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SME Financing in Canada, 2002 — Part II: B - Demographic Factors
Language Groups
Introduction
Until now, little empirical evidence has been collected on the financing needs and conditions facing language groups in Canada. Most of the statistics highlighted in this section were extracted from the study conducted for Industry Canada by the Université du Quebec à Trois Rivières during the spring and summer of 2001.
Language Profiles of Entrepreneurs
The mother tongue of Canadian entrepreneurs are very similar to those of the overall population:
- 59 percent English for SME owners vs. 59 percent of the overall population;
- 27 percent French vs. 23 percent; and
- 14 percent non-official language vs. 16 percent.
The average age of SME owners, by mother tongue is:
- 46 years of age for entrepreneurs whose mother tongue is French;
- 48 years of age for entrepreneurs whose mother tongue is English; and
- 49 years of age for other language groups.
Non-official language minority business owners are more likely to be male than are any other group.
Educational Attainment: As shown in Table 26, entrepreneurs whose mother tongue was French tended to have less formal education than other SME owners: 24 percent had a university degree vs. 33 percent for entrepreneurs whose mother tongue was English and 37 percent for other languages.
| Highest level of Education Attained | English-speaking | French-speaking | Non-official Language Mother Tongue |
|---|---|---|---|
| Elementary | 6.3% | 9.9% | 6.1% |
| High School | 38.0% | 43.7% | 30.6% |
| College | 23.2% | 22.2% | 25.9% |
| University | 32.4% | 24.2% | 37.4% |
Source: The Research Institute for SMEs, Université du Québec à Trois-Rivières, Financing SMEs: Satisfaction, Access, Knowledge and Needs, 2001, commissioned by Industry Canada, 2002.
Stage of Business Development: With respect to their enterprises, French-speaking entrepreneurs tended to own older firms in more advanced stages of business development. As shown in Table 27 (see below), these entrepreneurs also had the lowest percentage of business start-ups compared to other language groups.
| English-Speaking | French-Speaking | Non-official Language Mother Tongue | |
|---|---|---|---|
| Start-up | 5% | 1% | 14% |
| Fast Growth | 13% | 12% | 13% |
| Slow Growth | 51% | 54% | 50% |
| Maturity | 22% | 21% | 19% |
| Winding Down | 9% | 12% | 5% |
| Total | 100% | 100% | 100% |
| Average Growth Expected Over Next Two Years | 37% | 25% | 49% |
Source: The Research Institute for SMEs, Université du Québec à Trois-Rivières, Financing SMEs: Satisfaction, Access, Knowledge and Needs, 2001, commissioned by Industry Canada, 2002.
Growth Expectations by Language Group: SMEs were asked what growth their businesses would have to achieve over the next two years to meet their goals. They reported that their business would have to see:
- 49 percent growth (for entrepreneurs with a non-official language mother tongue);
- 37 percent growth (for English-speaking entrepreneurs); and,
- 25 percent growth (for French-speaking entrepreneurs).
Export Activity: Non-official language groups were also more likely to be exporters:
- 26 percent of non-official language owners exported;
- 21 percent of English-speaking owners exported; and
- 13 percent of French-speaking entrepreneurs exported.
Financing Highlights of SMEs by Language Group
There do appear to be some substantial differences in the suppliers used and in approval rates among language groups. As illustrated in Figure 38, 48 percent of French-speaking SME owners reported their main financial institution for their daily operations to be a credit union or caisse populaire. In contrast, 80 percent of English-speaking business owners dealt with chartered banks for their daily financing needs, as did 90% of non-official language entrepreneurs (see Table 6).
Figure 38 – Main Financial Institution Reported by Entrepreneur for Business' Daily Operations, by Linguistic Profile of Entrepreneur in 2000
These patterns may reflect the structure of the financial services industry across the country more than any actual preference for the institutions among the business owners from these language groups.
Approval Rates for Debt Financing: This study found that, with an overall approval rate of 82 percent of all SMEs, firms owned by non-official language minority entrepreneurs faced the lowest approval rates for financing:
For applications for lines of credit, the acceptance rates were:
- non-official language SME owners – 69 percent;
- French-speaking SME owners – 91 percent; and
- English-speaking SME owners – 81 percent.
For applications for medium- and long-term loans, acceptance rates were:
- non-official language minority SME owners – 75 percent;
- French-speaking SME owners – 94 percent; and
- English-speaking SME owners – 83 percent.
Further data gathering and analysis will be needed to reveal whether these variations reflect statistical anomalies or are more strongly correlated to the sectoral, age and regional profiles of their enterprises. Non-official language minority-owned SMEs are comparably younger and have a higher percentage of start-up ventures than other firms.
Debt Financing Instruments: Very little variation was found in application rates for various financial instruments between language groups, with the exception of leasing. As shown in Figure 39 (see below), French-speaking entrepreneurs were slightly less likely than other language groups to request leasing.
Risk Capital: A key characteristic of risk capital is that investors expect to share the ownership of the firm in return for their investment. Entrepreneurs who seek risk capital financing must be willing to share the ownership of their business in order to attract this type of financing. It is interesting to note that while Quebec has arguably the most highly developed system for investing risk capital in small business of any region in Canada, French-speaking owners are more resistant to diluting ownership of their SMEs, as the following findings indicate:Footnote 72
- one half of French-speaking SME owners reported that they would not sell part ownership in their SME to finance its growth or expansion;
- 39 percent of English-speaking owners reported that they would not sell part ownership in their SME to finance its growth or expansion; and
- 35 percent of non-official language mother-tongue entrepreneurs owners reported that they would not sell part ownership in their SME to finance its growth or expansion.
Figure 39 – Proportion of Firms Making an Application for Financing, by Instruments and Linguistic Profile of Entrepreneur between 1998-2000
Requests for Risk Capital: Compared to other language groups, French-speaking entrepreneurs made slightly fewer requests for "internal equity financing:"Footnote 73
- 2 percent of French-speaking SME owners requested internal equity financing, compared to
- 5 percent of English-speaking SME owners; and
- 4 percent of non-official language minority SME owners.
Similarly, for external forms of equity financingFootnote 74 such as venture capital, French-speaking SME owners made fewer requests. The statistics are:
- 1 percent of French-speaking SME owners;
- 4 percent of English-speaking SME owners; and,
- 4 percent of non-official language minority SME owners.
| Greater Than 50% Owned by Women | 50% Owned by Women | Less Than 50% Owned by Women | 0% Owned by Women | |
|---|---|---|---|---|
| Overall | ||||
| 14.9% | 19.0% | 11.5% | 54.7% | |
| Size of SME | ||||
| 0 Employees | 15.1% | 20.0% | 8.1% | 56.9% |
| 1 to 4 Employees | 16.2% | 18.5% | 12.5% | 52.8% |
| 5 to 19 Employees | 12.5% | 18.7% | 16.4% | 52.3% |
| 20 to 99 Employees | 9.5% | 13.3% | 23.0% | 54.3% |
| 100 to 499 Employees | 4.3% | 4.9% | 32.1% | 58.7% |
| Regions | ||||
| Atlantic Provinces | 15.5% | 12.8% | 12.5% | 59.3% |
| Quebec | 15.4% | 10.1% | 11.7% | 62.8% |
| Ontario | 16.7% | 17.7% | 9.3% | 56.3% |
| Manitoba/Saskatchewan/ Nunavut | 10.9% | 29.8% | 16.7% | 42.7% |
| Alberta / Northwest Territories | 11.0% | 29.1% | 14.7% | 45.3% |
| British Columbia/Yukon | 15.2% | 22.8% | 9.9% | 52.1% |
| Industry | ||||
| Agriculture | 4.7% | 32.3% | 17.4% | 45.5% |
| Primary | 4.4% | 19.3% | 15.1% | 61.2% |
| Manufacturing | 13.2% | 18.2% | 11.4% | 57.1% |
| Wholesale/Retail | 19.0% | 19.5% | 13.3% | 48.2% |
| Professional Services | 23.4% | 15.4% | 9.5% | 51.7% |
| KBI Sector | 11.5% | 19.8% | 12.6% | 56.1% |
| Other Sectors | 15.2% | 16.1% | 9.5% | 59.2% |
| Areas | ||||
| Urban | 16.1% | 16.6% | 11.5% | 55.8% |
| Rural | 11.6% | 25.4% | 11.4% | 51.6% |
| Debt Financing | ||||
| Rate of Request | 16.9% | 28.4% | 23.0% | 21.8% |
| Rate of Approval | 82.1% | 87.0% | 80.0% | 78.5% |
| Lease Financing | ||||
| Rate of Request | 6.9% | 9.2% | 9.3% | 8.6% |
| Rate of Approval | 99.1% | 98.4% | 97.1% | 96.7% |
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
Note X – data is not statistically significant. back
72. The Research Institute for SMEs, Université du Québec à Trois-Rivières, Financing SMEs: Satisfaction, Access, Knowledge and Needs, 2001, commissioned by Industry Canada, 2002.
73. The definition of internal equity financing, according to the UQTR study, includes financing from friends and family as well as from employees.
74. UQTR defines external equity financing to include informal investors, venture capital and financing from Crown corporations.
