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Authored by: Michael Smith | Associate Partner, Advisory at EY
Claire Urbain | Senior Manager, Advisory at EY
Taylor Mackenzie | Consultant, Advisory at EY
EY conducted a Global small and medium-sized enterprise (SME) banking survey to gather data on small businesses’ financial needs.
Small business is big in Canada. The important contribution small businesses make to the Canadian economy is well understood. They employ approximately 10.6 million people in Canada, accounting for 62.6% of the labour force in 2022, 43% of exports and approximately a third of Canada’s GDP.¹
Small businesses are also important to Canadian financial institutions (FIs), as FIs have always benefited significantly from the deposits of small businesses. Small business lending has not been the primary focus for many Canadian financial institutions relative to other customer segments because the loans have lower net revenue per customer. This is in part due to lending complexity, regulatory compliance and smaller loan sizes. Additionally, with some notable exceptions — such as BDC and Thinking Capital — Canada does not have the volume of small business-specific lenders that have surged in size in other geographies, though the number is growing.
Given the importance to both society and FIs, in this report we investigate small business lending further by surveying a group of eight Canadian FIs diverse in size, geographic location and investment areas, and pulling insights from a recent EY Global survey of small and medium-sized enterprises. To augment this, we also analyzed leading international market players, as we found the international angle insightful to broaden horizons and assess how trends might play out over time.
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Summary
Small business growth is important to Canada’s future, and this growth needs to be enabled by FIs lending which, due to new technological capabilities, is becoming an increasingly exciting space. While we do not intend to predict the future, we have seen the increasing prioritization of auto-adjudication capabilities, loan origination journeys (through loan origination systems), and personalization, which can only improve options and the experience for small businesses when investigating and choosing funding for their business needs.