SME Profile: Co-operatives in Canada

3.1 Financing requests

According to the SFGSME, 82.4% of SMEs and 82.6% of co-operatives requested external financing in 2020. In comparison, 47.1% of SMEs and 64.9% of co-operatives requested external financing in 2017.^{Footnote 5} The availability of government support during the COVID-19 pandemic in 2020 was likely the main factor for this significant increase in external financing requests.

3.2 Type of financing

Requests for external financing made by SMEs and co-operatives may have included any of the following types of financing: debt financing (non-residential mortgage loans, lines of credit, term loans, and credit cards), lease financing, trade credit financing, equity financing, and government financing.

Figure 1 shows financing requests, by types of financing. For both co-operatives and SMEs, government financing represented the majority of financing requests (75.9% for SMEs and 72.0% for co-operatives), while equity financing represented the minority of requests for SMEs (1.0%) as well as for co-operatives (3.4%).

Figure 1: Financing requests by type of financing (% of businesses)

Of the SMEs and co-operatives that requested government financing, approximately 86% of SMEs applied for CEBA, compared with 63.5% of co-operatives (Figure 2). Nearly 76% of co-operatives that requested government financing applied for CEWS, compared with 59% of SMEs.

Figure 2: Government financing (% of businesses)

3.3 Debt financing providers

In 2020, 61.7% of co-operatives obtained their debt financing from credit unions and caisses populaires, 20.5% from domestic chartered banks, 11.6% from government institutions, and 0.9% from online alternative lender/crowdsourcing/peer-to-peer lending (Figure 3). By contrast, 64.1% of SMEs received debt financing from domestic chartered banks, 20.3% from credit unions and caisses populaires, 12.7% from government institutions, and 0.7% from online alternative lender/crowdsourcing/peer-to-peer lending.

Figure 3: Debt financing providers (% of businesses)

3.4 Debt financing by type of instrument

The SFGSME also provided request rates for the different types of debt financing: non-residential mortgage loans, lines of credit, term loans, and credit cards. Table 1 below shows the different request rates and the overall (full and partial) approval rates. Note that for both co-operatives and SMEs, the request rates for these debt financing instruments all occupied the same rank, from most to least requested. The most requested instrument was line of credit, followed by credit cards, term loans, and non-residential mortgage loans. Overall, co-operatives had a higher approval rate than SMEs for all types of debt financing instruments.

3.5 Financing amount

The total amount of debt financing received is shown in Table 2. In 2020, a total of approximately $129.8 million^{Footnote 6} was received in debt financing by co-operatives, while SMEs received approximately $39.4 billion.^{Footnote 7} Overall, the authorized-to-requested amount of debt financing was 92.3% for SMEs and 99.1% for co-operatives.

In Table 3, the total amount authorized and the approval rate by financing type is shown. For SMEs, most of their loans came from government financing ($40.9 billion) and debt financing ($39.4 billion). As for co-operatives, most of their loans came from debt financing ($0.13 billion).^{Footnote 8} Table 3 also reveals that co-operatives had a higher approval rate (95.7%) than SMEs (90.8%) for debt financing.

For debt financing requests, 8.3% of SMEs were rejected, compared with 0.8% of co-operatives. In 100% of the cases, requests by co-operatives were rejected due to insufficient sales or cash flow, insufficient collateral, or because the business operated in an unstable industry (Table 4).

Reasons were more varied for SMEs. The most common reason for turning down their debt financing request was insufficient sales or cash flow (34.2%).

The second most common reason was a poor or lack of credit experience or history (25.5%). Other reasons were that the business operated in an unstable industry (13.2%), that there was insufficient collateral (9.2%), and that the project was considered too risky (8.3%).

3.6 Intended use of debt financing

In Figure 4, the intended use of debt financing is shown. Debt financing was primarily used for working capital or operating capital by SMEs (59.8%) and co-operatives (49.5%). The second most common use of debt financing was to acquire machinery and equipment, both for SMEs (19.3%) and co-operatives (18.0%). Research and development was the least common use of financing for SMEs (3.2%) and co-operatives (1.7%).

Figure 4: Intended use of debt financing (% of businesses)

4.1 Business age

Co-operatives were, on average, approximately 2.44 times older than SMEs. The average age of SMEs was 18 years while the average age of co-operatives was 44 years.

More specifically, 7.6% of SMEs were two years old or less, compared with only 2.6% of co-operatives. Approximately 31% of SMEs were three to ten years old, compared with 15% of co-operatives (Figure 5). In addition, 27.3% of SMEs were 11 to 20 years old, compared with 10.2% of co-operatives. Lastly, 33.7% of SMEs were more than 20 years old, whereas a considerably higher percentage of co-operatives (72.2%) were in this age range.

Figure 5: Age of business (% of businesses)

4.2 Business size

Co-operatives tended to be larger in terms of their number of employees than SMEs, as shown in Figure 6. More than 56% of SMEs had 1 to 4 employees, compared with 19.9% of co-operatives. Also, approximately 43% of co-operatives had 20 to 499 employees, compared with only 12.3% of SMEs. Nearly 70% of co-operatives had 5 to 99 employees.

Figure 6: Size distribution of SMEs and co-operatives

4.3 Business ownership

Overall, more SMEs than co-operatives were majority owned by women or majority owned by men, while more co-operatives than SMEs were equally owned (Figure 7). Nearly 17% of SMEs were majority owned by women, compared with 11.5% of co-operatives. By contrast, 68.9% of SMEs were majority men-owned, compared with 67.9% of co-operatives. Co-operatives (20.6%) were more likely than SMEs (14.3%) to be equally owned by men and women.

Figure 7: Gender of majority ownership (% of businesses)

Figure 8 shows the majority ownership of businesses held by diverse groups. SMEs were less likely to be owned by Indigenous peoples (1.1%) than co-operatives (5%). On the other hand, a higher percentage of SMEs were owned by visible minorities^{Footnote 9} (9.3%) than co-operatives (2.3%). Similar proportions of SMEs and co-operatives were owned by persons with a disability.

Figure 8: Majority ownership by different groups (% of businesses)

4.4 Growth

The growth of SMEs and co-operatives can be analyzed over two periods. Figures 9 and 10 present statistics based on firms' growth over the previous three years (2018 to 2020) and about firms' expectations for growth over the next three years (2021 to 2023). From 2018 to 2020, 20.9% of SMEs and 16.7% of co-operatives experienced less than zero (negative) growth in sales or revenues.

Furthermore, 17.5% of SMEs and 13.4% of co-operatives did not grow at all. Combining these numbers, we see that 38.4% of SMEs and 30.1% of co-operatives did not undergo positive growth in the last three years. Thirty percent of SMEs and 41.5% of co-operatives grew by 1% to 5%. Seven percent of SMEs grew by 20% or more over the last three years, compared with 6.7% of co-operatives.

Most firms were optimistic in their expectations of growth from 2021 to 2023, expecting to experience positive growth in sales or revenues (Figure 10). Only 7.1% of SMEs and 1.8% of co-operatives expected to experience negative growth over the next three years.

Figure 9: Average yearly growth in sales/revenues over the last 3 years (% of businesses)

Figure 10: Expected average yearly growth in sales/revenues over the next 3 years (% of businesses)

4.5 Obstacles to growth

Figure 11 shows major obstacles to growth reported by SMEs. Generally, SMEs and co-operatives faced similar obstacles to their growth. For co-operatives (25.0%), the most commonly reported major obstacle to growth was recruiting and retaining skilled employees, while for SMEs (30.6%), the most commonly reported major obstacle to growth was the rising cost of inputs.

Figure 11: Major obstacles to growth (% of businesses)

4.6 Intentions to expand

Over the next three years, 76.8% of SMEs reported intending to expand sales into a new market, compared with 86.4% of co-operatives. However, only 5.5% of co-operatives and 10.8% of SMEs intended to expand their sales in a market outside of Canada, with the majority of co-operatives (79.2%) and SMEs (62.3%) planning to expand within their local municipality or region, as shown in Figure 12.

For those planning to expand outside of Canada, the top country targeted was the United States (86.8% of SMEs and 65.4% of co-operatives). The second most popular target was Europe, excluding the United Kingdom, with 27.2% of SMEs and 55.2% of co-operatives planning to establish themselves there.^{Footnote 10}

Figure 12: Intentions to expand for SMEs and co-operatives (% of businesses)

4.7 Exports

In 2020, about 12.1% of SMEs and 7.4% of co-operatives were engaged in exporting. SMEs primarily exported services (44.7%), followed by goods (37.6%), and both goods and services (17.7%). As for co-operatives, 48.4% exported goods exclusively, 23% exported services exclusively, and 28.5% exported both goods and services. For both SMEs (83.7%) and co-operatives (84.5%), the United States was the preferred foreign destination for exports.

4.8 Reasons for not exporting

Both SMEs and co-operatives indicated that the local nature of their business was the principal reason for not exporting (86.7% of SMEs versus 90.4% of co-operatives).

4.9 Obstacles to exporting

Regarding obstacles to exporting for those who exported in 2020 (Figure 13), both SMEs and co-operatives most often indicated border obstacles as a major obstacle to exporting (13.6% and 7.7% respectively), followed by logistical obstacles (12.5% of SMEs and 5.2% of co-operatives). Administrative obstacles outside of Canada were not considered a major obstacle to growth for co-operatives, while 7.8% of SMEs considered it a major obstacle.

Figure 13: Major obstacles to exporting (% of businesses)

4.10 Innovation

The SFGSME surveyed innovation activities over the previous three years (2018 to 2020), as shown in Table 6. Around 16% of SMEs and 23.4% of co-operatives developed a product innovation. For each type of innovation, more co-operatives engaged in innovation activities than all SMEs.

Approximately 28% of SMEs and 39.3% of co-operatives were considered innovators, meaning that they developed at least one type of innovation.

4.11 Advanced technology adoption

Overall, 13.7% of SMEs adopted at least one advanced technology compared with 17.4% of co-operatives over the past three years (2018-2020). The advanced technology (Figure 14) most commonly adopted by both SMEs (13.7%) and co-operatives (17.4%) was business intelligence.^{Footnote 11} This was followed by security or advanced authentication systems (10.6% of SMEs versus 13.3% of co-operatives). The third most adopted technology by co-operatives and SMEs was material handling, supply chain or logistic technologies, respectively by 11.1% and 7.9%.

Figure 14: Technology adoption (% of businesses)

4.12 Online presence

Regarding the online presence of firms, co-operatives (72.9%) were more likely than SMEs (58.5%) to have an online presence. Figure 15 shows the types of services and sites used by SMEs and co-operatives. The most common types of online presence were social media accounts (66.2% of SMEs and 86% of co-operatives) and websites (82.9% of SMEs and 74.4% of co-operatives). Digital marketing services were also used by SMEs and co-operatives (27.6% and 25.2%, respectively).

Figure 15: Online presence by type of sites and services used (% of businesses)