- Banks have more than one million financing relationships with SMEs across Canada
- Loan approval rates are high: 85 per cent of all SMEs that applied for a loan were approved1
- As of December 2017, Canada's banks had authorized more than $225 billion in credit to SMEs across the country2
The bottom line
Banks play an essential role in the business operations of small- and medium-sized enterprises (SMEs), meeting their diverse financial needs to drive innovation, development and growth.
The majority of bank business customers are small and medium-sized businesses and banks work hard to meet the needs of this market – one that is increasingly competitive, diverse and technologically savvy. In fact, all banks have dedicated small business departments to help their SME customers.
What defines an SME?
The CBA defines a small- and medium-sized enterprise (SME) as having authorized borrowing under $5 million and defines small businesses as having authorized borrowing under $1 million.
Lending to SMEs
Canadian SMEs seeking credit enjoy a very competitive marketplace, with many different financing firms competing for their business. According to an Industry Canada survey, domestic banks are the main providers of external debt financing to 72 per cent of SMEs who requested financing.3
Canadian SMEs seeking credit enjoy a very competitive marketplace, with many different financing firms competing for their business. Throughout changing economic and business cycles, banks have continued to lend to credit worthy businesses, providing a range of credit products including loans and lines of credit.
Banks provide a variety of short-term lending options, including overdraft protection, credit card and lines of credit. SMEs can also arrange a variety of longer-term financing solutions through their banks such as term loans, mortgages, and leasing. Banks also participate in the federal government’s Canada Small Business Financing Program (CSBFP). The government shares risk with lenders through this program, which helps stimulate job and wealth creation. Small businesses or start-ups operating for profit in Canada with gross annual revenues of $10 million or less are eligible for CSBFP loans.
SMEs have come to rely on readily accessible finance to help meet their business needs
- As of December 2017, Canada's domestic banks authorized more than $225 billion in credit to SMEs across the country. Authorized lending to SMEs has increased by 22 per cent, or by $39 billion, since the end of 2012.4
- Approval rates are quite high: 82 per cent of all SMEs that applied for debt financing were approved.5
- Approval rates for rural SMEs are higher for rural SMEs than for their urban counterparts.6
- Obtaining financing is the least problematic external obstacle to growth. SMEs are more concerned about the rise in operating costs, fluctuations in demand for products and services, increasing competition, recruiting and retaining skilled employees among other external obstacles.7
- For those that did not seek debt financing, 85 per cent of SMEs said they did not need it. Only four per cent said that it was because they thought they would be turned down and two per cent thought the cost of financing was too high.8
Banks are also offering more flexible products and simplifying the credit application process, especially for smaller amounts of credit, making it easier to access financing.
More than just lending
While lending is an important part of the banking relationship, SMEs use banks for a variety of different financial needs and banking solutions. Banks work day in and day out to provide advice and develop innovative solutions for their SME clients.
Banks in communities across the country have more than 1 million financial relationships with SME owners. SMEs are demanding value and quality service. To meet this demand, banks provide a variety of products and services in addition to lending. These banking solutions include:
- Business chequing and saving accounts, in both Canadian and foreign dollar denominations;
- Tax payment services;
- Foreign exchange services;
- Succession and investment planning;
- Electronic fund transfers;
- On-line and telephone banking;
- Payroll and filing services; and,
- Coaching podcasts, booklets and seminars.
Supporting Women Entrepreneurs
Banks have taken initiatives to assist women entrepreneurs to build and grow their businesses - from financing and other banking products and services to capacity building and networking programs. Statistics Canada’s 2014 survey on Financing and Growth of SMEs provides insight on the financing of women entrepreneurs. According to this study:
- Canada’s domestic banks are the main provider of external finance for 74 per cent for businesses with a majority female ownership.
- For businesses fully owned by women, 81 per cent were approved for debt financing, and those with majority female ownership the approval rate was 87 per cent.
- Debt financing is not an obstacle for women entrepreneurs, only a few of female-owned SMEs cited obtaining financing (10 per cent) as a major obstacle to external obstacle to growth.
Strong ties to agriculture
Banks in Canada also have a longstanding business relationship with farmers and agricultural customers and these strong relationships have helped banks work with their customers through significant challenges. Farmers have had to confront BSE, avian influenza, drought, floods, the H1N1 virus and country of origin labelling (COOL). Banks have been there for their clients, working with them on an individual, case-by-case basis to assess their unique needs and to develop solutions.
Approximately 15 per cent of SME authorized financing from banks goes to the agriculture industry and authorized financing to agriculture SMEs make up almost 60 per cent of the bank’s agricultural portfolio.9
1 Credit Conditions, Survey, 2016 (Data tables), Released 2017
2 CBA Business Credit Statistics, December 2017, figures from nine banks
3 Industry Canada, Survey on Financing and Growth of Small and Medium Enterprises, 2014 (Data tables), Released 2015
4 CBA Business Credit Statistics, December 2017, figures from nine banks
5 Credit Conditions Survey, 2016 (Data tables), Released 2017
6 CFIB Business Barometer, May 2018
7 Credit Conditions Survey, 2016 (Data tables), Released 2017
8 Industry Canada, Survey on Financing and Growth of Small and Medium Enterprises, 2014 (Data tables), Released 2015
9 CBA Business Credit Statistics, December 2017, figures from nine banks