of small- and medium-sized enterprises
(This article appeared in The
Daily, a publication by Statistics Canada)
An entrepreneur's personal savings are twice as important
as commercial bank loans in financing the start-up of new
businesses, according to data on the capital structure of
businesses from the 2000 Survey on Financing of
Small and Medium-sized Firms. However, once a business is
in operation, commercial bank loans become the single most
important source of finance.
Just over one-half (54%) of entrepreneurs reported that,
in 2000, personal savings were very important in launching
their business, whereas 27% cited commercial loans from
banks, credit unions, caisses populaires or other financial
institutions as very important. About 23% of entrepreneurs
said they also depended on their personal credit cards. (The
survey did not ask whether businesses carried a balance on
their credit cards and paid interest on it.)
Other major sources of finance were personal lines of credit
and personal loans, trade credit from suppliers, loans from
friends and relatives, leasing and government lending agencies.
Note to readers
The Survey on Financing of Small and Medium-sized Firms
was administered to a sample of firms with up to 499 full-time
equivalent employees and less than $50 million
in gross revenues. Financing and leasing companies,
co-operatives, subsidiaries, not-for profit organizations,
government offices, schools, hospitals and other public
sector organizations were excluded.
The accuracy of the results declines when the target
population is broken out into sub-groups. However, overall
results for the population are accurate to within five
percentage points, 19 times out of 20.
Knowledge-based industries had the lowest debt-to-equity
ratio among a group of surveyed industries, as well as the
lowest proportion of bank loans on their balance sheets.
Statistics Canada conducted the survey, in partnership with
Industry Canada and Finance Canada, in the fall of 2001 as
part of a larger program of research on small and medium-sized
firms. About 7,200 firms answered detailed questions
on their credit suppliers and on the capital structure of
The first round of survey data released in The Daily
on January 15 concentrated on debt financing. Data
showed that 82% of small and medium-sized enterprises
that sought a loan or other type of credit during 2000 were
able to obtain it.
Start-ups: Importance of commercial loans varies by industry
The importance of commercial loans for business start-ups
varied across industries, according to the survey. In agriculture, 62%
of firms reported that commercial loans were very important
in starting up, as did 39% of firms in manufacturing
and the primary industries, and 33% of those in wholesale
and retail trade. However, only 6% of firms in the knowledge-based
industry and 8% of those in professional service industries
reported that commercial loans were important.
In contrast, the entrepreneur's personal savings were crucial
for starting up businesses in all industries.
Personal savings were also more important than commercial
loans for businesses of all ranges of employment. Firms with
no employees were the least dependent on commercial loans
for start-up. Commercial loans were crucial for 31% of
companies with 1 to 4 employees, and for 40%
of businesses that employed 5 to 19 employees.
Ongoing operations: Commercial credit single most important
source of financing
Commercial credit was the single most important source of
financing for ongoing operations, according to the survey.
About 39% of respondents identified loans from banks,
credit unions, caisses populaires and other financial
institutions as very important to financing their ongoing
operations, compared with only 24% who cited personal
Furthermore, 21% depended on past profits, or retained
earnings, for finance. Other sources were credit from suppliers,
personal credit cards, personal lines of credit, commercial
credit cards and personal loans, leasing, loans from friends
or relatives, and factoring.
The importance of bank financing varied by the size of the
firm. Loans from financial institutions were very important
for 32% of firms that had no employees. This proportion
rose to 41% among firms with 1 to 4 employees, 53%
among those with 5 to 19, 60% among those
with 20 to 99, and 69% among those with 100 to 499 employees.
Again, the importance of bank financing varied from industry
to industry. Only 27% of firms in the professional services
industries and 17% in the knowledge-based industries
identified access to commercial loans as very important. In
contrast, 42% of businesses in the capital-intensive
manufacturing industries, as well as 59% of businesses
in agriculture, identified access to commercial loans as very
In knowledge-based industries, 15% of liabilities outstanding
were in form of commercial loans, compared with 25% in
wholesale and retail trade, 28% in professional services, 31%
in manufacturing and 46% in agriculture.
Debt-to-equity ratio lowest for knowledge-based firms
The survey found that 86% of total equity among small
and medium-sized enterprises in 2000 was held by
the business owner-operators, and the remainder was owned
by relatives and friends, private investors, venture capital
and others. The capital structure of a small or medium-sized
firm depended on the industry in which it operated.
Companies in knowledge-based industries had a long-term debt-to-equity
ratio of 0.36; in professional services, the ratio was 0.45.
Firms operating in the capital-intensive sectors that can
offer physical collateral had higher debt-to-equity ratios.
For example, manufacturing had a ratio of 0.62 and
wholesale and retail trade, 0.64.
To order aggregate data from the survey, now available in
table format, contact Statistics Canada - Client Services
(1-877-679-2746). For more information, or to enquire about
the concepts, methods or data quality of this release, contact
Klaus Kostenbauer (613-951-0691; email@example.com),
Statistics Canada, Small Business and Special Surveys Division.
This survey forms part of the SME Financing Data Initiative.
For more information on the initiative, please consult Industry
Canada's Web site (www.strategis.ic.gc.ca/fdi).