Small and Medium Sized Enterprises: Lending and More

Last modified: 30 December 2015
For more information:

Fast facts

  • Banks provide financing to 1.6 million SMEs
  • 77 per cent of SMEs believe they are well served by their financial institutions
  • Loan approval rates are high: almost 85 per cent of all SMEs that applied for a loan were approved
  • As of December 2014, Canada's banks had authorized more than $200 billion in credit to SMEs across the country

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 were the main providers of external debt financing to 71.6 per cent of SMEs in 2014.1 

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 2014, Canada's domestic banks authorized more than $200 billion in credit to SMEs across the country.  Authorized lending to SMEs has increased by more than 20 per cent, or $34 billion, since the end of 2009.2
  • Approval rates are quite high: 85 per cent of all SMEs that applied for debt financing were approved.3
  • Obtaining financing is the least problematic external obstacle to growth. SMEs are more concerned about fluctuations in demand for products and services, increasing competition, the rising costs of managing their businesses, and recruiting and retaining skilled employees  among other external obstacles.4
  • For those that did not seek debt financing, 88 per cent of SMEs said they did not need it. Only three per cent said that it was because they thought they would be turned down and less than one per cent thought the cost of financing was too high.5

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. In fact, when choosing a financial institution, 35 per cent based their choice on credit services but 52 per cent chose their institution for non-credit banking services.6

Bankers in communities across the country provide financing to 1.6 million 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.

SMEs and bank relationships

The relationship is what matters. and when we asked SME owners about their relationship with their bank, we found that: A recent Ipsos Loyalty survey found that banks in Canada get top marks from their SME clients, who are well served by their financial institutions.  SMEs gave their banks an overall satisfaction rating of 77 per cent, up from 65 per cent in 2009.  Ratings were highest for “making you feel comfortable dealing with them”, “easy to get in touch with, through any channel and “listens to you”.  And more than two-thirds of respondents said that they were likely to recommend their financial institution.7

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. In the past decade alone, 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 14 per cent of SME authorized financing from banks goes to the agriculture industry and authorized financing to agriculture SMEs make up 64 per cent of the bank’s agricultural portfolio.8

Related content