The Real Capital Gap Isn’t in Ottawa or Bay Street. It’s in Lending Workflows.

By Joshua Reynolds, CEO & Co-founder of Approval Pathway

Canada’s Big Six banks just closed another profitable quarter. Not because they are lending more, but because capital markets, wealth management, and U.S. operations continue to deliver returns. Meanwhile, these banks are still sitting on unusually high capital buffers. Their average CET1 ratio is 13.6 percent, well above regulatory requirements. With cushions that size, they have no urgent need to grow their loan books and no reason to narrow margins to compete for small or mid-sized borrowers.

This is the part of the story that rarely gets told. It is not only borrowers who feel the credit squeeze. Lenders that want to serve them, especially credit unions and community-based financial institutions, are feeling it too. They have the capital, the mandate, and the appetite to lend. What they lack is the infrastructure to move commercial deals through the system with speed and consistency.

Small and mid-sized businesses are the backbone of our economy. They drive employment, innovation, and local growth. Credit unions and community lenders are uniquely positioned to understand these businesses and support them, but too often they are operating with commercial lending workflows that simply have not kept pace with the volume or complexity of today’s deals.

Commercial loans represent a significant share of credit union portfolios, yet growth in this area has slowed. That slowdown is not due to a lack of capital or interest from lenders. It is the operational drag created by manual intake, inconsistent document collection, Excel-driven spreading, and adjudication processes that require extensive rework.

The capital is there. The demand is there. The system to connect them is not. Credit unions are holding historically strong balance sheets. The limitation is not risk appetite. It is workflow—the sheer manual effort it takes to get a complex commercial file across the finish line.

The Logic article notes that banks are not “hungry enough” to pursue mid-market opportunities. Credit unions are. They know their communities. They prioritize relationships. And they can often adjudicate deals that do not fit a traditional bank template. What they lack is the infrastructure to handle commercial lending at scale and with confidence.

Entrepreneurs are ready to invest again BDC’s July 2025 Financing Outlook shows a shift that should matter to every credit union leader.

• More SMEs requested financing this year, up 5 percentage points.
• More were approved. Approval rates reached 83 percent.
• Confidence is increasing, with strong investment intentions for equipment, technology, and expansion projects.

This is what a rebound looks like. While banks are retrenching, entrepreneurs are preparing for growth. The institutions that step forward now will shape the next decade of small business lending in Canada. The bottleneck is not credit quality. It is workflow quality. A credit union cannot deploy its capital if files arrive incomplete, underwriting takes weeks, and teams spend more time gathering documents than analyzing risk. These delays are not neutral. They cause deals to stall, borrowers to walk away, and pipelines to clog with low-quality submissions. When lending workflows break down, capital sits idle. Local economies feel it. So do members.

Approval Pathway was built to remove that bottleneck. We transform complex commercial applications into complete, consistent, lender-ready packages. We reduce back-and-forth, strengthen compliance, and increase decision speed without forcing credit unions to overhaul their systems. The result is simple. Lenders deploy capital with more confidence. Borrowers get clearer answers. And communities benefit from faster access to financing. The real opportunity for credit unions Credit unions have the desire and the balance sheets to support small and mid-sized businesses at a moment when the big banks are looking elsewhere. What they need are tools that let them operate with the same efficiency as institutions ten times their size. This is not about competing with capital markets. It is about ensuring that Canadian businesses can access the financing that drives growth, employment, and resilience at the community level. Takeaways

• The Big Six are prioritizing capital markets, not SME lending.
• Credit unions hold strong capital positions but face workflow friction that limits their potential.
• SME confidence and financing requests are rising, creating a clear growth opportunity.
• Modernizing commercial intake and underwriting is the fastest way to unlock capital flow.

A final thought and a call to action Canada does not have a capital shortage. It has a workflow shortage. The lenders prepared to fix that gap will become the primary engines of small business growth over the next decade. If your credit union is ready to turn commercial complexity into lending momentum, we would be happy to show you how Approval Pathway can help. Let’s build the infrastructure that Canadian businesses deserve.