SME Financing in Canada, 2002 — Part I: Debt Financing

Conditions for Accessing Debt: Documentation and Application Process

The perception of SMEs regarding the application process and documentation requirements for obtaining financing is one factor that could inhibit them from requesting financing. For example, concerns about onerous requirements may lead an SME owner to use a personal line of credit rather than seek to establish a business line.

Table 3 provides a breakdown of the documents that SMEs reported providing when applying for financing. Overall, SMEs reported that 16 percent of the applications made did not require any documentation. As 64 percent of SMEs that applied for debt reported that they made a request where they already did business, it is likely that the financial institution already had access to the required information. Personal or business

Table 3 – Debt Application Information Requirements in 2000

Document	Percentage of Applicants Required to Provide
Business Financial Statement	48.6%
Formal Application	21.2%
Personal Financial Statement	20.5%
No Documents Required	16.3%
Business Plan	13.6%
Cash Flow Documentation	10.6%
Appraisal of Assets	9.3%
Other	5.0%
Franchise Agreement	1.5%

Source: Statistics Canada, Survey on Financing of Small and Medium-sized Enterprises, 2000

In close to one third of the requests that required documentation, the SMEs were given the opportunity to revise the documents following their initial submission.

Table 4 provides a breakdown of how SMEs reported the requests for financing were made. The vast majority of SMEs reported that when they requested debt financing in 2000, they did so via a personal discussion either at a branch or over the telephone. This indicates that one-on-one contact with an account manager is still the most important type of contact between an entrepreneur and a financial service provider.

Table 4 – Application Method used by SMEs who Requested Debt in 2000

Method	Percentage of Applicants Applying by Method
Personal Discussion	57.3%
Request at the Branch	23.6%
Applied by Phone	17.3%
Approached by Credit Supplier	4.4%
Other	3.8%
Mail or Courier	2.5%
Applied by Fax	1.3%
Applied by Internet	0.3%

Source: Statistics Canada, Survey on Financing of Small and Medium-sized Enterprises, 2000

* More than one method was used by some businesses, therefore these numbers do not add up to 100 percent. back

Credit Conditions: Reduction in credit limits

In 2000, only 1.3 percent of SMEs experienced a reduction in a credit limit authorized prior to 2000. No statistically significant variation was seen for firms of different sizes, regions or industries.

Table 5 – SME Request and Approval Rates for Debt in 2000

Overall	Request Rate	Approval Rate
	23.4.0%	81.7%
Size of SME
0 Employees	19.2%	81.7%
1 to 4 Employees	23.4%	79.1%
5 to 19 Employees	33.1%	84.5%
20 to 99 Employees	35.7%	87.2%
100 to 499 Employees	35.3%	93.7%
Regions
Quebec	20.4%	83.6%
Ontario	20.7%	81.1%
Alberta/ Northwest Territories	24.5%	82.4%
British Columbia/ Yukon	25.4%	76.7%
Atlantic Provinces	26.7%	78.1%
Manitoba/ Saskatchewan/ Nunavut	34.6%	87.1%
Industry
Agriculture	38.8%	92.8%
Manufacturing	27.2%	77.4%
Primary	26.7%	88.1%
All Other	21.7%	79.7%
Wholesale/Retail	23.4%	74.3%
KBI Sector	15.9%	69.7%
Professional Services	13.4%	85.4%
Financial Institution
Chartered Banks	66.1%	79.7%
Credit Unions/ Caisses Populaires	20.2%	87.9%
Crown Corporations/ Government Institutions	8.2%	75.9%
All Other Institutions	6.0%	-
Areas
Rural	30.8%	86.9%
Urban	20.6%	78.8%

Source: Statistics Canada, Survey on Financing of Small and Medium-sized Enterprises, 2000

Table 6 – Percentage of Total Requests for Debt by Type of Supplier in 2000
NB: 23 percent of SMEs made debt requests in 2000; this table shows where they made their requests.

	Chartered Banks	Credit Unions / Caisses Populaires	Crown Corporation / Government Institution	Other Credit Suppliers*
Overall
	65.5%	20.2%	8.2%	6.0%
Size of SME
0 Employees	61.2%	23.7%	8.2%	7.0%
1 to 4 Employees	67.2%	20.8%	7.6%	4.4%
5 to 19 Employees	68.7%	15.5%	8.5%	7.3%
20 to 99 Employees	71.4%	12.1%	10.5%	6.0%
100 to 499 Employees	80.0%	8.3%	4.2%	7.4%
Regions
Quebec	46.3%	38.7%	7.9%	7.1%
Ontario	82.1%	6.6%	5.6%	5.7%
Alberta/ Northwest Territories	60.9%	11.6%	n/a	n/a
British Columbia/ Yukon	74.0%	17.1%	n/a	n/a
Atlantic Provinces	73.6%	11.4%	9.3%	5.7%
Manitoba/ Saskatchewan/ Nunavut	44.9%	43.7%	7.0%	4.4%
Industry
Agriculture	45.6%	35.8%	13.6%	5.8%
Manufacturing	66.0%	19.4%	11.0%	3.6%
Primary	52.6%	28.4%	11.0%	8.1%
All Other	69.8%	17.0%	6.0%	7.1%
Wholesale/Retail	74.3%	12.4%	7.1%	6.2%
KBI Sector	75.6%	10.2%	9.4%	4.7%
Professional Services	81.2%	11.9%	3.0%	3.9%
Intended Use of Request*
Building or Land Acquisition	11.2%	9.3%	21.7%	2.9%*
Vehicle	6.4%	7.9%	2.9%	41.0%*
Machinery or Equipment	19.2%	32.2%	24.4%	29.8%
Inventory Financing	7.1%	6.2%	6.5%	8.4%
Working Capital	46.6%	37.9%	22.5%	12.7%
Research and Development	0.7%	0.6%	1.2%	0%
Instrument Requested
Demand or Short-term Loan	10.6%	15.2%	9.6%	12.8%
Term Loan	26.4%	41.2%	49.5%	n/a
Mortgage Loan	8.4%	11.2%	24.3%	0.3%
New Line of Credit	36.7%	22.1%	11.0%	4.6%
New Credit Card	5.6%	2.3%	2.6%	n/a
Areas
Rural	46.3%	33.7%	12.5%	7.6%
Urban	76.4%	12.6%	5.8%	5.3%

Source: Statistics Canada, Survey on Financing of Small and Medium-sized Enterprises, 2000
* Includes the manufacturers' dealers or suppliers and credit card companies
*Not all possible intended purposes of financing included in the survey are included in this table.
Manufacturers' dealer or supplier only
* Not all possible types of debt financing requested included in this survey are included in this table.

Table 7 – Percent of SMEs Requesting Specific Debt Instruments in 2000*

	Demand or Short-term Loan	New Term Loan	Mortgage Loan	New Line of Credit	New Credit Card	Increase in Line of Credit	Increase in Credit Card
Overall
	12.2%	32.2%	9.9%	29.8%	5.8%	13.5%	1.0%
Employment Size
0 Employees	14.1%	35.5%	11.2%	27.6%	7.0%	9.8%	1.5%
1 to 4 Employees	12.6%	29.8%	7.6%	34.0%	5.9%	13.7%	0.8%
5 to 19 Employees	8.5%	30.0%	11.4%	28.4%	4.2%	17.3%	0.7%
20 to 99 Employees	11.6%	32.1%	9.8%	24.3%	3.4%	22.8%	0.2%
100 to 499 Employees	7.4%	-	4.3%	16.5%	0.2%	19.6%	0.0%
Regions of Canada
Atlantic Provinces	7.7%	38.9%	9.5%	26.6%	4.3%	14.0%	0.6%
Quebec	7.1%	40.6%	8.5%	27.4%	6.1%	12.5%	0.0%
Ontario	13.1%	23.5%	10.7%	33.6%	6.4%	15.2%	1.7%
Manitoba/ Saskatchewan/ Nunavut	23.5%	35.3%	12.4%	21.3%	3.6%	13.0%	0.5%
Alberta/ Northwest Territories	12.6%	43.6%	5.4%	27.4%	6.3%	9.6%	2.1%
British Columbia/ Yukon	8.8%	23.1%	12.0%	36.5%	6.2%	15.5%	0.5%
Industrial Breakdown
Agriculture	21.8%	45.3%	9.7%	19.8%	3.6%	7.9%	0.8%
Primary	13.3%	50.5%	6.5%	18.6%	3.1%	6.9%	1.1%
Manufacturing	9.2%	33.7%	8.3%	29.2%	5.2%	15.6%	0.9%
Wholesale/ Retail	7.2%	24.2%	7.7%	37.4%	4.7%	19.3%	1.4%
Professional Services	8.9%	17.1%	7.9%	49.2%	5.7%	15.9%	1.7%
KBI Sector	10.7%	16.3%	3.0%	45.8%	10.8%	13.5%	2.7%
All Other	10.4%	30.8%	11.8%	28.8%	7.1%	14.0%	0.8%
Suppliers
Chartered Banks	10.6%	26.4%	8.4%	36.7%	5.6%	16.4%	1.3%
Credit Unions/ Caisses Populaires	15.2%	41.2%	11.2%	22.1%	2.3%	13.2%	0.1%
Crown Corporations/ Government Institutions	9.6%	49.5%	24.3%	11.0%	2.6%	1.2%	0.0%-
Areas
Rural	18.6%	45.2%	8.6%	19.1%	4.3%	10.7%	1.7%
Urban	8.6%	24.9%	10.6%	35.9%	6.6%	15.2%	0.6%

Source: Statistics Canada, Survey on Financing of Small and Medium-sized Enterprises, 2000
* Multiple instruments could be requested, therefore figures do not always equal 100 percent for each variable back

Table 8 – Percent of SMEs who were Authorized for Debt that used Personal and Business Assets as Collateral in 2000

	Personal Assets of Owner as Collateral	Business Assets as Collateral
Overall
	38.6%	41.2%
Size of SME
0 Employees	39.9%	38.9%
1 to 4 Employees	34.3%	36.9%
5 to 19 Employees	43.4%	45.2%
20 to 99 Employees	38.5%	66.4%
100 to 499 Employees	27.1%	73.9%
Regions
Quebec	28.1%	37.6%
Ontario	39.1%	39.8%
Alberta/ Northwest Territories	49.0%	45.7%
British Columbia/ Yukon	42.1%	35.6%
Atlantic Provinces	33.2%	38.5%
Manitoba/ Saskatchewan/ Nunavut	40.6%	52.8%
Industry
Agriculture	39.5%	56.2%
Manufacturing	31.5%	45.9%
Primary	39.3%	42.7%
Wholesale/ Retail	45.5%	37.0%
KBI Sector	44.6%	26.1%
Professional Services	38.7%	26.8%
All Other	36.1%	37.9%
Areas
Rural Area	35.5%	53.6%
Urban Area	40.3%	34.2%

Source: Statistics Canada, Survey on Financing of Small and Medium-sized Enterprises, 2000