SME Financing in Canada, 2002 — Part I: Risk Capital

Where SMEs go for Risk Capital Financing?

As shown in Figure 16, various sources are available as potential providers of risk capital to SMEs. In 2000, 2.4 percent of SMEs made a request for risk capital.¹⁷ The Statistics Canada survey asked whether SMEs applied for "risk capital or a grant" and this explains the high number of requests in this section to government and crown corporation. SMEs that sought risk capital also reported approaching banks and credit unions. This result is somewhat anomalous, given that these institutions typically do not make risk capital investments. This may be a result of survey methodology. For example, as the survey question grouped venture capital with government grants, these forms of financing are often treated similarly for accounting purposes. Future surveys will include separate questions about venture capital and government grants and will also attempt to discern whether SMEs that report securing risk capital at banks and credit unions were actually securing funds, or advice about how to raise funds. Informal providers of risk capital, such as friends, family and informal investors, ranked high for those SMEs seeking risk capital in 2000. However, to put this in context it is important to recall that only 2 percent of the total SME population sought equity financing in 2001.

Figure 16 – Risk Capital Sources Approached by SMEs in 2000

NB: Of the 2.4 percent of SMEs which requested risk capital in 2000, this figure shows where they made their requests. As multiple answers were possible, the results do not add to 100.

17. Statistics Canada, Survey on Financing of Small and Medium-sized Enterprises, 2000.