The group of Canadian businesses with the most potential for growth are being held back by our risk-averse financial environment. That’s one of the findings of a new report published today by the Business Development Bank of Canada, called High-impact firms: Accelerating Canadian competitiveness [PDF].
The “high impact firms” that BDC studied are ones that have disproportionate effects on the economy given their size—usually established businesses that have grown big enough to invest in above-average growth. In Canada that means firms with 100 to 500 employees that are growing faster than their sector, about 50,000 companies in all. Though they make up only 1.6% of all Canadian companies, such firms account for 12% of GDP and 16% of jobs.
Though the BDC is careful to note that there’s no one problem facing this group of companies, one chart in the report sticks out, because it shows just how starved for financing they are. It displays how valuable U.S. business leaders (in grey) and Canadian ones (in yellow) consider various types of “innovative financing solutions,” which are typically harder to secure because they are higher risk or simply not offered:
Americans, already working in an environment with many more options and a higher tolerance for risk, react to these options with a big yawn, while Canadians are enthusiastic. The reason is simple: Canadian firms have little room for creativity when it comes to financing, says BDC:
Based on our survey, Canadian businesses cite higher risk financing challenges twice as often as U.S. companies do. The survey showed this is especially true for smaller firms and more ambitious entrepreneurs. Financial institutions are slowly getting more comfortable with higher risk financing, but these markets remain underdeveloped in Canada.
So the most ambitious and highest-potential Canadian companies are, perversely, the ones most likely to hit a wall when they need to raise money. That’s doubly troubling, because if these firms could get their hands on more money, they would make the most effective use of it. Here’s another callout from the report:
In other words, Canadian firms have a harder time raising funds than U.S. counterparts, even though it would, on average, make more of a positive difference for them.
A pessimist might say this represents a huge wasted opportunity. But if you care to take a more optimistic view, these responses suggest that there is an opportunity to unleash a ton of potential at any time if investors had the smarts. And the guts.