SME Financing Data Initiative

Introduction

This document describes work to date on the federal government's initiative aimed at developing an information framework to report on the state of financing Canadian small- and medium-sized enterprises (SMEs). This paper outlines the SME Financing Data Initiative's mandate, research agenda, reporting mechanisms, goals and strategies.

Importance of Small Business

SMEs are engines of the Canadian economy. Over the past decade, they have created more than 85 percent of net new jobs. In 1999, 1.8 million firms employed fewer than 500 people – a common definition used to identify an SME. These firms accounted for 99.9 percent of all businesses in Canada. Also, the 2.5 million self-employed that comprise 18 percent of the workforce represent a larger share of employment than the entire manufacturing sector.

The health and development of the small- and medium-sized business community are of great concern for public policy makers, and for the providers of financial services to SMEs. Yet it has been widely acknowledged that neither public policy makers nor the firms supplying SMEs are well served by the quality or quantity of the information available about the financing of this community. If decision makers in the public and private sectors do not have consistent, comprehensive and unbiased data, they lack a key ingredient for effective action.

The Mackay Report

In 1996, the federal government commissioned the Task Force on the Future of the Canadian Financial Services Sector (the MacKay Task Force) to examine public policies affecting this sector. The Task Force concluded, among other things, that there was a lack of reliable and consistent data on SME financing, and that this deficiency was a major impediment to effective public policy making in Canada. To address this problem, in 1998, the Task Force recommended that the government undertake a concerted effort to improve the quality and quantity of information about SME financing.

Mandate and Roles

In response to the MacKay Task Force recommendations in the area of SME financing, in 1999 the partners of this initiative committed to:

...undertake a comprehensive program of information collection and analysis to ensure that there is adequate information relating to the financing needs of SMEs for effective public policy development.
Statistics Canada will be given the mandate to collect and publish data on the supply of debt and equity financing to SMEs... To expand the government's analytical capabilities, Industry Canada will be given the mandate to establish a dedicated SME Finance Group that would be responsible for analyzing the Statistics Canada data, conducting other surveys and undertaking continuing research on SME financing issues. Industry Canada will also report annually to the House Standing Committee on Industry regarding the state of SME financing in Canada.¹

Since that announcement, the three federal organizations have been working to implement a new and permanent regime for collecting, analyzing and, most important, reporting data on SME financing.

Statistics Canada and Industry Canada will have the primary lead on the implementation of the project while sharing the management of the project with the Department of Finance. The role of Statistics Canada will be to conduct annual baseline surveys, and to publish comprehensive information concerning the state of SME financing. Separate surveys of both financial providers and SMEs will be undertaken to measure all sources of financing used by SMEs and their experience in obtaining it. Industry Canada will analyze the findings of the various surveys and studies undertaken by Statistics Canada and others, and conduct additional specialized studies. Industry Canada will publish reports on its findings, and undertake regular reporting of findings to the Industry Committee and to other stakeholders.

Initiative Goals

This initiative is designed to benefit both the public and private sectors. It will provide, for the first time in Canada, a comprehensive set of information about the supply of, and demand for, financing for SMEs, covering the entire gamut of financing products and services, including debt and equity, and newly emerging types of financing such as leasing.

This initiative should help all stakeholders to better comprehend the challenges and opportunities surrounding the provision of capital to the Canadian SME community. The research results will improve the understanding of the needs of SMEs who are seeking financing. The data will form the basis for a more informed public debate, and will also give financing providers information they need to gain a more comprehensive understanding of their clientele, thus better enable them to design products that better meet market needs.

Additionally, the SME community should benefit from a better awareness of financing providers, options and instruments and from an improved supply of financing products to meet their needs. For policy analysts, this information will facilitate the assessment of whether SME needs are being addressed by the market, and also to gauge the effectiveness of government policies and programs.

Our goal is to have data shed light on other important SME financing matters of interest to particular stakeholders, for example, access issues related to gender, aboriginal status, region, urban vs. rural areas and firms in knowledge-based industries (KBIs). This ongoing initiative will also help identify newly emerging trends that can affect SME access to financing, whether they are on the demand or supply side.

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¹ Reforming Canada's Financial Sector: A Framework for the Future, June, 1999