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Small and medium-sized businesses struggling to grow: BDC study

Bank to deploy unprecedented amount of financing and advisory services to help Canadian businesses scale up

Montreal, September 20, 2016—Canadian small and mid-sized companies are experiencing difficulty scaling, with dramatically fewer businesses expanding in size when compared to 15 years ago, according to a new study by the Business Development Bank of Canada (BDC).

Only a tiny fraction of small businesses—0.10% (or one in 1,000)—grew past the 100-employee mark. That represents more than a 40% drop from the 0.18% of small businesses that did so in 2001.

Mid-sized firms (with 100 to 499 employees) are struggling, too, the study found. They made up 0.93% of the total number of Canadian companies in 2013, a drop from 1.04% in 2001.

“Canada needs to see more small businesses transitioning to medium-sized firm level and more mid-sized companies achieving large status, because these two categories punch above their weight in terms of economic impact,” said Michael Denham, President and CEO of BDC. “It is therefore essential to focus on the conditions that favour their growth by supporting investment in capital spending and productivity improvements to help growing companies expand across Canada and beyond.”

BDC lending to hit $5.2 billion in 2016-2017

Amid these trends, BDC will increase its lending volume from $4.8 billion in 2016 to an all-time high of $5.2 billion in fiscal year 2017. The increased lending comes on top of $253 million in new venture capital commitments and $259 million in new growth and transition capital commitments by BDC last year, aimed primarily at helping the country’s most innovative and quickly growing companies.

In addition to financial support, BDC is also expanding its advisory services geared to help Canadian companies scale up, expand internationally and be more profitable and more efficient.

“Helping entrepreneurs expand their operations is one of our top priorities at BDC. We are taking tangible measures to ensure that Canadian companies that are ready to scale have access to the financing and advice they need,” Denham said.

Canadian companies getting smaller

BDC’s study also found:

  • Only 1.8% of Canadian mid-sized businesses become large companies each year, exceeding the 500-employee mark.
  • Mid-sized companies generate 12% of Canada’s GDP and 17% of private sector R&D spending. They lead the way in revenue growth, with 43% growth in average reported revenue from 2001 to 2013—greater than the 36% growth for large companies and 27% growth for small businesses.

The study also explores the factors that contribute to mid-sized firm growth. They include:

  • Investments in productivity—Productivity per worker is nearly 30% greater at large companies than at mid-sized ones.
  • Investments in fixed assets—Tangible fixed assets at mid-sized businesses are worth $51,100 per employee, versus $103,200 at large companies—or double the amount. Investment in such assets can improve business productivity.
  • Geographic diversification—Mid-sized firms that became large companies were more likely to be operating in three or more provinces.

About BDC

BDC is the only bank devoted exclusively to entrepreneurs. It promotes Canadian entrepreneurship with a focus on small and medium-sized businesses. With its 110+ business centres from coast to coast, BDC provides businesses in all industries with financing and advisory services. Its investment arm, BDC Capital, offers equity, venture capital, and flexible growth and transition capital solutions. To find out more, visit bdc.ca.

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