The Competition Bureau is set to examine how Canada’s lending sector serves small and medium-sized businesses, saying concerns have emerged about limited competition and higher borrowing costs.
The federal watchdog announced Thursday it will launch a market study into financing for SMEs, which make up more than 98 per cent of Canadian employers and are considered a backbone of the economy.
Commissioner of Competition Matthew Boswell said ensuring these businesses have access to affordable financing is critical for growth, innovation and productivity.
“Small and medium-sized businesses are the backbone of the Canadian economy,” Boswell said in a statement. “Increasing competition in Canada’s financing sector would give these businesses better access to the funding they need, support greater productivity, and boost innovation.”
The Bureau noted several challenges in the sector, including dominance by Canada’s largest banks, barriers faced by smaller or new lenders, and difficulties SMEs encounter when comparing loan options or switching providers. Studies also suggest smaller firms face higher borrowing costs than larger companies, with the gap wider in Canada than in other OECD countries.
As a first step, the Bureau has released a consultation paper and is inviting Canadians to provide feedback on the proposed terms of reference for the study until Oct. 3. Once finalized, the terms will outline the scope of the review and how stakeholders can participate.
The Bureau said the review will focus primarily on term loans, one of the most common financial products used by SMEs to invest in growth. The study is not an investigation into wrongdoing but could prompt further probes if evidence emerges that raises concerns under the Competition Act.
Nearly half of SMEs in Canada sought external financing in 2023, according to federal data.
The Bureau said it intends to use the findings to recommend policy measures to governments across the country, with the goal of boosting competition and improving outcomes for businesses and lenders alike.