Small Business Credit Condition Trends, 2009-2022

Table of contents


About the survey

Innovation Science and Economic Development Canada (ISED) maintains close contact with the small business community as part of its monitoring and data collection activities. Since 2009, ISED has managed various surveys on the borrowing activities of small businesses. Two in particular include the Credit Conditions Survey (CCS)Footnote 1 and the larger Survey on Financing and Growth of Small and Medium Enterprises (SFGSME),Footnote 2 which is conducted every three years and also surveys medium-sized businesses. The CCS is implemented in years when the SFGSME is not conducted. These surveys monitor small and medium-sized enterprises (SMEs) to provide key information on small-business-lending conditions to the business community, lenders, policy makers and academics.


Overview

  • In 2022, about 27% of small businesses requested external financing. Around 18% requested debt financing and 7% requested government financing.
  • Among the small businesses that requested government financing, 13% requested the Hardest-Hit Business Recovery Program, 8% requested the Canada Recovery Hiring Program and 2% requested the Highly Affected Sector Credit Availability Program.
  • Debt financing was more often requested by larger firms.
  • The approval rate of small businesses was 88% in 2022, down from 90% in 2021. Around 91% of the dollar amount of debt financing requested by businesses was authorized compared to 93% in 2021.
  • The interest rate charged to small businesses in 2022 increased to 6.2% from 4.1% in 2021.
  • More small businesses have to pledge collateral in 2022: 62% compared to 58% in 2021.
  • The main intended used of debt financing was for working or operating capital (45%).

External financing needs

In 2022, 27% of small businesses requested external financing (debt, lease, equity, trade credit, and/or government financing). (Figure 1)

Figure 1: Request rates for external financing

Source: Innovation, Science and Economic Development Canada, Credit Conditions Survey, 2009, 2010, 2012, 2013, 2015, 2016, 2018, 2019, 2021 and 2022; and Statistics Canada, Survey on Financing and Growth of Small and Medium Enterprises 2011, 2014, 2017 and 2020.

Note: * Due to a change to clarify the trade credit question in the 2014, 2017 and 2020 surveys, the request rates for external financing in 2014, 2017 and 2020 are not entirely comparable with those in the other years.

Text version
Figure 1: Request rates for external financing
- External financing request rate (%)
2009 16
2010 21
2011 36
2012 34
2013 40
2014 51Footnote *
2015 31
2016 34
2017 47Footnote *
2018 34
2019 39
2020 82Footnote *
2021 53
2022 27

Source: Innovation, Science and Economic Development Canada, Credit Conditions Survey, 2009, 2010, 2012, 2013, 2015, 2016, 2018, 2019, 2021 and 2022; and Statistics Canada, Survey on Financing and Growth of Small and Medium Enterprises 2011, 2014, 2017 and 2020.

For 2022, 8% of small businesses requested government financing (government grants, subsidies, government guaranteed loans or non-repayable contributions) compared to 42% in 2021 (Figure 2 and Figure 3). The steep decrease in 2022 occurred as restrictions related to the COVID-19 pandemic were lifted and government support programs were, correspondingly, tapered.

Figure 2: Request rate for government financing

Source: Innovation, Science and Economic Development Canada, Credit Conditions Survey, 2018, 2019, 2021 and 2022; and Statistics Canada, Survey on Financing and Growth of Small and Medium Enterprises, 2017 and 2020.

Text version
Figure 2: Request rate for government financing
- Government financing request rate (%)
2017 4
2018 4
2019 4
2020 76
2021 42
2022 7

Source: Innovation, Science and Economic Development Canada, Credit Conditions Survey, 2018, 2019, 2021 and 2022; and Statistics Canada, Survey on Financing and Growth of Small and Medium Enterprises, 2017 and 2020.

Of the small businesses that requested government financing, 13% requested the Hardest-Hit Business Recovery Program (HHBRP), 8% requested the Canada Recovery Hiring Program (CRHP), 2% requested the Highly Affected Sectors Credit Availability Program (HASCAP) and 2% requested the Tourism and Hospitality Recovery Program (THRP) (Figure 3).

Figure 3: Government programs requested

Source: Innovation, Science and Economic Development Canada, Credit Conditions Survey, 2022.

Text version
Figure 3: Government programs requested
Programs Percentage
HASCAP 2
CRHP 8
HHBRP 13
THRP 2
Other COVID-19 related programs 48
Other programs 30

Source: Innovation, Science and Economic Development Canada, Credit Conditions Survey, 2022.

About 18% of small businesses requested debt financing (mortgages, term loans, lines of credit, and/or credit cards) in 2022, an increase of one percentage point from 2021 though well below pre-pandemic levels (Figure 4).

Figure 4: Request rates by type of external financing

Source: Innovation, Science and Economic Development Canada, Credit Conditions Survey, 2009, 2010, 2012, 2013, 2015, 2016, 2018, 2019, 2021 and 2022; and Statistics Canada, Survey on Financing and Growth of Small and Medium Enterprises, 2011, 2014, 2017 and 2020.

Note: * Due to a change to clarify the trade credit question in the 2014, 2017 and 2020 surveys, the request rates for trade credits are not entirely comparable with those in other years.

Text version
- Debt financing
(%)
Leasing
(%)
Trade Credit
(%)
Equity
(%)
2009

14

1

1

1

2010

18

2

1

1

2011

25

7

8

2

2012

26

8

8

4

2013

30

11

10

4

2014

28

8

28Footnote *

1

2015

23

8

6

2

2016

26

9

7

3

2017

26

7

26Footnote *

1

2018

27

9

6

3

2019

31

13

7

3

2020

16

6

24Footnote *

1

2021

17

6

6

3

2022

18

4

3

1

Sources: Innovation, Science and Economic Development Canada, Credit Conditions Survey, 2009, 2010, 2012, 2013, 2015, 2016, 2018, 2019 and 2021; and Statistics Canada, Survey on Financing and Growth of Small and Medium Enterprises, 2011, 2014, 2017 and 2020.


Reasons for seeking/not seeking financing

Most small businesses that requested debt financing in 2022 intended to use it to support day-to-day working and operational capital expenditures (45%) or to purchase or maintain fixed assets (33%) (Figure 5).

In 2022, 11% of small businesses that requested debt financing intended to purchase or expand a business, 9% to use it to consolidate debt, 1% to enter a new market, and 0.5% to support research and development (R&D).

Figure 5: The main reasons small businesses requested debt financing

Source: Innovation, Science and Economic Development Canada, Credit Conditions Survey, 2013, 2015, 2016, 2018, 2019, 2021 and 2022.

Text version
Reason 2013
(%)
2015
(%)
2016
(%)
2018
(%)
2019
(%)
2021
(%)
2022
(%)

Fixed asset

40

45

32

32

29

27

33

Working/Operational capital

49

41

49

51

44

55

45

Research and development

2

2

2

1

1

1

1

Debt Consolidations

5

6

7

7

7

2

9

Enter a new market

3

3

4

4

2

2

1

To purchase or expand a business

-

-

-

4

17

14

11

Other

2

3

6

6

1

0

1

Source: Innovation, Science and Economic Development Canada, Credit Conditions Survey, 2013, 2015, 2016, 2018, 2019, 2021 and 2022.

In 2022, 83% of small businesses that did not seek external financing did not need financing (Table 1). Around 4% of non-seeking small businesses did not request financing because they considered the cost too high and 3% thought that their request would be turned down.

Table 1: The main reason small businesses did not request financing
Reason 2010 (%) 2011 (%) 2012 (%) 2013 (%) 2014 (%) 2015 (%) 2016 (%) 2017 (%) 2018 (%) 2019 (%) 2020 (%) 2021 (%) 2022 (%)
Financing not needed 89 88 86 86 88 89 85 91 85 88 87 85 83
Thought request would be turned down 3 3 4 3 2 3 4 1 4 2 3 4 3
Applying for financing is too difficult 3 2 5 2 2 2 4 2 4 2 1 2 1
Cost of financing
too high
2 1 2 2 1 2 2 1 5 2 1 2 4

Sources: Innovation, Science and Economic Development Canada, Credit Conditions Survey, 2010, 2012, 2013, 2015, 2016, 2018, 2019, 2021 and 2022; and Statistics Canada, Survey on Financing and Growth of Small and Medium Enterprises, 2011, 2014, 2017 and 2020.


Access to debt financing

The approval rate in 2022 declined to 88% from 90% in 2021. The ratio of total funds authorized-to-requested was 91% in 2022, consistent with previous years and well above the 2009 recessionary levels (72%) (Table 2).

Table 2: Request rates, approval rates and authorized-to-requested ratio
Year Request rate
(%)
Approval rate
(%)
Authorized-to-requested ratio
(%)
2009 14 79 72
2010 18 88 88
2011 25 88 90
2012 26 89 90
2013 30 85 89
2014 28 81 83
2015 23 88 90
2016 26 82 86
2017 26 87 93
2018 27 83 88
2019 31 89 89
2020 16 89 92
2021 17 94 93
2022 18 88 91

Sources: Innovation, Science and Economic Development Canada, Credit Conditions Survey, 2009, 2010, 2012, 2013, 2015, 2016, 2018, 2019, 2021 and 2022; and Statistics Canada, Survey on Financing and Growth of Small and Medium Enterprises, 2011, 2014, 2017 and 2020.


Interest rates

Inflation in Canada was high and broad-based in 2022. The Consumer Price Index (CPI) rose 6.3% year over year in December 2022.Footnote 3 In response, the Bank of Canada increased the policy interest rate during the year from 0.25% in January 2022 to 4.25% in December 2022. As a result, price conditions for debt financing tightened in 2022. The average interest rate on debt financing increased by 2.1 percentage points to reach 6.2% in 2022 (Table 3). Over the same period, the prime rate increased by 1.6 percentage points to 4.1%. The risk premium, a measure of the lenders’ risk perception, increased by 0.4 percentage points to 2.1%, the lowest level since 2019.

Table 3: Average interest rate on debt financing
Interest rate 2009 (%) 2010 (%) 2011 (%) 2012 (%) 2013 (%) 2014 (%) 2015 (%) 2016 (%) 2017 (%) 2018 (%) 2019 (%) 2020 (%) 2021 (%) 2022 (%)
Interest rate, average 6.2 5.8 5.3 5.4 5.6 5.2 5.1 5.3 5.4 5.7 5.3 4.8 4.1 6.2
Interest rate, prime rate 2.4 2.6 3.0 3.0 3.0 3.0 2.8 2.7 2.9 3.6 4.0 2.8 2.5 4.1
Risk premium 3.8 3.2 2.3 2.4 2.6 2.2 2.3 2.6 2.5 2.1 1.4 2.0 1.7 2.1

Sources: Innovation, Science and Economic Development Canada, Credit Conditions Survey, 2009, 2010, 2012, 2013, 2015, 2016, 2018, 2019, 2021 and 2022; Statistics Canada, Survey on Financing and Growth of Small and Medium Enterprises, 2011, 2014, 2017 and 2020; and Bank of Canada.

Note: Interest rates charged on credit cards are excluded.


Collateral rates

About 62% of small businesses were required to pledge collateral in 2022, an increase from 58% in 2021 (Figure 6).

Figure 6: Collateral rates for debt financing

Sources: Innovation, Science and Economic Development Canada, Credit Conditions Survey, 2009, 2010, 2012, 2013, 2015, 2016, 2018, 2019, 2021 and 2022; and Statistics Canada, Survey on Financing and Growth of Small and Medium Enterprises, 2011, 2014, 2017 and 2020.

Text version
Figure 6: Collateral rates for debt financing
- Percentage
2009 56
2010 67
2011 64
2012 76
2013 60
2014 65
2015 82
2016 63
2017 64
2018 55
2019 63
2020 62
2021 58
2022 62

Sources: Innovation, Science and Economic Development Canada, Credit Conditions Survey, 2009, 2010, 2012, 2013, 2015, 2016, 2018, 2019, 2021 and 2022; and Statistics Canada, Survey on Financing and Growth of Small and Medium Enterprises, 2011, 2014, 2017 and 2020.


Access to debt financing by type of business

Debt financing request rates positively correlate to size of business (Table 4). In 2022, 13% of businesses with 1 to 4 employees requested debt financing compared to 19% of businesses with 5 to 19 employees and 27% of businesses with 20 to 99 employees.

Approval rates were highest among businesses with 1 to 4 employees in 2022. About 89% of business debt-financing requests with 1 to 4 employees were approved.

Table 4: Access to debt financing by business characteristics, 2022
-

Request rate
(%)

Approval rate
(%)

All small businesses (1 to 99 employees)

18

88

Employment size

1 to 4 employees

13

89

5 to 19 employees

19

89

20 to 99 employees

27

83

Export

Exporter

19

88

Non-exporter

18

88

Age of business

2 years old or younger

36

78

3 to 10 years old

25

82

11 to 20 years old

14

90

More than 20 years old

16

93

Innovation activities developed or introduced

Innovator

23

90

Non-innovator

13

85

 

The debt financing request rate was highest for start-ups (2 years old or less). Thirty-six percent of start-ups requested debt financing in 2022, compared to 16% for businesses that are more that 20 years old. The average approval rate for start-ups (78%) was 15 percentage points lower than for older businesses (93%).

Small business exporters and innovators were more likely to request financing than non-exporters (19% versus 18%) and non-innovators (23% versus 13%) in 2022. The approval rate for exporters and non-exporters was virtually the same: 88%. Approval rates for innovators (90%) were higher than for non-innovators (85%).


Financial glossary of credit conditions survey

Approval Rate
The ratio between the number of firms approved (fully or partially) for financing and the number of firms that requested financing.
Authorized-to-Requested Rate
The ratio between the total amount of loans authorized by lenders and the total amount of loans requested by borrowers.
Business Risk Premium
The business risk premium is the difference between the average small business interest rate and the business prime rate (the rate charged to the most creditworthy borrowers).
Collateral
An asset pledged by a borrower to a lender, usually in return for a loan. The lender has the right to seize the collateral if the borrower defaults on the obligation.
Collateral Rate
The percentage of firms required to provide collateral to secure their loans.
Debt Financing
A type of financing used to collect funds through the form of borrowing debt such as non-residential mortgages, term loans, lines of credit, and/or credit cards.
Equity Financing
A type of financing used to collect funds by selling equity such as shares/ownership of the business entities.
External Financing
The phase of financing used to describe funds that business entities obtain from outside their business; the funds can be obtained through various forms/sources such as debt, lease, equity, trade credit and government financing.
Financing
The act of providing or raising funds for business activities, making purchases or investing.
Lease Financing
A type of financing used to collect funds through the form of a lease.
Line of Credit
An arrangement that a financial institution extends an amount of credit to a business entity.
Mortgage
A debt instrument secured by the collateral of a specified real estate property that the borrower is obliged to pay back with a predetermined set of payments.
Price and Non-Price Conditions
A financing condition measured by the pricing factors such as loan rates, mortgage rates, and credit card rates; and, a financing condition measured by the non-pricing factors such as collateral rates, leasing terms, and trade credit payment and discount days.
Term Loan
A monetary loan that is repaid following a specific repayment schedule and a fixed or floating interest rate.
Trade Credit
An agreement where a business entity can obtain and/or consume goods and services in advance, and pay the suppliers at a later date.
Request Rate
The ratio between the number of firms that requested financing and the total number of firms.