From Potential to Prosperity: The urgent case for greater investment in Canada's SMEs

Ottawa – Structural issues in Canada’s financial system have resulted in persistent financing gaps for small- and medium-sized enterprises (SMEs), underinvestment of domestic capital in these businesses, and the loss of Canadian talent, business and intellectual property ownership, the Senate Committee on Banking, Commerce and the Economy said in a new report released Wednesday.

SMEs are the primary source of private-sector employment and a key driver of innovation and growth in Canada. After studying their access to credit and capital, the committee found that domestic financial markets do not offer them sufficient competitive, affordable and timely access. The committee is also deeply concerned that Canada’s largest institutional investors — financial conglomerates, insurers and pension funds — and other pools of capital appear disinclined to finance the growth of SMEs.

With globalization and the growing role of foreign investment, Canadian entrepreneurs are turning to other jurisdictions to source the capital they need and promising companies are being prematurely sold to foreign owners, taking with them talent, investments in research and development, intellectual property and future economic value. This limits our country’s ability to capitalize on Canadian talent and help our SMEs scale up and compete globally.

Recent international events have dramatically accelerated the need to address this structural choke point in the economy. The committee is calling for numerous fundamental changes to the Canadian financial system, outlined in eight key recommendations to the federal government. The committee urges the government to promptly implement these recommendations to foster SME growth and scaling throughout Canada, increase overall national productivity and grow domestic champions.

“Structural barriers in Canada’s financial system are preventing small- and medium-sized enterprises from reaching their full potential. These businesses are the backbone of our economy. We must make fundamental changes to help them succeed and keep their innovations in Canada.”

- Senator Clément Gignac, chair of the committee

“Small- and medium-sized companies are the primary source of private-sector employment in Canada and a key driver of innovation and growth. Canada’s long-term prosperity and competitiveness depend on their success and the actions the federal government takes today to drive or hinder that success.”

- Senator Daryl S. Fridhandler, member of the subcommittee on agenda and procedure

“Having experienced the realities of entrepreneurship firsthand, I know how much access to financing can make a difference. We ask a great deal of our entrepreneurs: to innovate, take risks, export and create jobs. We must also ask ourselves whether our financial system is truly giving them the means to succeed, including women and entrepreneurs from diverse backgrounds.”

- Senator Danièle Henkel, member of the committee

Chelsea DeFazioCommunications Officer | Senate of Canada343-576-1481 | chelsea.defazio@sen.parl.gc.ca