Key Small Business Financing Statistics — December 2006

Key Highlights

SME Marketplace in 2004

• Using the definition in "What is an SME?" there were approximately 1.4 million SMEs in Canada in 2004.^{Footnote 1, Footnote 2}
• Of these, two thirds (66 percent) operated in the services sector, with the remainder distributed among the goods-producing sector (22 percent) and the resource-based sector (12 percent).
• The distribution of SMEs by size of firm (in terms of number of employees) varies considerably across industries. Those in the services and resource-based sectors are typically smaller (0 to 4 employees) than those in the goods-producing sector, whose distribution across size of firm is more uniform.

Financing Activity of SMEs

Commercial Debt

• In 2004, nearly one fifth (19 percent) of SMEs made a request for new or additional debt from a credit supplier for a business purpose, of which 81 percent were approved.
• Chartered banks were the main suppliers of debt financing to SMEs, with 63 percent of the requests for debt. In contrast, caisses populaires and credit unions received 23 percent of requests.

Leasing

• In 2004, 3 percent of SMEs made a request for lease financing, of which 96 percent were approved.
• Finance and leasing companies accounted for the majority (81 percent) of the supply of leases authorized as of December 31, 2004. Domestic banks captured less than one fifth (14 percent) of the leasing market during the same period.

Equity Financing

• While only 1 percent of SMEs requested equity financing in 2004, 46 percent of the SMEs that requested it received financing from external investors.
• Venture capital provides essential capital to firms with high-growth potential. In 2004, venture capital firms invested $1.8 billion in 603 firms in Canada.

Access to Financing

• In 2004, SMEs of all types used different formal financing instruments to finance their operations, such as lines of credit from financial institutions (50 percent) and commercial loans from financial institutions (44 percent). SMEs were also likely to use informal forms of financing such as personal savings of the business owner (57 percent), retained earnings (54 percent) and personal credit cards of owners (50 percent).
• In comparison, start-up SMEs were more likely to use informal sources of financing such as personal savings (77 percent); however, 45 percent of start-ups used formal financing such as commercial loans from financial institutions, which was comparable to the proportion used by established firms.
• In 2004, the majority of SMEs (64 percent) that requested debt financing from a financial provider did so through personal discussions at a branch or with their account manager; 29 percent made a request over the phone and 4 percent made their request over the Internet.

Financial Structure

• Suppliers of informal debt (e.g. loans from individuals and trade credit from suppliers) are as important to the financial structure of SMEs as formal sources.
• In 2004, approximately two thirds (66 percent) of SMEs' outstanding debt was owed to informal types of financing.

SME Business Owner and Financial Characteristics

Women Entrepreneurs

• In 2004, women entrepreneurs were less likely than men to approach financial institutions for financing (13 percent request rate among women versus 17 percent among men).
• Those women entrepreneurs who did apply for financing were somewhat less likely than men to be approved (74 percent approval rate among women versus 82 percent among men). Research has shown that this is more related to the sector in which they operate than their gender.

Young Entrepreneurs

• Youth-owned SMEs have slightly higher financing request rates than SME owners over the age of 40 (21 percent versus 18 percent); however, young entrepreneurs received similar financing approval rates as owners in older age categories, which is a slight improvement from 2000.

Visible Minority Entrepreneurs

• While both visible minorities and other SMEs had similar demand for financing in 2004, visible minority entrepreneurs were far less likely to have their financing application approved (71 percent compared with 82 percent for other SMEs), which may reflect more the sector in which they are concentrated than their ethnicity.

Footnote 1. According to the Business Register of Statistics Canada, there were 2.2 million business establishments in Canada as of June 2005. Establishments are the smallest unit/grouping for which data are published; therefore, an enterprise may consist of many establishments located in different provinces.

Footnote 2. In 2004, the survey methodology was modified to exclude "unable to locate" and "unable to contact" firms in the sampling strategy. As a result, the population estimates for SMEs have been adjusted from previous survey results in 2000 and 2001.