ARCHIVED—Financing Profile: Visible Minority Entrepreneurs

March 2005

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Report Summary:
This profile provides a portrait of visible minority entrepreneurs. It examines whether and how financing a small business is affected by the ethnicity of its owner.

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Christine Carrington, Industry Canada

Canada's visible minority population has grown exponentially over the past 25 years. Drawing on the comprehensive database of the SME Financing Data Initiative, this article provides a portrait of visible minority entrepreneurs. It examines whether and how financing a small business is affected by the ethnicity of its owner.

Summary of Key Findings: Visible minority-owned small and medium-sized enterprises (SMEs) are similar in size to firms owned by other entrepreneurs. They tend to be concentrated in the service and knowledge-based sectors and they play an important role in several of Canada's regional economies. Visible minority-owned SMEs exhibit similar debt-financing activity to other businesses. Their demand and approval for and terms of obtaining credit are similar to other firms. Their capital and debt structures, however, indicate a slightly higher than average usage of informal financing tools such as personal savings and love money from friends or relatives, a pattern that may be more in line with the sector of operation of the firm than its owners' characteristics.

Visible Minority Population on the Rise

Canada's population of visible minorities has grown more than threefold over the past two decades. In 1981, there were 1.1 million persons in a visible minority group in Canada. By 2001, the visible minority population had risen to almost 4 million, representing 13 percent of the Canadian population. As Figure 1 shows, the Conference Board of Canada estimates that by 2016 visible minorities will constitute approximately 20 percent of Canada's population and 18 percent of the labour force (Antunes, MacBride-King and Swettenham, 2004).

Much of this growth is due to shifting immigration patterns. Over the past 25 years, the dominant countries of origin of Canadian immigrants have shifted from Europe to East and South Asia and South America. More then 8 of 10 visible minorities are now first-generation immigrants. The three largest visible minority groups in 2001 were Chinese, South Asian and black Canadians, accounting for two thirds of the visible minority population.

Visible minorities are largely located in Canada's urban centres. Toronto, Vancouver and Montréal are home to 73 percent of the country's visible minorities. Calgary, Edmonton and Ottawa also have significant visible minority populations.

Entering into Entrepreneurship

Visible minorities are as likely to become entrepreneurs as any other Canadians.^{Footnote 1} In 2001, 7 percent of Canada's 1.5 million SMEs were visible minority-owned.

Not surprisingly, the increasing visible minority population in Canada has meant that visible minorities are entering the SME marketplace at a faster pace than other entrepreneurs. Figure 2 shows the year in which businesses first started selling products and/or services. Visible minority-owned SMEs are newer than other businesses: 42 percent have been in operation for less than five years, compared with 25 percent of other SMEs. On average, visible minorities have entered the SME marketplace at more than 1.5 times the rate per year of other entrepreneurs since 1997.

Perceived Obstacles to Growth

Visible minority entrepreneurs face many of the same challenges in establishing and growing their businesses as other business owners. Figure 3 illustrates that, regardless of ethnicity, finding qualified labour and taxation levels are the two main concerns of entrepreneurs. Although not the primary focus of this article, it should be noted that the lack of skilled labour will become an increasingly important issue for entrepreneurs given the looming labour shortages projected in Canada by 2010 (Antunes, MacBride-King and Swettenham, 2004).

Making a Visible Contribution to Canada's Economy

Visible minority entrepreneurs play an important role in the Canadian economy in terms of growth, innovation and job creation. More than 500 000 people were employed by visible minority-owned SMEs in 2001 and visible minority entrepreneurs earned more than $48.5 billion in total revenues.

The regional distribution of visible minority-owned SMEs reflects immigrant settlement patterns. Most of these SMEs are concentrated in Ontario and British Columbia, followed by Alberta and Quebec (see Figure 4). There are fewer visible minority entrepreneurs in the Atlantic and Prairie provinces.

^{Footnote 1} Business density measures the number of individuals in a population divided by the number of businesses in that population. Based on 2001 Statistics Canada Census and Business Register data, 3 percent of the visible minority population owned a small or medium-sized enterprise compared with a business density of 4 percent for the non-minority population.