A consultation has begun to establish how competitive market can be boosted
The power of Canada’s largest financial institutions in financing the companies that make up the backbone of the economy is being questioned by the competition regulator.
The Competition Bureau says that the big banks dominate the small and medium sized enterprises lending space in Canada and that new and smaller lenders face barriers to entry or to grow their market share.
Additionally, SMEs can find it challenging to compare loan options and switch lenders. These businesses generally pay higher borrowing costs than larger businesses with the gap in this regard being the largest among OECD countries.
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The commercial lending market is a large one, with SMEs making up 98% of Canadian employers and 49% of these businesses having sought financing (according to the most recent data from 2023).
Term loans are likely to be the main focus of the consultation as these are among the most commonly used SME financing options.
“Our proposed study is to examine the state of competition in the lending sector for SMEs in Canada. We would explore how Canada can improve competition for the benefit of SMEs as well as challenger financial institutions that support them,” says the Competition Bureau in its consultation announcement.
While the consultation is not an investigation into any specific wrongdoing, the competition commissioner, Matthew Boswell, says it’s important for SMEs to get access to fair financing.
"Increasing competition in Canada's financing sector would give these businesses better access to the funding they need, support greater productivity, and boost innovation. Our goal with this study is to provide policymakers with evidence and recommendations to make this a reality.”
The Competition Bureau highlights that Canada continues to face a longstanding productivity challenge with output per hour worked trailing that of other G7 economies.
Raising productivity depends on investments in both tangible and intangible assets but Canada’s investment in the assets needed to adopt and diffuse new technologies still lags behind many of its OECD peers.
