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Financing Profile: Small and Medium-Sized Enterprises in Tourism Industries
Capital structure
Tourism small and medium-sized enterprises are very reliant on personal savings to finance their business
An important factor for growth and development of a business is financing. SME owners typically look to informal sources of financing, such as personal loans and personal savings, when starting a business or funding day-to-day operations. Figures 4 and 5 list the top six sources of financing used by the average SME to start-up and operate a tourism company compared with the average SME in a non-tourism industry in 2007. For both types of SMEs, the main source of financing during business start-up was personal savings, with more SMEs in tourism industries using this source (80 percent versus 74 percent for SMEs in non-tourism industries). Compared with SMEs in non-tourism industries, SMEs in tourism industries were significantly more likely to make use of lease financing and significantly less likely to use retained earnings (see Figure 5).
Top Six Important Sources of Financing Used During Start-up, 2007*
[Description of Figure 4]* Bold values denote statistically significant difference at 5 percent.
Note: Start-up is defined as the period prior to the sale of goods and services. Sources of financing include any source used, regardless of whether it was authorized or obtained in a previous year. Multiple responses were possible.
Source: Statistics Canada, Survey on Financing of Small and Medium Enterprises, 2007.
As shown in the Figure 5, the main sources of financing used to keep the business in operation differ slightly from those sources used during startup. In 2007, commercial loans, lines of credit and credit cards surpassed personal savings as the most common type of financing used for day-to-day business. Figure 5 also shows that SMEs in tourism industries were still very reliant on personal loans and informal financing to keep their business in operation. Specifically, SMEs in tourism industries were just as likely to use personal savings as they were to use commercial credit and they were significantly more likely to use personal savings than their non-tourism counterpart. Moreover, SMEs in tourism industries were almost twice as likely as SMEs in non-tourism industries to use informal financing (loans from friends and family) to financing their ongoing operations. This could be an indication that SMEs in tourism industries have more difficulty obtaining credit from financial institutions than SMEs in non-tourism industries and as a result they need to turn to alternate means of financing their business (i.e., personal savings and informal financing).
Top Six Important Sources of Financing Used to Keep Business in Operation, 2007*
[Description of Figure 5]* Bold values denote statistically significant difference at 5 percent.
Note: Sources of financing include any source used, regardless of whether it was authorized or obtained in a previous year. Multiple responses were possible.
Source: Statistics Canada, Survey on Financing of Small and Medium Enterprises, 2007.
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