Entrepreneurship-related Data in Canada

1. Entrepreneurship-related Data in Canada ISTAT Seminar December, 2006 Terry Evers Director Small Business and Special Surveys Division Statistics Canada

2. Content • SME-FDI • Overview of SME-FDI • Research Findings • State of SME financing • Financing Gaps • Business Angels • Next Steps • SME Statistics Program • Business problem • Approach • Timing

3. 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

4. SME Financing Data Initiative (SME-FDI) 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.

5. SME Financing Data Initiative (SME-FDI) Specialized Studies: • Financial Marketplace • Risk Capital • SMEs and Entrepreneurs • Other Research

6. 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

7. Importance 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%)

8. SMEs 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

9. Where SMEs go for financing? • 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

10. 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

11. Other 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

12. Definition of “Financing Gaps” OECD (2006) credit rationing exists if: • among loan applicants who appear to be identical some receive credit while others do not; or, • 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?

13. Postulated Gaps (Based on focus group data) • Source: BDC, 2001.

14. Debt 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

15. 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 firms • Not 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.

16. Business 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

17. Next Steps • Leverage SME-FDI in order to provide a broader range of data on SMEs in Canada • This 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 issues • Much interest was expressed by private and public stakeholders at a workshop hosted by Industry Canada in September 2006 • Stakeholders have different interests / needs • Provinces like Ontario and British Columbia expressed a need for more sub-provincial detail on SMEs • Federal 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 outcomes • Others 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.

18. Satisfying these needs will require: • Additional sample to support new domains of estimation • Content changes to collect data on new issues • Use 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 vehicle • Pooling of resources to get maximum return on investment • Better 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 issues • Better management of response burden which is of great concern to Canadian SMEs

19. 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 Bélanger Senior Policy Advisor Industry Canada (SME FDI) belanger.brad@ic.gc.ca

20. ISTAT Seminar December 2006 SME Statistics ProgramSmall Business and Special Surveys DivisionStatistics Canada

21. 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

22. 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

23. Business Problem Cont’d • Data Gaps Data on certain SME issues is either missing or lacking detail • Ex. Owner characteristics, exporting, business transition planning, sub provincial detail

24. SME Statistics Program Proposal • Three Principals • National and International focus • Phased approach • Stakeholder involvement (program design) and stakeholder commitment (financial support)

25. 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

26. 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

27. Phased Approach • Phase 1 (FY 06-07) Cont’d • Work towards agreement on a definition for small and medium sized businesses • Phase 2 (FY 07-08) • Derive SME performance indicators Detailed micro data for every SME in Canada • Indicators will include measures such as financial characteristics, job creation / loss, survival rates, profit ratios, fast growth enterprises, business life cycle • Expand the demographic profile to include data back to 1999 using new inputs and definitions

28. 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