entrepreneurship-related data in canada terry evers director small business and special surveys...
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Entrepreneurship-related Data Entrepreneurship-related Data
in Canadain Canada
Terry EversDirector
Small Business and Special Surveys Division
Statistics Canada
ISTAT SeminarDecember, 2006
ContentContent
1. SME-FDI1. Overview of SME-FDI2. Research Findings
1. State of SME financing2. Financing Gaps3. Business Angels
3. Next Steps
2. SME Statistics Program1. Business problem2. Approach3. Timing
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SME Financing Data Initiative (SMEFDI)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
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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)SME Financing Data Initiative (SME-FDI)
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SME Financing Data Initiative (SME-FDI)SME Financing Data Initiative (SME-FDI)
Specialized Studies:
Financial Marketplace Risk Capital SMEs and Entrepreneurs Other Research
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What is an SME?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
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Importance of SMEsImportance 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%)
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SMEs Financing Needs in 2004SMEs 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%
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Where SMEs go for financing?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
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Where do SMEs do their day-to-day banking?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%
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Other ResultsOther 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
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Definition of “Financing Gaps”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?
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Postulated Gaps Postulated Gaps (Based on focus group data)(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.
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Debt Financing GapsDebt 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
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Results (Debt Financing Gaps)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 firmsNot 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.
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Business AngelsBusiness 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
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Next StepsNext Steps
Leverage SME-FDI in order to provide a broader range of data on SMEs in CanadaThis 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 issuesMuch interest was expressed by private and public stakeholders at a workshop hosted by Industry Canada in September 2006Stakeholders have different interests / needs
Provinces like Ontario and British Columbia expressed a need for more sub-provincial detail on SMEsFederal 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 outcomesOthers 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.
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Satisfying these needs will require:Additional sample to support new domains of estimationContent changes to collect data on new issuesUse 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 vehiclePooling of resources to get maximum return on investmentBetter 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 issuesBetter management of response burden which is of great concern to Canadian SMEs
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Thank You! 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 BélangerSenior Policy AdvisorIndustry Canada (SME FDI)[email protected]
SME Statistics ProgramSME Statistics Program
Small Business and Special Surveys Small Business and Special Surveys DivisionDivision
Statistics CanadaStatistics Canada
ISTAT SeminarISTAT Seminar
December 2006December 2006
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
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 different concepts in use
StatisticsCanada
Business Problem Cont’dBusiness Problem Cont’dData GapsData Gaps
Data on certain SME issues is either missing or lacking Data on certain SME issues is either missing or lacking detaildetail
Ex. Owner characteristics, exporting, business transition planning, Ex. Owner characteristics, exporting, business transition planning, sub provincial detailsub provincial detail
SME Statistics Program Proposal
Three Principals National and International focus Phased approach Stakeholder involvement (program design) and
stakeholder commitment (financial support)
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
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
StatisticsCanada
Phased ApproachPhased Approach
Phase 1 (FY 06-07) Cont’dPhase 1 (FY 06-07) Cont’dWork towards agreement on a definition for small and Work towards agreement on a definition for small and
medium sized businesses medium sized businesses
Phase 2 (FY 07-08)Phase 2 (FY 07-08)Derive SME performance indicators Derive SME performance indicators
Detailed micro data for every SME in CanadaDetailed micro data for every SME in Canada
Indicators will include measures such as financial Indicators will include measures such as financial characteristics, job creation / loss, survival rates, profit characteristics, job creation / loss, survival rates, profit ratios, fast growth enterprises, business life cycle ratios, fast growth enterprises, business life cycle
Expand the demographic profile to include data back to Expand the demographic profile to include data back to 1999 using new inputs and definitions1999 using new inputs and definitions
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