Financing Profile: Borrowers under the Canada Small Business Financing Program

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February 2009

Christine Carrington
Small Business Branch, Industry Canada

Summary: This profile compares several characteristics of borrowers under the Canada Small Business Financing Program with small businesses not using the Program. These groups are compared in terms of financing (source and type), including provincial distribution, size, industries and satisfaction with lenders, as observed in 2004.

Small and medium-sized enterprises (SMEs) account for the majority of businesses in Canada and drive job creation, productivity and growth in the economy. Access to sufficient and appropriate financing is a critical element for SMEs to succeed in the marketplace. The Canada Small Business Financing Act (CSBFA), created in 1999, is a partnership between the Government of Canada and financial institutions to extend the supply of credit to small businesses. The Canada Small Business Financing (CSBF) program aims to help new businesses establish themselves and expand, improve access to loans that would otherwise be unavailable to small firms and, thereby, stimulate economic growth in Canada.

Using data from Statistics Canada, this profile provides an overview of the characteristics of borrowers under the CSBF program and compares financing activity between CSBF program borrowers and the Canadian SME population.

Summary of key findings:

During the 2004–2005 period, a total of 11 112 loans were extended under the CSBF program worth $1 billion.^{Footnote 1} The majority of CSBF program loans (64 percent) were made to small businesses in Ontario and Quebec. CSBF program borrowers were typically found to operate younger businesses (many still in the start-up stage) in Canada's service industries. Furthermore, SMEs under the CSBF program had a higher growth orientation and were more likely to be involved in research and development (R&D) activities. In terms of financing, CSBF program borrowers had significantly higher capital needs than other Canadian SMEs and, likely due to their participation in the CSBF program, were more likely to have their financing applications approved in 2004. At the same time, CSBF program borrowers faced more stringent credit application requirements than other SME borrowers in terms of documents requested and collateral required as security. Aside from formal credit instruments, CSBF program borrowers were also more likely to draw on informal sources of financing, such as personal savings, credit instruments of the business owner or trade credit from suppliers.

Definitions

Small and medium-sized enterprises (SMEs) are defined as commercial (for-profit) businesses with fewer than 500 employees and less than $50 million in annual revenues. Excluded are non-profit and government organizations, schools, hospitals, subsidiaries, co-operatives, and finance and leasing companies.

This analysis compares the profile and financing activity of SMEs that received financing under the Canada Small Business Financing Act, either in 2004 or previously, with those of the Canadian SME population.