SME Financing in Canada, 2002 — Part III: SME Financing Data Initiative: History and Outlook

Design and Implementationof the SME Financing Data Initiative

In developing the research agenda for the SME Financing Data Initiative, the government partners drew upon the experience of the CBA and the CFIB. The SME FDI, however, will expand the depth and breadth of data collection to include all significant suppliers of financing to small business in Canada, in both the debt and equity markets.

The initial design of the SME Financing Data Initiative envisaged two surveys one of suppliers of financing to SMEs and the other on SMEs' demand for financing which together set out to uncover the broad issues surrounding debt and equity financing in Canada. The more intricate details of SME financing were to have been explored using the results of specialized studies, (four of which have been completed to date and have been discussed in Parts I and II of this report.) While this general structure of data collection and research emerged from nationwide consultations with key stakeholders in the field of SME financing, it was significantly more sharply focussed as a result of these consultations.

Consultations

In general this initiative is meant to alter permanently the approach of gathering and reporting on the availability of, and demand for, all kinds of financing for SMEs. As there were no models, either domestic or foreign to follow, the partners undertook a comprehensive set of consultations on the approach, methodologies and survey instruments with a diverse range of stakeholders As noted in the May 2000 report to the House of Commons Standing Committee on Industry ⁷⁵, developing this initiative involved extensive consultation with various groups having a vested interest in the state of SME access to financing in Canada, including organizations representing SMEs, providers of SME financing, and government organizations. At the outset, the approach involved two rounds of consultations during the spring and summer of 2000.

More than 75 firms, organizations and individuals participated in meetings held in Montreal, Quebec City, Toronto, Vancouver and Ottawa. The partners also held more detailed discussions with key stakeholders on specific details of questionnaire content. As their views and participation are crucial to the success of this endeavour, stakeholders will continue to be involved in the development of survey design and research plans.

First round of consultations

The goal of this round of consulations was to obtain general support for the need for the Initiative and stakeholders views about the proposed approach. During these consultations, which concluded in April 2000, the participants generally agreed that there was a need for improved information on SME financing in Canada. Encouraged by the government's commitment to fill this long-standing information gap on such a key segment of business, stakeholders welcomed the opportunity to participate in the initiative. The concerns that arose tended to focus on the:

• length of questionnaires;
• complexity of the requested data elements;
• need for greater clarity in terminology and definitions;
• need to minimize the response burden for survey respondents.

To satisfy stakeholder concerns, the approach and tools for data collection were re-evaluated. Survey questionnaires were shortened and simplified. The partners, in consultation with key stakeholder groups, began the process of developing standard definitions for complex data elements.

To address the compliance burden concerns, the proposed methodology for data collection was refined. This was done by condensing the data requested from suppliers of financing, and expanding the amount and scope of data to be collected through the SME survey. Since many financial providers do not systematically record client-based information and since concerns arose about the confidentiality of information, elements that were transferred from the supplier survey to the SME survey included many of the qualitative data relating to business and business owner characteristics. Financial service providers questioned their ability to provide the data required for the initiative – at least in the short term. To address this concern, it was agreed to extend the implementation agenda over five years to give respondents the time required to adapt their systems.

Second round of consultations

The goal of the second round of consultations, conducted in June and July 2000, was to seek agreement for, and commitment to, the five-year implementation plan to improve the collection and analysis of information. The second round also focussed on the technical aspects of the proposed data elements in the supplier survey, the selection of specific data elements to be collected and their appropriateness, and the suppliers' ability to provide the data within the time frame requested.

The stakeholder response to the technical aspects of the data collection program was generally favourable and constructive. Stakeholders acknowledged that many of the requested data elements were in fact already collected – and in some cases even reported – for many industry groups. Stakeholders were often concerned about elements for which they had no data – elements such as employee size and postal code listings of clients, standard terminology of knowledge-based industries (KBIs), and the measurement of financial flows.

Recognizing these limitations, the partners incorporated the suggestions received during consultations into the data collection program. For the initial baseline survey of suppliers of financing, «number of employees» was replaced by «approval size» as a measure of business size. As a proxy for measuring financial flows, the partners plan to conduct quarterly surveys of suppliers and to collect data on outstanding amounts, or stocks, at a single point in time. Geographic detail has also been pared back to the provincial/territorial level. The reduction in detail during the initial rounds of surveys will allow financial providers to modify their data systems so that Statistics Canada can collect the required information from respondents in later surveys.

Data collection program

As a result of the consultative planning process, the partners launched a revised two-pronged data collection process, consisting of baseline surveys and specialized studies. Statistics Canada has the main responsibility for implementing regular baseline surveys of SMEs (demand-side surveys), as well as of providers of financing to SMEs (supply-side surveys). These surveys aim to measure the total value of new and outstanding financing by supplier, instrument, region, industry and size of SME, as well as to shed light on the financing practices and patterns of SMEs across Canada.

While the surveys will be comprehensive, they may not provide sufficient detail to allow and in-depth understanding of certain niche areas of the SME financing market, for example, informal investors, KBI, and Aboriginal businesses. This is why the baseline surveys are being complemented by specialized studies conducted by Industry Canada and/or Statistics Canada. Among the studies under way within Industry Canada is a biannual survey of the attitudes, perceptions and expectations of small-business owners toward SME financing in Canada. The SME Attitude Survey is similar in design and approach to the Thompson-Lightstone study, commissioned in 1996, 1997 and 1998 by the CBA.

Reporting of baseline survey findings

The first demand-side survey, in 2001, was conducted by telephone with a follow-up fax to collect additional information. This work will provide information from businesses about the debt and equity financing they request and obtain. The triennial survey has two broad objectives: first, to learn the nature and outcomes of businesses' applications for financing; and second, to determine the relative importance of the different instruments and sources of financing that businesses use. In addition to an industry breakdown, other important criteria for data analysis and reporting will be size of business (defined by number of employees), geographic region, and age of business. Business-owner characteristics have also been gathered to assess whether they have an impact on SMEs' ability to access financing.

The first survey of suppliers of financing was, conducted in 2001, surveyed domestic banks, credit unions, caisses populaires, factoring companies, some federal Crown corporations, mutual funds, venture capital funds, insurance companies, vehicle and equipment leasing companies. This survey, which will become quarterly over the next two years, reports on aggregate amounts outstanding and losses by type of supplier, approval size, instrument, region, and industry.

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75. Industry Canada, Statistics Canada, SME Financing Data Initiative, Report to the House of Commons Standing Committee on Industry, May, 2000.