SME Financing Data Initiative

Overview

Context

The purpose of this paper is to inform the House of Commons Standing Committee on Industry of the progress to date in defining and implementing the SME Financing Data Initiative.The results laid out in this report are very preliminary, reflecting our initial thinking and the results of a first round of consultations with stakeholders. These consultations focussed primarily on the broad principles which Industry Canada, together with its initiative partners Statistics Canada and the Department of Finance, propose to use to govern this ongoing initiative. Substantial progress has been made and the details of the plan are evolving rapidly. Our objective in presenting this update is to sketch the outlines of how we expect the initiative may look, once all consultations have been completed. None of the plans outlined here should be considered as firm commitments. Rather, they are indications of general directions.

Background

In 1996, the federal government commissioned the Task Force on the Future of the Canadian Financial Services Sector (MacKay Task Force) to examine public policies affecting this sector. In 1998, the Task Force concluded, among other things, that there were inadequate data for it to make any recommendations regarding SME access to financing, and further stated that this inadequacy was a considerable handicap to effective public policy making in Canada. These recommendations are a natural progression from the Standing Senate Committee on Banking, Trade, and Commerce's Special Study on Equity Financing of SMEs, as well as to similar conclusions drawn in Taking Care of Small Business and A Progress Report on Performance Benchmarks for Small Business Financing by Banks, published respectively in 1994 and 1995 by the House of Commons Standing Committee on Industry.

The MacKay Task Force recommended that the government undertake a concerted effort to improve the quality and the quantity of information about SME financing. The government responded in 1999 by giving Industry Canada, Statistics Canada, and the Department of Finance a mandate to work closely together to undertake a comprehensive program of information collection and analysis. The goal of this program is to report on the state of financing for Canadian SMEs.

The mandated partners are responding to the government's request by establishing the SME Financing Data Initiative. The initiative consists, broadly, of a proposed two-pronged research agenda. First, there will be regular surveys of SMEs who are users of financing (demand-side surveys) and providers of financing to SMEs (supply-side surveys). These demand and supply-side surveys are referred to as baseline surveys, for which Statistics Canada has the main implementation responsibility. While the baseline demand- and supply-side surveys will be comprehensive in scope, they may not provide sufficient depth of understanding in certain areas, for example, the attitudes and perceptions of SME owners toward financing providers. Therefore the baseline surveys will be complemented by specialized studies and surveys conducted by Industry Canada and/or Statistics Canada, to provide more targeted information on these issues. A dedicated SME Financing group at Industry Canada is tasked with conducting the specialized surveys and studies, and will be analyzing the data of all the initiative's surveys and studies.

Preliminary Research Approach And Agenda

The partners of this initiative have drawn upon the experience of the Canadian Bankers Association (CBA) and of the Canadian Federation of Independent Business (CFIB) in the area of SME financing data reporting. While the proposed demand- and supply-side survey approach builds on the CBA's experience, the initiative will increase the breadth and depth of information the CBA covers to include information about most suppliers of financing, including both debt and equity suppliers, as well as most financing instruments.

The development of this approach also took account of a review of similar data collection activities related to SME financing in the US and the UK. Although the US and the UK have recognized the need to monitor SME financing on a regular basis, neither country has a single undertaking of data collection, analysis and reporting that considers both the demand for, and the supply of, financing for SMEs – such a complex undertaking is this initiative's aim.

The research agenda was developed to allow the greatest flexibility to enable the partners of the initiative to react to stakeholders' concerns, feedback from Members of the Standing Committee on Industry, as well as economic developments that may impact the implementation of the initiative.

Expected Benefits

The benefits of this initiative should be numerous for both the public and private sectors. For the first time in Canada, a comprehensive portrait of the demand for, and the supply of, financing for SMEs will be available. Financing products and services, including debt, equity, and newly emerging types of financing such as leasing, will be covered. This will help all stakeholders to better understand the challenges surrounding the provision of capital to the Canadian SME community.

Furthermore, the results will improve understanding of the needs of SMEs who are seeking financing. For financing providers, this will facilitate the design of products and a focus on business strategies to meet market needs. For the Canadian SME community, this should mean an increased awareness of financing providers, options, and instruments, as well as an improved supply of financing products to meet their needs. Finally, this initiative will better enable public policy analysts to assess whether SME needs in terms of financing are being met, and how best to respond if not.

Consultations

The partners are at the mid-point of the development phase, having concluded a first round of national consultations with stakeholders in April 2000. This first round of consultations provided the forum for seeking general support and consensus for the overall approach to the research agenda. The first round of consultations shed light on issues of concern to stakeholders: the major challenge for the initiative being the response burden, resulting from the requested information of the baseline surveys.This was a particular concern of the providers of financing to SMEs. The partners are exploring various avenues to deal with stakeholders' concerns and adapt the research agenda accordingly, and will address these concerns through a second round of national consultations.

The upcoming second round of consultations, in June 2000, will give the partners the opportunity to present stakeholders with an adapted research plan, subsequent to the first round of consultations. It will provide proposed technical details of the data collection approach. This second round will also be the forum for stakeholders to respond to the details of the proposed plan, and to provide the partners of the initiative with ideas as to how this initiative can be more efficiently and effectively implemented.

Time-Lines

With respect to the time-frame for research results, the partners are about to undertake a pilot demand-side survey. We expect the results of this pilot to be released in the Fall of 2000, and will be reporting these results to the House Standing Committee if it is the Members' wish. Regular reporting will continue to inform Members of data developments as they are available. The first set of integrated results, including both the demand and supply-side surveys, are expected to be ready in the fall of 2001.

Reporting Results

The initiative partners are seeking feedback in presenting this report to the Standing Committee on Industry. The preliminary research issues include many important, complex topics. The partners' hope is that Committee Members will provide guidance on whether or not additional topics should be considered, as well as prioritizing issues at hand.