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Financing SMEs in Canada: Barriers Faced by Women, Youth, Aboriginal and Minority Entrepreneurs in Accessing Capital — Phase 2: Gap Analysis and Recommendations for Further Research

Research on SME Financing for Minority Groups (Visible Minorities and Language Groups)

Attempting to find research related to SME financing for visible and language minorities in Canada proved to be very challenging. The following is a sample of studies found that related in some way to the topic.

Of these six studies, it should be noted that only half are Canadian, and of these, two (Marmen, 1999 and Dana, 1997) do not even touch on issues related to SME financing. As such, it is difficult to even formulate tentative hypotheses regarding the accessibility of SME financing for these Profile Groups. Both of these articles would provide useful contextual and background information for future research in this area, but neither provides substantive information as to the access these Profile Groups currently have to SME capital.

Future research on linguistic or ethnic minorities groups would benefit from a clearly articulated definition of who comprises these groups. For example, in this project the term 'language group' is used to refer to not only to Anglophone and Francophones who are linguistic minorities in various regions, but also includes local linguistic minorities across the country. In this case, the barriers faced by 'non-official' language minorities may be very different than those faced by official language groups. Similarly, it would be helpful to define ethnic minorities and the scale at which minority status is being applied. For example Asians may comprise a minority population when compared to the population of Canada, but not so in many parts of urban British Columbia. Because of the complexity of evaluating linguistic and ethnic minority status, clear definitions will help define the parameters of future research in this very under researched area.

A few of these articles contain useful finance-related insights and data. The SBA Office of Advocacy (1999) notes some differences in the financing of minority-owned SMEs (e.g., they are less likely to use credit than SMEs on average; they are less likely to access credit through a commercial bank than the SME sector overall) but does not offer up explanations as to why this might be. Thompson, Lightstone and Company (1998) identify some differences of note in Canada with reference to visible minorities (e.g., SMEs are more likely to be clustered in manufacturing and retail sectors than SMEs overall; they have a higher overall reliance on family, friends and employees for investment capital) but does not delve into the reasons behind these findings, or directly address the question of access to financial capital for this Profile Group.

In terms of the accessibility of debt and equity financing, as there is such wide variability in the populations across these Profile Groups, their financing needs will be equally variable. Without data to provide insights into types of ventures these entrepreneurs are likely to engage in, it is difficult to identify barriers they may face. However, some general guidelines can be inferred from the results of the previous Profile Groups. Availability of debt financing will depend on the characteristics of particular entrepreneurs. Those with strong credit histories and extensive business track records will have a much easier time accessing loans and lines of credit than those without collateral or good credit ratings.

Similarly, with respect to equity financing, minority entrepreneurs working in low-growth areas will be less likely to attract angel investment or venture capital financing. They may also have difficulty accessing the networks for this funding, depending on their geographic location, their previous experience and their language fluency. Some may have good access to personal savings and resources from friends and family, but this will be highly variable across minority populations. As noted above, the diversity within these profile groups requires more focus on particular sub-strata of these groups in order to provide meaningful data on barriers to SME financing.

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