Key Small Business Financing Statistics - August 2005

Key Highlights

SME Marketplace in 2001

• Using the definition in "What is an SME?", there were more than 1.5 million SMEs in Canada in 2001.¹
• Of these, nearly two thirds (64 percent) operated in the services sector, with the remainder distributed among the goods-producing sector (21 percent) and the resource-based sector (15 percent).
• The distribution of SMEs by size of firm (in terms of number of employees) varies considerably across industries. Those in services and resource-based sectors are typically smaller in size (0 to 4 employees) than those in the goods-producing sector (5 to 99 employees).

Financing Activity of SMEs

Commercial Debt

• In 2001, nearly one fifth (18 percent) of SMEs made a request for new or additional debt from a credit supplier for a business purpose, of which 80 percent were approved.
• Chartered banks were the main suppliers of debt financing to SMEs, with 67 percent of the requests for debt. In contrast, caisses populaires and credit unions received 19 percent of requests.

Leasing

• In 2001, 7 percent of SMEs made a request for lease financing, of which 94 percent were approved.
• Finance and leasing companies accounted for two thirds (66 percent) of the supply of leases authorized as of December 31, 2001. Domestic banks captured one quarter of the leasing market during the same period.

Equity Financing

• While less than 3 percent of SMEs requested equity financing in 2001, 76 percent of the SMEs that requested it received financing from external investors.
• Venture capital provides essential capital to firms with high-growth potential. In 2002, venture capital firms invested $2.5 billion in 677 firms in Canada.

Access to Financing

• In 2000, 49 percent of all SMEs used formal commercial financing products (e.g. commercial loans and lines of credit) to finance their operations.
• In comparison, start-up SMEs were more likely to use informal sources of financing, such as personal savings (66 percent), to finance their operations; only 29 percent used formal commercial financing products.
• In 2001, the majority of SMEs (76 percent) that requested debt financing from a financial provider did so through personal discussions at a branch; 13 percent made a request over the phone and 1 percent made their request over the Internet.

Financial and Ownership Structures

Financial Structure

• Suppliers of informal debt (e.g. loans from individuals and trade credit from suppliers) are as important to SMEs' financial structure as formal sources.
• In 2000, nearly 40 percent of SMEs' outstanding debt was owed to informal types of financing.

Ownership Structure

• The majority of ownership in 2000 rested in the hands of the business owner/operator, with very limited use of equity financing from other sources.
• While debt accounted for 75 percent of SMEs' long-term financing structure in 2000, 41 percent of SME owners said they would refuse to share ownership in their firms in return for equity capital.

Footnote 1. According to the Business Register of Statistics Canada, there were 2.2 million business establishments in Canada as of June 2003. Establishments are the smallest unit/grouping for which data are published; therefore, an enterprise may consist of many establishments located in different provinces.