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SME Financing in Canada, 2002 — Part I: Financing

Lease Financing in Canada

Overall, 9 percent of SMEs made a request for lease financing in 2000. Nearly all of these requests – 98 percent – were approved. Table 9 (see below), shows types of leases requested, and Table 10 (see below) includes a breakdown of request and approval rates for SMEs of different sizes, industries and regions. As shown in Figure 15, manufacturers' dealers and suppliers, combined with leasing companies, provided the bulk of lease financing – almost 85 percent – to SMEs in 2000.The Bank Act restricts the leasing activity of chartered banks so they are not able to make leases for passenger vehicles and light trucks which, according to Table 9, is the single largest segment of the market. This probably accounts for their relatively small contribution to the supply of lease financing, as compared to their contribution to the debt market.

Figure 15 – Requests for Leasing by Type of Supplier in 2000

As outlined in Table 10 (see below), although there was little variation in approval rates by the various business characteristics examined, there was some variation in request rates. There was some variation in the use of leases by the size of firm. Larger businesses tended to use leases more. Also, large businesses were more likely to apply for leases at chartered banks, while businesses with fewer employees were more likely to apply for leases from manufacturers' dealers or suppliers. SMEs in the manufacturing sector were common users of leases, but also had a slightly lower approval rate. Also, manufacturing SMEs were more likely to seek lease financing from chartered banks.

Other leasing highlights for 2000:

• Automobiles and light-duty vehicles: As shown in Table 9 (see below), the majority of leasing requests were for the purpose of acquiring these assets.
  
  
• Exporters: were twice as likely to apply for lease financing than SMEs that did not export (see Table 10). As will be seen in Table 15, larger firms tend to export more than smaller firms; Table 10 (see below) also shows that larger firms are most likely to request lease financing, so the finding that exporting firms are more likely to request lease financing for assets than non-exporting firms is consistent with other findings.
  
  
• Rural SMEs: tended to approach credit unions / caisses populaires and manufacturers' dealers, or suppliers for lease financing, while urban SMEs approached leasing companies. This is consistent with the pattern of financing we have already seen regarding debt financing.
  
  
• Manufacturers: tended to lease assets more than SMEs in other sectors. This is not surprising given the fact that machinery and equipment form the second largest single segment of the lease financing market (see Table 10) and these types of assets are typically seen as critical to this industry.
  
  
• Agricultural firms: while agricultural SMEs use of lease financing is consistent with the national average (as shown in Table below); firms in rural areas were the single largest requesters of lease financing for machinery and equipment, autos and light trucks which are the largest segments of the lease financing market. Further data gathering and study will be needed to clarify what factors might explain this apparent anomaly.

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

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

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