7. Canada

In 2020, Canadian small businesses (1-99 employees) constituted 98.0% of all businesses and employed 7.7 million individuals, or 67.7% of the private sector labour force.

Supply-side survey data show that outstanding debt held by all businesses increased in 2020 to CAD 1,007 billion. Lending to small businesses increased to CAD 117.9 billion. As a result, small businesses’ share of total outstanding business loans was 11.7%.

Small business credit conditions have remained relatively stable since 2011. The average interest rate charged to small businesses in 2019 decreased to 5.3%, with an average business prime rate of 3.6%. The business risk premium stood at 1.7%, the lowest level since the 2009 recession reflecting an easing in access to financing for small businesses in Canada.

Bank of Canada survey results indicate that lenders reported that overall business lending conditions eased towards the end of the second half of 2020. Borrowers also reported an easing of credit conditions during the same period.

In 2020, the small business 90-day loan delinquency rate reached 0.78%, its highest level since 2010.

Total venture capital (VC) investment levels in Canada reached a peak of CAD 6.1 billion in 2019 followed by a decline to CAD 4.1 billion in 2020. These are the highest levels of VC investment recorded in Canada since 2001.

In 2020-21, the Government of Canada continued its commitment to support entrepreneurship and the growth of SMEs. The Business Development Bank of Canada (BDC), a crown corporation with the mandate to support Canadian entrepreneurship had CAD 36.5 billion in financing and investments, as of 31 March 2020, committed to 62 000 clients operating across Canada. In response to the COVID-19 pandemic, BDC delivered the Business Credit Availability Program and the Highly Affected Sectors Credit Availability Program on behalf of the Government. Through these programmes, Canadian businesses could access term loans of up to CAD 60 million for operational cash flow requirements. Additionally, BDC extended new working capital loans, expanded its online financing platform, and launched the BDC Venture Capital Bridge Financing Program to support existing clients and increase the availability of capital in the market.

The Government of Canada has also invested CAD 371 million through the original Venture Capital Catalyst Initiative (VCCI) to increase late-stage venture capital available to Canadian entrepreneurs. Selected fund managers under the original VCCI will inject more than CAD 1.8 billion over the coming years into the innovation capital market by leveraging funds from the public sector and private sector. Building on this momentum, the Government introduced in Budget 2021 that it has made available up to CAD 450 million through a renewed VCCI to support future venture capital investments.

The Government of Canada has established a number of programmes to provide support targeted to entrepreneurs from underrepresented groups. The Government has made total investments of nearly CAD 6 billion in the Women Entrepreneurship Strategy (WES); of up to CAD 272.8 million in the Black Entrepreneurship Program (BEP); and of CAD 58.1 million for Futurpreneur, a program to support youth entrepreneurs.

To help simplify and streamline the Government’s support programmes and to help equity-deserving entrepreneurs access funding and capital, mentorship, financial planning services, and business training, the Government will launch the Small Business and Entrepreneurship Development Program (SBED), investing CAD101.4 million over 5 years in a tool which will facilitate continued support of small businesses and entrepreneurs across Canada.

In 2020, Canadian small businesses (1-99 employees) constituted 98.0% of all businesses and employed 7.7 million individuals, representing 67.7% of the private sector labour force. 76.0% of the private sector labour force was employed in the services sector and 24.0% in the goods sector.

Figure 7.1 shows the major suppliers of small business financing in 2020. Most small business financing (83.6%) was provided by banks (domestic and foreign), credit unions and caisses populaires. The remainder came from finance companies, financial funds and insurance companies.

Supply-side survey data, which include only lending from the private sector and exclude lending funded by the Government, show that outstanding debt to all businesses increased by 2.0% in 2020 to CAD 1 007 billion, while lending to small businesses increased by 7.4%, to CAD 117.9 billion (Figure 8.2). Small businesses’ share of total outstanding business loans increased by 0.5 percentage points, to 11.7% in 2020. The declining trend of the small business’ share is explained by the fact that outstanding debt for small businesses grew slower than for medium-sized and large businesses. Over the 2007-20 period, outstanding debt for small, medium-sized and large firms increased by 41.4%, 85.0% and 136.5%, respectively. Over the longer 2000-20 period, outstanding debt grew, in terms of annual average, for small, medium-sized and large firms by 1.7%, 4.6% and 6.7%, respectively (see Figure 8.2). As a result, small businesses’ share of total outstanding business loans declined over the 2000-20 period.

Supply-side survey results show that lending activity for businesses of all sizes decreased in the second half of 2020. During that period, lenders disbursed approximately CAD 102 billion in new loans to large businesses. This represented a 15.2% decrease in disbursals compared to the first half of 2020. Similarly, lending activity decreased for medium-sized businesses, with loan disbursals diminishing by about 0.4% and by 2.9% for small businesses. Total lending activity in 2020 compared to 2019 increased by 0.7% and by 1.5% for large businesses, and decreased by 3.1% and 0.2% for medium-sized and small businesses, respectively.

The results of the 2019 Credit Conditions Survey showed that credit conditions continued to remain stable in 2019, as they have been since 2011, after having recovered from the 2009 recession. Request rates for debt financing slightly increased in 2019 to reach 31% from 27% recorded in 2018. The 2019 ratio of funds authorised to funds requested was 89% close to the 2010-2018 average of 89%.

The average interest rate charged to small businesses in 2019 decreased to 5.3% from 5.7% in 2018. The average business prime rate (the rate charged to the most creditworthy borrowers), that remained at 3.0% during the period 2011-14, increased to 3.6% in 2019 from 3.5% in 2018. The business risk premium (measured as the difference between the average small business interest rate and the business prime rate) decreased to 1.7% from 2.2% in 2018, the lowest level since the 2009 recession. This last indicator reflects an easing in access to financing for small businesses in Canada, from the lenders perspective.

Close to 63% of small businesses were asked to pledge collateral to secure their loans in 2019.

The policy response to the economic effects of the COVID-19 pandemic introduced in the first half of 2020 was maintained during the second half of 2020. The policy response included monetary and fiscal policies to support business lending. The Bank of Canada held the policy interest rate at 0.25 percent. The Government of Canada continued to extend interest-free loans through the Canada Emergency Business Account (CEBA), as well as other business financing programs. Bank of Canada survey results indicate that lenders reported that overall business lending conditions eased towards the end of the second half of 2020. Borrowers also reported an easing of credit conditions during the same period.

Since 2011, the request rate for lease financing has varied between 7% and 13%, while the approval rate has exceeded 94% every year.

Total venture capital (VC) investment levels in Canada reached a peak of CAD 6.1 billion in 2019 followed by a decline in 2020 to CAD 4.1 billion. These are the highest levels of VC investment recorded in Canada since 2001.

Between 2019 and 2020, seed capital increased by 21.1% to reach CAD 0.3 billion, early stage capital decreased by 39.2% reaching CAD 1.7 billion and later stage capital increased by 48.2% reaching CAD 2.0 billion. In 2019, a new stage capital, growth stage, started to be tracked with an initial investment of CAD 1.7 billion. Between 2019 and 2020, growth stage capital decreased by 91.5% to reach CAD 0.1 billion.

The declining trend in business insolvencies continued into 2020. Specifically, the incidence of insolvencies per thousand businesses fell from 2.81 in 2019, to 2.14 in 2020. The decline in insolvencies should be interpreted with caution. In particular, the ongoing pandemic support programs introduced by the Government of Canada likely helped some businesses avoid or delay insolvency. Furthermore, insolvency figures do not comprise all closures, since they do not include businesses that terminated operations without filing for bankruptcy. The business prime rate remains low. This helps keep small business financing costs low and, as a result, allows them to maintain healthy and more manageable balance sheets.

In 2020, the 90-day loan delinquency rate reached 0.78%, its highest level since 2010. Specifically, the 90-day delinquency rate rose from 0.42% in the third quarter of 2019 to 0.92% in the third quarter of 2020, as the economy contracted during the pandemic of COVID-19. The 90-day loan delinquency rate declined to 0.76% in the fourth quarter of 2020 as the economy started to recover.

In 2020-21, the Government of Canada continued its commitment to support entrepreneurship and the growth of small and medium-sized enterprises (SMEs).

In the face of the COVID-19 pandemic, the Government acted swiftly to provide support to businesses and offered a broad suite of support measures.

The Canada Emergency Business Account (CEBA) has provided interest-free, partially forgivable loans to more than 850 000 Canadian small businesses. In December 2020, the Government increased the value of the loan from CAD 40 000 to CAD 60 000 to help small businesses bridge to recovery. If a business repays their loans by December 31, 2022, up to a third of the value of their loans (meaning up to CAD 20 000) will be forgiven. In further recognition of the ongoing pandemic, the Government recently extended the application deadline for CEBA to June 30, 2021.

The Business Credit Availability Program (BCAP) is a co-lending and loan guarantee program offering financing to small and medium-sized enterprises. Export Development Canada (EDC) is working with financial institutions to guarantee 80% of new operating credit and cash flow term loans of up to CAD 6.25 million to SMEs. This financing support is to be used for operational expenses and is available to both exporting and non-exporting companies. With the Co-Lending Program for Small and Medium-Sized Enterprises, the Business Development Bank of Canada (BDC) is working with financial institutions to co-lend term loans of up to CAD 12.5 million for businesses operational cash flow requirements.

The Government of Canada also introduced the Highly Affected Sectors Credit Availability Program (HASCAP) which provides businesses heavily impacted by COVID-19, access guaranteed, low-interest loans of CAD 25 000 to CAD 1 million to cover operational cash flow needs. HASCAP is available to businesses that operate in all sectors, including harder hit sectors such as tourism and hospitality, restaurants and those that primarily rely on in-person services. Businesses could benefit from a 4% interest rate and a repayment term of up to 10 years. The BDC has been mandated by the Government of Canada to provide a guarantee to the financial institution for 100% of the value of the loan.

The Canada Emergency Wage Subsidy (CEWS) has helped protect millions of Canadian jobs and supported businesses of every size across Canada through the COVID-19 pandemic. Canadian employer who has seen a drop in revenue during the COVID-19 pandemic, may be eligible for a subsidy to cover up to 75% of an employee’s wages to keep or re-hire workers, help prevent further job losses, and ease businesses back into normal operations. CEWS has helped more than 5.3 million Canadians keep their jobs and provided more than CAD 73 billion in support to the Canadian economy. In Budget 2021, the Government proposed to extend the wage subsidy until September 25, 2021.

The Business Development Bank of Canada (BDC), a crown corporation, has a mandate to support Canadian entrepreneurship, with a particular focus on SMEs. It offers direct lending, growth and transition capital, venture capital, securitization and advisory services. It offers financing products and advisory services that complement those available from private sector providers. It also fulfils a countercyclical role, increasing its support for Canadian entrepreneurs during times of economic turmoil. In response to the COVID-19 pandemic, BDC increased its direct lending activities tenfold by leveraging its online financing platform and new working capital loans. As of fiscal 2020, BDC had CAD 36.5 billion committed to 62 000 clients operating in all industries and located across Canada.

Total venture capital (VC) investment levels in Canada has had over eight straight years of growth reaching CAD 6.2 billion in 2019 before decreasing to CAD 4.1 billion in 2020. These are the highest levels of VC investment recorded in Canada since 2001. This growth has in part been attributed to the successful Government Venture Capital Action Plan policy launched in 2012, the ongoing direct and indirect VC investments placed by the BDC with a VC portfolio of approximately CAD 2.3 billion under management, as well as to a maturing of the Canadian VC industry.

Building on the momentum of VCAP and the original Venture Capital Catalyst Initiative (VCCI), the Government of Canada’s Budget 2021 made CAD 450 million available through a renewed VCCI to support the Canada venture capital ecosystem. It will build a VC portfolio through three streams: large funds-of-funds, an inclusive growth stream, and investments in the life sciences sector. The renewed VCCI should inject more than CAD 1.5 billion into the Canadian innovation capital market by leveraging funds from the public sector and private sector.

The Canada Small Business Financing Program continues to improve access to financing for small businesses. In 2019-20, the programme facilitated almost CAD 1.3 billion in private sector loans to Canadian small businesses. Budget 2021 included an announcement to improve and modernize the programme through amendments to the Canada Small Business Financing Act and its regulations. These amendments are projected to facilitate an increase annual financing by CAD 560 million, supporting approximately 2 900 additional small businesses.

Futurpreneur Canada, a not-for-profit organisation, which provides financing, mentoring, and business support tools to young entrepreneurs, also received CAD 38 million in funding over five years, starting in 2019-20 to continue its support of Canada’s next generation of entrepreneurs. The organisation provides young entrepreneurs between the ages of 18 and 39 up to CAD 20 000 in start-up loans for flexible three-to-five-year terms with compulsory mentoring lasting a minimum of two years. Futurpreneur loan recipients can receive an additional CAD 40 000 in loans from BDC. In 2020, the Government invested an additional CAD 20.1 million in support to allow Futurpreneur Canada to provide financial support for young entrepreneurs facing challenges due to COVID-19.

Supporting women entrepreneurs continues to be one of the key focus areas for the Government of Canada. In 2018, the Government launched the Women Entrepreneurship Strategy (WES), a whole of government approach to support women entrepreneurs over the long term. In Budget 2021, the Government announced a further investment of CAD 146.9 million, bringing total WES investment to nearly CAD 6 billion. This new support will provide affordable financing, increased data, and will strengthen capacity within the entrepreneurship ecosystem. As part of the Strategy, WES partners including Business Development Bank of Canada and Export Development Canada have set ambitious new support targets.

The Government of Canada has made investments of up to CAD 221 million in collaboration with Canadian financial institutions to help thousands of Black business owners and entrepreneurs across the country grow their businesses. The Black Entrepreneurship Program (BEP) has three main components: CAD 53 million for the National Ecosystem Fund to support not-for-profit Black-led business organizations across the country in their capacity to provide support, mentorship, financial planning, and business training for Black entrepreneurs; CAD 6.5 million for the Knowledge hub to conduct research on Black entrepreneurship in Canada and to help identify barriers to success and opportunities for growth; and, the Loan Fund is an investment of CAD 291.3 million (CAD 33.3 million from the Government of Canada, CAD 130 million from BDC, and CAD 128 million from several financial institutions) to support Black business owners and entrepreneurs. The Loan Fund will provide loans of up to CAD 250 000 to Black business owners and entrepreneurs across the country to start, build and grow their businesses. As part of Budget 2021, the Government will invest up to an additional CAD 51.7 million over four years, starting in 2021-22, to add funds to the Ecosystem Fund, so that more supports can be available to Black-led businesses and Black entrepreneurs.

To help simplify and streamline the Government’s support programs, and to help equity deserving entrepreneurs such as, racialized Canadians, young people, LGBTQ2 people, and more, access funding and capital, mentorship, financial planning services, and business training, the Government will launch the Small Business and Entrepreneurship Development program (SBED). SBED is a CAD 101.4 million over 5 years, tool which will facilitate continued support of small businesses and entrepreneurs across Canada. This will help all Canadians have an equal chance to succeed and contribute to economic recovery and growth.

As well, the Government of Canada’s launched Canada’s Export Diversification Strategy in Fall of 2018. In total, the Export Diversification Strategy is a CAD 1.1 billion investment over six years, that aims to help Canadian businesses access new markets and increase Canada’s overseas exports by 50% by 2025. It is focused on investing in infrastructure, providing businesses with resources to execute their export plans and enhancing trade services. As part of this Strategy, the Government is providing CAD 10 million over three years to for export readiness and export capacity building initiatives, delivered in partnership with local organizations to help firms with high export potential to realize new international opportunities. In addition, the Government will provide CAD 50 million over five years to help SMEs explore new export opportunities. The Strategy also includes CAD 100 million over six years towards CanExport and related programs to help SMEs looking to reach new markets overseas. This is in addition to CanExport’s initial CAD 50 million over five years, which was launched in 2016.

Established in 2016, the Trade Commissioner Service’s CanExport provides CAD 33 million per year in grants and contributions to Canadian SMEs, innovators, associations and communities to help them diversify exports and expand their international footprint. In line with Canada’s Trade Export Diversification Strategy, the CanExport funding program seeks not only to diversify where Canada exports, but also who exports. To this end, the program recently launched a dedicated Concierge Service for women and Indigenous entrepreneurs, to encourage more diversity in its applicants and to better support those who have been disproportionately impacted by the COVID-19 crisis. CanExport also allows companies participating in women-focused trade missions organized by Global Affairs Canada to exceptionally submit a project under the CAD 20 000 budget limit for consideration.

In response to COVID-19 export challenges, on November 3, 2020, the CanExport program updated its guidelines to provide more flexible funding, particularly for virtual activities. This has helped companies successfully pivot away from traditional in-person sales strategies to digital platforms.

References

Bank of Canada, Senior Loan Officer Survey,

www.bankofcanada.ca/publications-research/periodicals/slos/

Statistics Canada, Biannual Survey of Suppliers of Business Financing, http://www.ic.gc.ca/eic/site/061.nsf/eng/h_01569.html

Innovation, Science and Economic Development Canada, Credit Conditions Survey,

http://www.ic.gc.ca/eic/site/061.nsf/eng/h_02192.html

Statistics Canada, Survey on Financing and Growth of Small and Medium Enterprises, http://www.ic.gc.ca/eic/site/061.nsf/eng/h_02774.html

PayNet Inc., Canadian Business Delinquency Index,

http://www.paynetonline.ca/issues-and-solutions/all-paynet-products/paynet-canadian-business-delinquency-index-cbdi/

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