The Daily, Monday, March 13, 2006. Survey of Suppliers of Business Financing

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Monday, March 13, 2006

Survey of Suppliers of Business Financing

2004	Previous release

Canadian businesses increased the total debt they owed to the major commercial suppliers of financing for the first time in four years in 2004, and larger borrowers were mostly responsible for the gain.

As of December 31, 2004, these suppliers, including banks, finance companies and insurance companies, reported that their business clients owed them $371.4 billion, up 3.3% from 2003. This debt was mainly in the form of loans, mortgages and lines of credit.

Larger businesses (those with loan authorizations of more than $5 million) were responsible for the vast majority of the increase. This reflected a year of substantial economic growth characterized by both an increase in the value of the Canadian dollar and rising export volume.

Note to readers

Statistics Canada conducts the Survey of Suppliers of Business Financing in partnership with Industry Canada and the Department of Finance as part of a larger program of research into financing for small- and medium-sized enterprises.

Since most suppliers of financing do not track the employment size of their business clients, they were asked to group their clients by authorization size, that is, by the maximum amount they were allowed to borrow. Note that authorization size is used in this survey as a proxy for business size for lack of employment size indicators.

The survey was based on a census of enterprises in selected finance and leasing industries, including government business enterprises, with assets of $5 million or more. Excluded from the survey were government programs, private not-for-profit organizations, informal suppliers such as business "angels" and family members, and foreign suppliers.

Domestic banks include the six large domestic banks and several smaller ones as defined by the Office of the Superintendent of Financial Institutions.

Other banks include foreign banks, trust companies and all other deposit-accepting institutions except credit unions and caisses populaires, which appear in their own category.

Finance companies include non-deposit accepting enterprises that provide financing to businesses, often for the purchase of goods and services. Debt financing is commonly provided; however, companies that purchase accounts receivable or provide both debt and lease financing are also included here. Examples include the acceptance companies of vehicle and equipment manufacturers, factoring companies and many government business enterprises. Enterprises providing only lease financing are usually classified as leasing companies.

Portfolio managers, venture capital companies and financial funds include enterprises typically engaged in managing or investing pools of assets. Examples include mutual fund companies, investment advisors, venture capital companies, labour-sponsored venture capital funds, mutual funds and segregated funds.

Insurance companies include life, health, and property and casualty insurers and re-insurers.

Leasing companies include enterprises providing lease financing, usually for vehicles or equipment.

In addition, historically low interest rates, rising commodity prices and increased capital investment may have spurred business financing requirements.

These larger businesses had a total debt load of $190.5 billion, up 6.0% from the previous year. They accounted for just over one-half of total national outstanding debt.

Smaller borrowers, those with loan authorizations of less than $1 million, maintained a relatively stable debt load. Their outstanding debt amounted to $99.0 million, a marginal 0.6% decline.

For lenders, loss rates fell across most authorization sizes, with the lowest loss rates reported for firms with the largest authorization sizes.

Domestic banks maintain market share

Domestic banks, the major supplier of debt financing to all Canadian businesses, increased their outstanding credit to Canadian businesses by $5.5 billion in 2004, the first dollar value increase reported since 2000.

Domestic banks held $196.0 billion in total debt in 2004, accounting for a share of just over one-half (52.8%) of the business borrowing market. This proportion was unchanged from 2003, halting three years of declines in the market share held by the banks.

Just over three-quarters (77.5%) of the banks' loan portfolio was outstanding to companies that were authorized to borrow $1 million or more.

Both finance companies and credit unions saw gains in their market share. Finance companies experienced a slight shift in their loan portfolio away from smaller borrowers towards businesses with loan authorizations of more than $1 million.

Conversely, insurance companies, which deal almost exclusively with the largest of borrowers, lost market share, as credit outstanding retreated to 2002 levels from a high of $41.0 billion in 2003.

Portfolio managers also lost ground after holding 2.7% of the market for three consecutive years. They reported $7.3 billion in outstanding debt in 2004.

Leasing growth led by finance companies

Total lease amounts outstanding rose slightly to $22.1 billion, an increase attributed to a rise in the leasing activity of finance companies.

Finance companies dominated this activity with a market share of nearly two-thirds. They reported a 21.3% jump in lease amounts outstanding in 2004, most of it resulting from commercial vehicle leases. This is a service that domestic banks are not permitted to provide.

The Bank Act restricts domestic banks from engaging in any personal property leasing activity, such as the financial leasing of motor vehicles.

Domestic banks accounted for 14.1% of total amounts outstanding, down from 20.1% the year before.

Definitions, data sources and methods: survey number 2514.

For more information, or to enquire about the concepts, methods or data quality of this release, contact Seth Nanayakkara (613-951-2617; seth.nanayakkara@statcan.gc.ca) or Tracy Hart (613-951-4826; tracy.hart@statcan.gc.ca), Industrial Organization and Finance Division.

Debt outstanding as of December 31
Authorization size	2001	2002	2003	2004	2001 to 2002	2002 to 2003	2003 to 2004
	$ billions				% change
Less than $1 million	94.8	97.2	99.6	99.0	2.5	2.5	-0.6
$1 million to $4,999,999	74.6	74.1	80.2	81.8	-1.0	8.2	1.9
$5 million plus	192.3	190.2	179.7	190.5	-1.0	-5.5	6.0
Total	361.7	361.5	359.5	371.3	-0.1	-0.5	3.3

Debt outstanding as of December 31
	2001	2002	2003	2004
	% share
Type of supplier
Domestic banks	55.4	54.2	52.8	52.8
Finance companies	10.7	11.7	11.3	12.9
Other banks	11.4	11.6	11.7	12.0
Insurance companies	11.3	10.7	11.5	10.3
Credit unions and caisses populaires	8.2	8.9	9.7	9.9
Portfolio managers	2.7	2.7	2.7	2.0
Leasing companies	0.3	0.3	0.2	0.1
Total	100.0	100.0	100.0	100.0

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Date Modified: 2006-03-13	Important Notices