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SME Financing in Canada, 2003 — Part III: Financial Services Sector — Providers of Business Financing

The financial services sector plays a critical role in a market economy, providing start-up capital for new businesses and growth capital for existing businesses. Part III reviews SME financing from the suppliers' perspective and examines the major providers of business financing.

While Parts I and II analyzed SMEs by employment size and revenues, supply surveys did not measure the amount of financing by either of these criteria (most financial suppliers did not supply this information). Accordingly, this section focusses on authorization size rather than making direct comparisons across SMEs. While SMEs can be associated with certain authorization size ranges, this is a measure of the amount of financing obtained, rather than a measure of the size of the business. At best, authorization size is a rough proxy for lending to SMEs. As noted in the Appendix, the SME Financing Data Initiative is working with a number of financial data suppliers (e.g. lenders, lessors, Canadian Bankers Association, etc.) to resolve this issue and to link authorization sizes to a standard employment size range.⁶¹

Part III is divided into five sections:

The first section reviews the financial services sector and covers recent structural changes (following the recommendations made by the Task Force on the Future of the Canadian Financial Services Sector). It also examines the impact of these structural changes on SMEs' access to commercial debt — a common form of external SME financing (see Figure 18, Part II).

The second section describes the different types of financing supplied by the various financial service providers and explains how their concentration of activity within each market changes. The types of financing examined include commercial debt, leasing and factoring.

The third section examines the role of particular types of the following financial suppliers:

• domestic banks
• other banks
• credit unions and caisses populaires
• other market participants such as finance and leasing companies

This section reviews each type of financial institution's provision of small authorizations, and analyzes the risk of lending to businesses seeking smaller authorization amounts.

The last two sections present a regional and sectoral analysis of the commercial debt market. Due to data limitations, these sections examine general findings related to all businesses in Canada and will not focus exclusively on SMEs.⁶²

• 1. Canada's Financial Service Providers: An Evolving Landscape
• 2. Overview of Financial Institutions' Services
• 3. Key Financial Institutions
• 4. Commercial Debt: A Regional Perspective
• 5. Commercial Debt: A Sectoral Perspective
• 6. Summary Tables

61. More details on linking financial authorizations with firm size (by number of employees) can be found in the appendix of this report.

62. Data related to region and sector by authorization categories has not been released by Statistics Canada from the Survey of Suppliers of Business Financing (2000 and 2001). Therefore, any analysis conducted from a regional or sectoral perspective covers the entire commercial debt market of all businesses across Canada.

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