselves, “How can I make this process easier or more efficient?” and “How can we promote relationships built on trust?” Every discussion we have with our clients eventually goes back to building trust and feeling a sense of belonging in the community.
Trust is number one for our clients, is it number one for you? Have you ever experienced something like this? Please send us any stories or experiences that we can pass on to future newcomers and business owners alike.
Monique Hong and Levi Lawrence
Office Administration and Succession Specialist at the Fredericton Immigrant Business Centre.