ARCHIVED—Financing Profile: Small and Medium-Sized Enterprises in the Prairie Provinces

September 2007

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Report Summary:
This profile examines the financing activities of small and medium-sized enterprises (SMEs) in the Prairie Provinces in 2004, and compares them with the national averages.

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

In the Prairie provinces, small and medium-sized enterprises (SMEs) account for 97 percent of all 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 characteristics of SMEs in the Prairie provinces and compares financing activity between the average firm in the Prairie provinces and the average Canadian firm.

Summary of Key Findings: SMEs in the Prairie provinces are small, typically with four or fewer employees. Like many Canadian SMEs, those in the Prairie provinces rely on informal sources of financing, such as personal savings and personal credit. Yet the financing patterns of Prairie region SMEs also differ in several respects from those of other Canadian firms. Although chartered banks are the primary suppliers of debt financing for SMEs, financing co-operatives are also important suppliers of debt financing for Prairie region SMEs. Prairie region firms tend to be slightly less likely to be research and development (R&D) intensive. Risk-capital investment, an important source of financing among high-growth and technology-focused SMEs, appears to be disproportionately low in the Prairie provinces as firms in the region obtained venture capital at a rate that was disproportionately less than its share of knowledge-based industries (KBIs).

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 throughout the Prairie provinces of Manitoba, Saskatchewan and Alberta 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.