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A Crown corporation has introduced a new financing program that will provide up to $5 million to smaller struggling auto-parts makers so they can stay alive after months of pressing Ottawa for aid.

The Business Development Bank of Canada announced a temporary "purchase order financing initiative" yesterday. It will enable idle parts companies to get better access to credit and short-term working capital to pay for materials, labour and other operating costs until customers can pay them and the sector recovers.

"We think there is a sufficient part of the industry where this financing vehicle would be of interest," said Peter Lawler, senior vice-president of operations for the bank’s Ontario region.

"It will help ramp up production of purchase orders by providing a bridge until payments are received."

The bank, a Crown corporation that is under the umbrella of Industry Canada, said it normally provides financing to firms that lack capital to meet big orders or seasonal work.

But the latest move under its Business Credit Availability Program will allow parts makers to restart production after the recent slowdown.

The program will offer financing for smaller manufacturers that have legitimate purchase orders from bigger suppliers and auto manufacturers.

Bank officials said loans would range from $250,000 to $5 million to cover up to 80 per cent of material costs and 100 per cent of labour expenses auto loans for people with bad credit.

Lawler said the BDBC program will continue for a year but the bank can extend it if necessary. The auto sector has shown signs of recovery in recent weeks and that should take hold late this year or in the first half of 2010, according to industry watchers.

The Automotive Parts Manufacturers’ Association had requested emergency aid for suppliers since last year as sales collapsed south of the border and also fell in Canada.

"The dizzying freefall in production of 50 to 70 per cent quickly led to a cash-flow crisis for automotive suppliers," association president Gerry Fedchun said. "As production increases to meet demand, this initiative is exactly what is required to allow Canadian automotive suppliers to access financial resources and put Canadians back to work."

Many auto-parts companies have closed operations in southern Ontario since the beginning of 2008, including Progressive Moulded Products, SKD Automotive Group, Fabco and Oxford Automotive.

In March, Fedchun said about 40 auto-parts makers could collapse in Canada during the next few months because they were starving for cash. They needed immediate aid from the federal government or faced closing, he added.

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