Access to readily available financing to start and expand a
business is a barrier faced by many Canadian entrepreneurs and
small businesses. One solution lies in lifting restrictions on
foreign banks entering Canada for the sole purpose of lending
in order to increase competition and provide additional credit
to entrepreneurs and small businesses.
The study examines the performance of Canadian banks in
financing entrepreneurship and compares Canadian performance to
that of banks in other industrialized nations.
Bank loans, lines of credit and other banking products are
among the most used external sources of finance for Canada's
small and medium-sized businesses. If the Canadian banking
sector does not perform well in this area, Canadian
entrepreneurs are hobbled and creative people face additional
barriers when bringing new ideas to the market. That in turn
limits entrepreneurs' potential to grow their businesses and
create new jobs and employment opportunities.
The study found that while Canada performs reasonably well
in terms of the overall health of its banking system, its
performance in terms of financing entrepreneurs is weaker.
International research shows that Canadian banks lag behind
industry leaders in the two most important measures: the amount
of bank lending (in terms of the quantity of funds) and the
terms by which that lending is provided as measured by the
spread between the banks' interest returns and costs.
In terms of private sector bank lending as a percentage of
GDP, Canada ranks 20th out of 22 industrialized countries. This
ranking increases to 16th when all private sector institutional
lending such as credit unions is included.
The terms of financing indicate how efficient banks are in
performing their role. If financing terms are onerous or
costly, that has a direct impact on entrepreneurs by raising
the costs of obtaining financing for their businesses. In this
area, Canada ranks 10th out of 22 industrialized countries.