2. Content
1. SME-FDI
1. Overview of SME-FDI
2. Research Findings
1. State of SME financing
2. Financing Gaps
3. Business Angels
3. Next Steps
2. SME Statistics Program
1. Business problem
2. Approach
3. Timing
3. 3
SME Financing Data Initiative (SMEFDI)
SME-FDI is a comprehensive data collection program on the
financing situation of small and medium-sized enterprises in Canada
Partnership between Statistics Canada, Industry Canada and Finance Canada
SME-FDI has two primary objectives:
“builds a comprehensive knowledge base of timely and
unbiased information on SME financing in Canada”
Reports to Parliamentary Committees (Industry Committee)
Key Small Business Financing Statistics
Small Business Profiles
“supports the growth of Canadian SMEs by fuelling the
public policy debate and bringing clarity to the SME
financing market”
Evidence based policy and decision making
4. 4
Two-pronged data collection process consisting of
baseline surveys and specialized studies:
3 surveys:
Survey of Suppliers of Business Financing
annual survey starting in 2000
measures supply of financing
covers all financial service providers (census)
Survey on Financing of SMEs
tri-annual survey starting in 2000
measures demand for financing by SMEs
Captures data by size of business, geographic region, age of business, business owner
characteristics, etc.
Survey of SMEs Needs and Satisfaction
published in 2001
probed the attitudes & perceptions of SMEs owners on issues related to financing
These surveys aim to measure the total value of new and
outstanding financing by supplier, as well as shed some light
on the financing practices and patterns of SMEs across
Canada.
SME Financing Data Initiative (SME-FDI)
5. 5
SME Financing Data Initiative (SME-FDI)
Specialized Studies:
Financial Marketplace
Risk Capital
SMEs and Entrepreneurs
Other Research
6. 6
What is an SME?
SME-FDI definition
The Survey on Financing of Small and Medium Enterprises includes
businesses:
with fewer than 500 employees, and
with annual revenues of less than $50 million
Excluded are unincorporated firms with less than $30 000 in revenues, non-
profit organizations, government organizations, schools, hospitals,
subsidiaries, cooperatives, and financing and leasing companies
7. 7
Importance of SMEs
SMEs represent the growth engine of the Canadian economy. They play a
key role in jobs and wealth creation, and in community well-being,
throughout our country
There were more than 1.3 million SMEs in Canada in 2004
83% had fewer than 5 employees
66% operated in the service sector, with the remainder distributed
among the good-producing sector (22%) and the resourced-based
sector (12%)
8. 8
SMEs Financing Needs in 2004
Canadian SMEs report having financed their operations with a wide range of
financial instruments, which can be broadly categorized as formal or informal
Top five informal instruments vs. formal instruments used by SMEs in 2004
Formal financial
instruments used
% of SMEs
Commercial Lines of credit 50%
Commercial credit cards 48%
Commercial Loans 44%
Leasing 30%
Government Loans and
Grants
21%
Informal financial
instruments used
% of SMEs
Personal savings of
owners
57%
Retained earnings 54%
Trade credit from
suppliers
52%
Personal Credit cards of
owners
50%
Personal Lines of credit of
owners
45%
9. 9
Where SMEs go for financing?
Credit Supplier % of SMEs
Chartered bank 63%
Credit unions or Caisse populaires 23%
Crown corporations or government institution 9%
Credit card companies 1%
All other credit suppliers 7%
19% of all SMEs applied for debt financing in 2004
They approached three main creditors: Chartered bank, Credit unions
or Caisses populaires, and/or Crown corporations
Note: the percentages of SMEs may not added to 100% due to rounding
10. 10
Where do SMEs do their day-to-day banking?
77% of SMEs indicated that they did their day-to-day business with
banks in 2004
Institution % of business
Chartered bank 77%
Credit unions, and/ or Caisses populaires 20%
Crown corporations or government programs 2%
All other institutions 2%
11. 11
Other Results
Data has allowed:
Development of profiles of various categories of SMEs
Exporter SMEs
Women-owned SMEs
SMEs owned by youth, visible minorities
SMEs that have received business angel & love money
investment
• All broken down by sector, region, and other dimensions
Key Small Business Financing Statistics
12. 12
Definition of “Financing Gaps”
OECD (2006) credit rationing exists if:
a) among loan applicants who appear to be identical some receive
credit while others do not; or,
b) there are identifiable groups in the population that are unable to
obtain financing at any price.
Canadian focus is on definition (b): does some segment of
firms among the population of SMEs comprise an identifiable
group of firms that are unable to access financing?
13. 13
Postulated Gaps (Based on focus group data)
Perceived Gaps in the
Debt Market
Perceived Gaps in the
Venture Capital Market
•A size gap is postulated such that business owners
who seek small loans perceive that their borrowing
needs are too small to be of interest to institutional
lenders.
•An early stage gap, which reflects the
belief that small early-stage companies are
not the strategic focus of most private
investors.
•A risk gap is claimed, according to which lenders
do not price loans to reflect risk (rather, they reject
loan applications if risk exceeds a particular
threshold or if insufficient collateral is available).
•A dollar gap, according to which Canada
was said to rank tenth among developed
countries in terms of venture capital funds
raised per capita.
•A flexibility gap is described in that some SME
owners claim that financial institutions do not
provide flexible terms and conditions on their
loans.
•An institutional gap that reflects the lack
of involvement in the venture capital sector
of pension funds, mutual funds, and other
such institutions in Canada.
•A knowledge gap is asserted, that "financial
institutions do not understand knowledge-based
businesses.
•A smaller appetite for IPOs in Canada
compared with the US.
•Source: BDC, 2001.
14. 14
Debt Financing Gaps
After allowing for size, sector, age, etc. (measures of
creditworthiness), are there certain borrower
characteristics/attributes that are more likely to be turned
down for debt financing than other firms without those
attributes
SME populations investigated to date include:
Knowledge-based industries
Women entrepreneurs
SME Exporters
15. 15
Results (Debt Financing Gaps)
Knowledge-based firms are no more likely to be turned
down for a commercial loan than firms in other sectors
Commercial lenders are able to deal with knowledge-based firms
Not supportive of a gap related to knowledge-based firms
Women-owned firms are no more likely to be turned down
for a commercial loans than firms owned by men
No support for contention of gender gap
Exporters: potential of a gap particularly for start-up firms
seeking operational financing. Similar conclusion for term
loans.
16. 16
Business Angels
Informal investment is an important source of equity financing,
particularly for early-stage firms.
Use data collected from the Survey on Financing of SMEs to
estimate the flow and stock of informal investment from
respondents to the survey.
Flow of informal investment > $11.4 billion
• $3.5 billion is from business angels (arm's length individuals).
Stock of informal investment > $12.8 billion
• Are minima - survey captures only a portion of the population
of informal investors (survey of business owners)
• Caveat: very broad definition of informal investment
17. 17
Next Steps
Leverage SME-FDI in order to provide a broader range of data on SMEs in
Canada
This will be achieved by establishing partnerships with other interested
stakeholders (federal and provincial government organizations) and working
closely with academics and researchers to address current and emerging
issues
Much interest was expressed by private and public stakeholders at a
workshop hosted by Industry Canada in September 2006
Stakeholders have different interests / needs
Provinces like Ontario and British Columbia expressed a need for more sub-
provincial detail on SMEs
Federal organizations like the Business Development Bank of Canada, Export
Development Canada and Western Economic Diversification Canada expressed
a need for data on SMEs that are part of their programs in order to better
measure program outcomes
Others including academics, researchers and the Canadian Federation of
Independent Business expressed a need for data on other issues such as
exporting, business transition planning, venture capital etc.
18. 18
Satisfying these needs will require:
Additional sample to support new domains of estimation
Content changes to collect data on new issues
Use of tax data as much as possible to minimize costs and response
burden
Establishing new partnerships will result in:
More efficient data collection of required information (economies of
scale) as we can build on the vehicle in place rather than each area
developing its own data collection vehicle
Pooling of resources to get maximum return on investment
Better research because approach avoids duplication and overlap and
encourages communication and collaboration on research issues
Helps ensure that data gaps are addressed and that priorities are
placed on the right issues
Better management of response burden which is of great concern to
Canadian SMEs
19. 19
Thank You!
For more information about the SME FDI or copies of the
research reports completed to date visit the website at:
http://sme-fdi.gc.ca (english)
or
http://pme-prf.gc.ca (french)
or
Contact: Brad Bélanger
Senior Policy Advisor
Industry Canada (SME FDI)
belanger.brad@ic.gc.ca
20. SME Statistics Program
Small Business and Special Surveys
Division
Statistics Canada
ISTAT Seminar
December 2006
21. Background
SMEs play an important role in innovation
and job creation in all countries
Need for better national data on the number,
type and relative performance of SMEs
Need for standards and common data to
support international comparisons
22. Business Problem
No standard definition exists
In Statistics Canada (STC) / nationally /
internationally
Unable to create a comprehensive picture of SMEs in Canada
Limits comparisons to other countries
Lack standard measures of SME performance to
assess productivity, business growth,
competitiveness etc.
Accessibility
Users do not know what data STC has on SMEs; how /
where to get it; and how to interpret it because of
23. Statistics
Canada
Business Problem Cont’d
Data Gaps
Data on certain SME issues is either missing or lacking
detail
Ex. Owner characteristics, exporting, business transition planning,
sub provincial detail
24. SME Statistics Program Proposal
Three Principals
National and International focus
Phased approach
Stakeholder involvement (program design) and
stakeholder commitment (financial support)
25. National and International Focus
• To ensure that the SME Statistics Program is designed to meet
the needs of the various stakeholders, STC has created a
working group with Industry Canada (IC) and conducting
extensive user consultations
• Federal and Provincial Government, researchers, academics,
government business entities, business associations
• To ensure that the SME Statistics Program is designed to permit
international comparisons
• STC and IC sit on the OECD Structural Business Statistics Cmt.
• STC sits on the OECD Advisory Cmt. for International
Entrepreneurship Indicators Project
• IC is a partner in the Danish research project on entrepreneurship
26. Phased Approach
Objectives
Early deliverables
Manage expectations
Ensure buy-in (Internal and external)
Phase 1 (FY 06-07)
• Develop a SME database with tombstone info (approx. 2.3 M
businesses) using administrative data from Canada Revenue
Agency (T1 / T2 tax, GST, payroll data)
• NAICS, revenue, employment (full time, part time, turnover), geography
• Create current SME demographic profile by industry, business size
and geography (provincial / sub-provincial when possible)
• Agreed upon size classes for reporting
• Will include non-employers – size class 0
27. Statistics
Canada
Phased Approach
Phase 1 (FY 06-07) Cont’d
Work towards agreement on a definition for small and
medium sized businesses
Phase 2 (FY 07-08)
Derive SME performance indicators
Detailed micro data for every SME in Canada
Indicators will include measures such as financial
characteristics, job creation / loss, survival rates, profit
ratios, fast growth enterprises, business life cycle
Expand the demographic profile to include data back to
1999 using new inputs and definitions
28. Phase 3 (FY 08 »»)
• Create meta data on STC data holdings on SMEs to assist users in
knowing what is available; where; and what the data limitations are
• Data is based on survey estimates so will have limitations on the
industries covered, business size classes covered, geographic detail
available and quality of the estimate
• Introduce standard SME size class definitions in STC core business
statistics programs as applicable
• Address SME data gaps
• Priorities identified by external stakeholders
• External funding
