Credit Conditions Faced by Small and Medium-Sized Enterprises Investing in Research and Development

December 2012

Owen Jung, Small Business Branch, Industry Canada

Table of Contents

• Introduction
• Section 1
  • 1.1 SME Financing Data Initiative
  • 1.2 Owner and business characteristics of R&D-Intensive SMEs
  • 1.3 Comparison of business sizes
  • 1.4 External debt financing activities
    • 1.4.1 Requests for financing
    • 1.4.2 Approval rates
    • 1.4.3 Reasons for being denied
    • 1.4.4 Distribution of approved financing
    • 1.4.5 Intended use
    • 1.4.6 Reasons for not applying
  • 1.5 Future intentions
  • 1.6 Perceived obstacles to growth
  • 1.7 Job creation and salary growth
• Section 2
  • 2.1 Data, methodology and descriptive statistics
  • 2.2 Results
    • 2.2.1 Probit Single-Equation Approach
    • 2.2.2 Bivariate Probit Approach
• Conclusions
• Supplementary tables
• References

Reviews

Internal Reviewers
Richard Archambault, Industry Canada
Charles Bérubé, Industry Canada

External Reviewer
Allan Riding, University of Ottawa
Vincent Chandler, Queen's University

Overview

Research and development (R&D)-intensive firms play an important role in job creation and firm competitiveness in Canada. However, acquiring financing for R&D activities can be challenging as such investments are inherently risky. This report uses data from the 2004 and 2007 iterations of the Survey on Financing of Small and Medium Enterprises to ascertain general characteristics of R&D-intensive firms and assess their access to financing. While controlling for various firm and owner characteristics via both probit single-equation and bivariate probit approaches, this study produced results suggesting that firms with high levels of R&D intensity appeared more likely to be denied debt financing than firms with no or low levels of R&D intensity. This report, therefore, provides some evidence that R&D-intensive firms have less access to financing than other firms.