Small and Medium-Sized Enterprises in Ontario

Allan Riding, University of Ottawa
Barbara Orser, University of Ottawa

Small and medium-sized enterprises (SMEs) account for 97 percent of all Ontario businesses.^{Footnote 1} Not only have SMEs been important drivers of job creation and economic growth, but they have also been strong contributors to productivity, having led larger firms in productivity growth over the last 10 years.^{Footnote 2} Access to financing is critical if SMEs are to develop and expand. Using data from the SME Financing Data Initiative, this article provides an overview of the characteristics of SMEs in Ontario and compares financing activity between the average Ontario firm and the average Canadian firm.

Summary of Key Findings: In general, the financing patterns of Ontario SMEs are similar to those of other Canadian firms. SMEs in Ontario and Canada are small, typically with four or fewer employees. In Ontario, chartered banks are the most important suppliers of debt financing to SMEs. Compared with other regions, Ontario firms tend to be slightly more growth oriented, more likely to be research and development (R&D) intensive, and relatively more represented within knowledge-based industries (KBIs). Like many Canadian SMEs, those in Ontario rely on informal sources of financing, such as personal savings and personal credit. Although less commonly accessed, risk capital appears to be an important source of financing among high-growth and technology-focused SMEs. Firms in Ontario obtained venture capital at a rate commensurate with its share of knowledge-based industries.

Definitions
This analysis defines small and medium-sized enterprises (SMEs) as commercial (for-profit) businesses with fewer than 500 employees and less than $50 million in annual revenues.

Non-profit and government organizations, schools, hospitals, subsidiaries, co-operatives, and finance and leasing companies are excluded.

This analysis compares the profile and financing activity of SMEs in Ontario with national averages.

^{Footnote 1} Statistics Canada, Business Register, December 2004.

^{Footnote 2} RBC Financial Group, "Small and Medium-Sized Businesses are Driving Productivity Gains," October 2006. www.rbc.com/newsroom/20061030smallbiz.html

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