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

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September 2007

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

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

In Atlantic Canada, small and medium-sized enterprises (SMEs) account for 95 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 of the characteristics of SMEs in the Atlantic provinces and compares financing activity between the average firm in Atlantic Canada and the average Canadian firm.

Summary of Key Findings: SMEs in both the Atlantic region and Canada are small, typically with four or fewer employees; however, self-employment appears to be relatively less prevalent in Atlantic Canada than in most regions. Like many Canadian SMEs, those in Atlantic Canada rely on informal sources of financing, such as personal savings and personal credit. Commercial banks are important suppliers of debt financing for Atlantic Canada SMEs. Atlantic region firms tend to be slightly less growth oriented and less likely to be research and development (R&D) intensive. Risk capital is an important source of financing among high-growth and technology-focused SMEs; however, firms in the Atlantic region obtained venture capital at a rate that was disproportionately lower than its share of knowledge-based industries (KBIs). This is likely attributable to the relatively lower incidence of innovative and knowledge-based enterprises in the region.

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 Atlantic provinces of New Brunswick, Nova Scotia, Prince Edward Island and Newfoundland and Labrador 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.