Canada Small Business Financing Program (CSBFP) Awareness and Satisfaction Study

Introduction

Industry Canada commissioned Phoenix Strategic Perspectives to conduct a survey among small and medium-sized enterprises to better understand the experience of businesses when they try to obtain financing, as well as they extent to which they are aware of and satisfied with the features of the Canada Small Business Financing Program (CSBFP).

Background

The Canada Small Business Financing Program (CSBFP) facilitates asset-based debt financing for higher-risk SMEs (primarily start-up firms) that would not normally receive financing. This is done through public-private partnership between over 1 300 lending institutions and the government. Since its launch in 1961, the program has helped approximately 500 000 Canadian businesses start up, expand, modernize or improve their businesses.

The program has two central objectives: it is to be incremental (i.e. the program should finance loans that would not otherwise be available), and it is to meet cost-recovery over time (i.e. program revenues from fees should offset the net cost of claims for defaulted loans).

A comprehensive review was completed in 2005 for the period 1999-2004. The review showed that over that five-year period, the program had been successful in facilitating access to almost $5.4 billion in lending through about 66 000 loans to small businesses.

Industry Canada, through the Canada Small Business Financing Program Directorate, is responsible for administering this loan-loss-sharing program. Under the program, financial service providers can make loans of up to $250 000 and are responsible for credit decisions and administering the loans. The Government of Canada pays lenders 85 percent of any eligible loss incurred on loans that default, after the lender has taken the usual steps to recover any associated security to reduce the amount outstanding.

Through the Small Business Policy Branch, Industry Canada is responsible for evaluating the CSBFP, on a five-year cycle, using a result-based management and accountability framework (RMAF). One of the issues addressed under this framework is awareness. In accordance with the Canada Small Business Financing Act, a comprehensive review of the provisions and operation of the Act must be tabled in Parliament within 12 months after March 31, 2009 (i.e. by March 31, 2010). A measurement of the levels of awareness of the program and satisfaction with its parameters will be an essential element of this comprehensive review.

To continue to have a meaningful impact on the Canadian economy, it is crucial for the program to be available to the SMEs that would benefit from it. To this end, it is important that they be aware that this tool exists. The challenge lies in the fact that Industry Canada relies greatly on a third party – the lenders – to inform SMEs of the program and its terms and conditions. An assessment of awareness of the program among SMEs and CSBFP borrowers can help Industry Canada determine the extent to which the lenders are doing so. Furthermore, this research could be used to inform a communication action plan.

Consequently, the objectives of this research were to determine the following:

• The level of awareness of the CSBFP among both CSBFP users and the general SME population;
  
  
• The level of satisfaction among both groups with their financing, and the relative priority they attach to factors contributing to their obtaining financing; and
  
  
• Which factors might have the greatest impact (leverage) on improving that satisfaction (in either the program or SME financing more broadly).

Research Activities

To address the research objectives, a telephone survey was undertaken with executives of SMEs. Two distinct survey samples were used for this research:

1. CSBFP Borrowers: This sample consisted of client SMEs that had obtained a CSBFP loan within the previous year. An appropriate list was provided by Industry Canada in electronic form. The list contained the business name, phone number, and administrative data useful for the study (e.g. age of firm, date of loan).
   
   
2. General SME Sample: This sample consisted of representatives of SMEs with characteristics similar to CSBFP borrowers, whether or not they recently obtained financing. This list was obtained from a list broker that specializes in business lists. Quotas were established based on sector, stage of firm, and region so as to mirror, to the extent possible, the sample of CSBFP borrowers. As well, the SME sample excluded the following: non-profit organizations, farms, holdings, and public administrations and services.

In terms of matching the two samples to enhance the comparability of the two groups, priority was given to the following characteristics:

• Business size: Since only firms with revenues of less than $5 million are eligible for CSBFP loans, this cut-off was used for the SME sample as well.
  
  
• Industry sector: Since four sectors have secured a large proportion of the total value of CSBFP loans, efforts were made to match the general SME sample with CSBFP borrowers in this regard. The top four sectors are: food and beverage services (23 percent), retail trade (15 percent), transportation and warehousing (10 percent), and manufacturing (9 percent).
  
  
• Provincial distribution

The study over-sampled early stage/start-up firms to better explore whether or not early stage firms (assumed to be more likely to seek financing) exhibit greater awareness of the CSBFP than other more established businesses. Early stage/start-up firms were defined as businesses 1-3 years of age.

The following table compares the full population of CSBFP clients, the surveyed CSBFP clients, and the surveyed representatives of SMEs by firm size, age, revenue, sector, and province.

Characteristics of CSBF Borrowers vs. Non-CSBF SMEs

	Full CSBFP Sample	CSBFP Borrowers Surveyed	SMEs Surveyed
Number of employees
One	8.4%	14.1%	12.9%
2-4	55.6%	35.9%	35.4%
5-20	32.0%	42.4%	44.9%
21-50	3.5%	5.8%	5.0%
Over 50	0.4%	1.6%	1.6%
DK/NR	0.2%	0.2%	0.2%
Years in operation
3 years of less	67.7%	61.8%	19.9%
4 years or more	32.3%	38.2%	80.1%
2006 Total Revenues
Under $100 000	8.5%	24.3%	20.9%
$100 000-$300 000	33.2%	25.9%	29.6%
$300 001 - $500 000	19.4%	17.5%	15.3%
$500 001 - $1 million	21.8%	18.3%	17.1%
$1 million - $5 million	17.1%	13.9%	17.1%
Industry/Sector
Food Services & Drinking Places	21.4%	21.5%	18.7%
Other Services	20.6%	9.4%	14.9%
Retail Trade	15.2%	15.1%	13.1%
Transportation and Warehousing	13.4%	10.2%	11.1%
Manufacturing	6.3%	6.0%	6.6%
Construction	5.5%	5.8%	6.0%
Agriculture/ Fishing/ Hunting/Forestry	3.5%	5.0%	3.2%
Health Care & Social Assistance	2.4%	3.2%	3.2%
Professional, Scientific and Technical Services	2.2%	5.0%	4.6%
Art, Entertainment, Recreation	2.0%	3.0%	2.8%
Mining/Oil/Gas	2.0%	6.6%	2.4%
Wholesale Trade	1.4%	0.8%	2.0%
Accommodation Services	0.9%	1.4%	1.2%
Real Estate and Rental/Leasing	0.9%	1.6%	0.8%
Educational Services	0.8%	0.6%	1.4%
Administrative and Support, Waste Management, Remediation Services	0.7%	1.6%	0.2%
Information and Cultural Industries	0.3%	0.4%	2.4%
Finance & Insurance	0.2%	2.4%	4.0%
Utilities	0.2%	0.6%	1.6%
Province
British Columbia	7.2%	8.2%	8.5%
Alberta	11.3%	14.3%	12.9%
Saskatchewan	4.4%	5.4%	4.2%
Manitoba	3.7%	5.8%	4.2%
Ontario	31.5%	33.9%	37.6%
Quebec	34.1%	22.1%	22.1%
Territories	0.1%	0.2%	0.2%
Atlantic Canada	7.8%	9.6%	10.4%

A total of 1 005 interviews were completed with executives of SMEs – 502 interviews with CSBFP borrowers and 503 with non-CSBFP clients between June 8 and 28, 2007. Based on samples of this size, the overall findings for each population group can be considered to be accurate to within +/- 4.4 percent, 19 times out of 20.

The following specifications also applied to this study:

• The survey targeted business owners, but included the CEO, president, or another high-ranking employee if that person was best able to talk about the financial needs of the business.
• The questionnaire incorporated questions used in previous surveys undertaken in support of the CSBFP.
• The same questionnaire was used for both CSBFP borrowers and the general SME sample, and telephone calls averaged 14 minutes in length.
• The data for each sample population was not merged, but were treated as two separate and distinct samples for all stages of this study, including the analysis.
• The data for each sample population was not weighted.
• To maximize response rates, a minimum of eight call-backs were made before retiring a number. Telephone calls were made during regular business hours.
• A pre-test was conducted in both official languages, as follows:
  • CSBFP sample - 10 English, 5 French
  • SME sample - 10 English, 5 French.
• Sponsorship of study was revealed (i.e. Industry Canada).

The following tables present the call disposition information for this survey, as well as calculation of the response rates (using the MRIA formula):

CSBFP Sample – Call Results and Response Rates Table

Total Numbers Accepted	6 352
Total out of scope	512
Numbers not in service	507
Duplicates	4
Fax or modem lines	0
Blocked by Telephone Company	1
Unresolved	2 613
Busy, no answers, Answering machines	2 611
Retired, called 10 times without success	2
In-scope Non-responding	567
Language difficulty	80
Other	26
Unavailable	43
Business Refusal	393
Break offs	25
In-scope Responding units	2 660
Completes	502
Ineligible	0
Quota Filled	2 158
Response Rate	45.5%

SME Sample – Call Results and Response Rates Table

Total Numbers Accepted	5 343
Total out of scope	955
Numbers not in service	948
Duplicates	4
Fax or modem lines	0
Blocked by Telephone Company	3
Unresolved	2 480
Busy, no answers, Answering machines	2 253
Retired, called 10 times without success	227
In-scope Non-responding	1 049
Language difficulty	93
Other	31
Unavailable	96
Business Refusal	816
Break offs	13
In-scope Responding units	859
Completes	503
Ineligible	290
Quota Filled	66
Response Rate	19.6%

Notes to Reader

Tracking/comparison of results: The current study builds on an earlier awareness study conducted in 2001, entitled Canada Small Business Financing Act Awareness Study (2001) and was designed to allow for comparability in key areas. To maximize comparability with the 2001 CSBFA awareness study, the present study adopted a similar sampling methodology. To this end, a number of tracking graphs comparing current results to results from 2001 are included in the report.

Report Structure: When reporting on results from the two populations, results for CSBFP borrowers are generally presented first, followed by results for the general SME sample. Some results, however, are presented in comparative form (e.g. a graph comparing CSBFP borrowers to the general SME sample).

Reporting of results: At times, the number of respondents (i.e. not the percentage) that answered certain questions or answered in a certain way is provided. The following method is used to denote this: n = 50, which means the number of respondents, in this instance, is 50. The number of respondents changes throughout the report because questions were often asked of sub-samples of the survey populations. Accordingly, readers should be aware of this and exercise caution when interpreting results based on smaller numbers of respondents. Some of the graphs do not sum to 100 percent due to rounding.

Note on Terminology: Throughout this report, recipients of CSBFP loans are referred to as ‘CSBFP borrowers’ or ‘borrowers’. Respondents from the general SME sample are referred to as ‘representatives of SMEs’.

Appended to this report is the questionnaire (in English and French).