SME Financing Data Initiative
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SME Financing in Canada, 2003 — Part II: Financial Structure of Canadian SMEs
Part II examines the financial and ownership structures of Canadian SMEs.18 The proportional use of different financial instruments within a firm's capital mix (financial structure) and the distribution of the firm's equity shares (ownership structure) reflect the SMEs' financing strategy for growth and expansion. An optimal financial structure satisfies the business' capital requirements and minimizes the cost of capital.19 Part II examines the relationship between specific firm characteristics and financial structure.
The first section reviews the financial structures of SMEs, and the extent and causes of regional variation.
The second and third sections examine SME financing based on various factors, including the following:
- stage of business development
- sector of operation
- size of business
The last sections examine the financial structure of the following:
- SMEs owned by women entrepreneurs
- SMEs owned by young entrepreneurs
- high-growth SMEs (GSMEs)
The type of financial structure adopted by SMEs in a given sector or size category leads to tentative conclusions about the existence and nature of potential gaps in the SME financing market. Financial market imperfections or gaps arise when categories of businesses are systematically unable to secure the financing that they should have access to, based on objective criteria. However, as seen in Part IV, not all types of financing are appropriate to all types of firms; the observation that some firms cannot obtain a particular form of financing is not necessarily evidence of a market failure (or gap).
Identifying gaps in the financing markets is essential to resolving the long-standing debate about whether SMEs have appropriate access to financing.20
- 1. National Overview and Regional Variations
- 2. Stage of Business Development
- 3. Industry Sector
- 4. Business Size
- 5. Women Entrepreneurs
- 6. Young Entrepreneurs
- 7. High-Growth SMEs (GSMEs)
- 8. Financial Structure of Canadian SMEs: Statistical Tables
18. The information on the financial structure of SMEs used in the following discussion originate from the recent Statistics Canada Survey on Financing of Small and Medium-sized Enterprises 2000, which included a supplementary section on SMEs' financial structure and financial instrument usage.
19. Guy Gellatly, Allan Riding and Stewart Thornhill (2003) Growth History, Knowledge Intensity and Capital Structure in Small Firms. Economic Analysis Research Paper Series, Statistics Canada.
20. More information on the analytical framework used to uncover factors that affect Canadian SMEs' access to financing is available on the SME Financing Data Initiative Web site (strategis.ic.gc.ca/fdi). Refer to Equinox Management Consultants, (2002) Gaps in SME Financing: An Analytical Framework, a report prepared for Industry Canada.
