Report
Executive Summary
On 20 November 2025, the Standing Senate Committee on Banking, Commerce and the Economy (the Committee) was authorized to examine and report on access to credit and capital markets for small- and medium-sized enterprises (SMEs)0F as the basis for growth and improved productivity in the Canadian economy. The Committee held 15 meetings on this topic, featuring approximately 24 hours of testimony from over 35 witnesses that included SMEs and representatives from various facets of the Canadian credit and capital markets.
The Committee is calling for numerous fundamental changes to the Canadian financial system that would address the structural issues currently leading to persistent financing gaps for SMEs, the underinvestment of domestic capital in productive Canadian businesses and the loss of Canadian talent, business and intellectual property ownership. Recent events have dramatically accelerated the need to address this structural choke point in our economy where massive pools of assets remain inaccessible to our most promising growth companies and industries.
SMEs are the backbone of the Canadian economy. As of December 2024, SMEs accounted for 99.7% of employer businesses in Canada, and in 2022, SMEs accounted for nearly half of the gross domestic product (GDP) generated by the private sector. They are the primary source of private-sector employment, the foundation of local economies and a key driver of innovation and growth. Their success is critical to Canada’s long-term prosperity, productivity and competitiveness. When Canadian SMEs succeed, Canada succeeds.
Throughout this study, the Committee repeatedly heard that structural issues in Canada’s economy are preventing SMEs from achieving their full potential. This is because Canadian financial markets do not offer competitive, affordable and timely access to capital and credit. Canada is home to a vast number of SMEs, yet its financial sector is dominated by a handful of large financial conglomerates1F, creating a persistent and increasing disconnect between those seeking credit and capital, and those controlling its allocation.
Designed primarily to promote stability and efficiency at scale, the financial system tends to favour larger, lower-risk, asset-backed transactions. As a result, many promising economic opportunities for SME expansion, innovation and succession are rendered inaccessible due to structural barriers within Canada’s financial sector.
Increasing globalization and the growing role of foreign investment have provided Canadian firms with access to capital from foreign jurisdictions. However, this has also contributed to the premature sale of promising companies and the transfer of ownership, investments in research and development, intellectual property and future economic value outside of Canada.
The Committee is deeply concerned that Canada’s largest institutional investors (financial conglomerates, insurers, pension funds) and pools of capital appear disinclined to finance the growth of Canadian SMEs, thus limiting our country’s ability to capitalize on Canadian talent, our investments in research and development and, ultimately, our ability to retain and grow our most promising innovative businesses.
To tackle the structural deficiencies that have manifested themselves over time in Canada’s financial system and boost access to capital for SMEs, the Committee calls on the federal government, directly or indirectly, to:
- create an SME Office, accountable to a single minister, responsible for accelerating overall business innovation and growth in Canada. Align the policies, services and programs in ways that catalyze investment from the private sector domain and investment experts, and publicly report impact date by program;
- enhance tax competitiveness for both SMEs and investors in SME growth through accelerated changes to tax policy;
- enable and encourage regulatory changes that will expand SME access to capital and credit by creating robustly competitive financial markets and better enabling new entrants in those markets to competitively access the capital they require to increase their investment and/or lending to SMEs;
- encourage the provinces to introduce robust market reforms that will enable Canada’s public and exempt investment markets to once again become globally competitive and a viable alternative for growing Canadian SMEs to create liquidity and raise capital;
- take action to support the Canadian acquisition and ownership of intellectual property and its retention in, and commercialization from, Canada as recommended in BANC’s June 2023 report entitled Needed: An Innovation Strategy for the Data-Driven Economy;
- ensure that Canadian SMEs can reliably compete for timely access to federal procurement opportunities that reward excellence and innovation. The revenue from those projects will increase SME access to both credit and capital; and
- encourage entrepreneurship across our country by recognizing and addressing barriers that demonstrably limit access to credit and capital of entrepreneurs from underrepresented groups and communities.
Time is of the essence. Canada’s innovators and entrepreneurs represent the future of our economy. Competitive access to credit and capital is critical to enabling our SMEs to compete globally, both in and from Canada.
Recommendations
Recommendation 1
The federal government create alignment and accountability across the many business innovation and growth programs and services intended to support small- and medium-sized enterprises (SMEs) by:
- establishing a centralized SME Office under a Minister whose sole responsibility is to improve oversight and accountability across all federal business innovation and growth support programs and institutions, and ensuring program and policy alignment of governments, institutions and the private sector in ways that demonstrably increases SME access to capital and credit.
- launching a comprehensive national strategy to improve the flow of capital to SMEs, integrating policies suggested throughout this report in relation to access to credit and capital, intellectual property, data, and regional development.
- undertaking a comprehensive review of the tax competitive framework through the lens of domestic capital formation, entrepreneurial reinvestment, long-term scale-up, and ownership retention. This should ensure that the tax system more effectively supports long-term capital formation in SMEs, particularly firms with high growth potential and those operating in innovation-driven sectors.
- adopting a strategic procurement framework that leverages federal purchasing power to support the growth and commercialization of Canadian-controlled SMEs.
- streamlining federal SME financing across current and future programs to provide a more market-based, seamless, accessible and timely experience for SMEs seeking federal support throughout their growth lifecycle.
- ensuring that federal business investment programs assess value creation as a core performance indicator, alongside job creation, equipment and technology, workforce skills and training and other measurable productivity outcomes when evaluating program outcomes and effectiveness. Value creation measures could include new equity investment as well as increased sales and exports.
Recommendation 2
The federal government take action to strengthen the commercialization and retention of intellectual property created by Canada’s most innovative SMEs, most of which rely substantially on intangible assets, by:
- enacting measures to ensure sovereign control of intellectual property, particularly when federal grants and programs provide support for their creation.
- implementing measures to incentivize and strengthen the continued domestic ownership, retention, and commercialization of intellectual property and intangible-asset-rich companies generally, but particularly where public funding is involved, with a focus on long-term value creation and reinvestment.
- requiring stronger partnerships between Canadian universities and research institutes and the private sector to increase the intellectual property portfolios of Canadian companies, ultimately increasing their equity value. This could include expanding innovation hubs, accelerators, and commercialization programs that have data demonstrating their effectiveness and impact.
- applying stronger conditions on government grants to encourage companies receiving public funding to stay and grow in Canada, such as a variable rate of claw back or repayment mechanism on funded intellectual property should a company sell or move that intellectual property offshore.
- enacting measures to limit Scientific Research and Experimental Development credits to only Canadian-controlled companies.
Recommendation 3
The federal government enhance Canada’s tax competitiveness in ways that demonstrably lead to greater productive investment in SMEs and in SME growth by:
- improving the small business deduction with a view to encouraging entrepreneurship, reinvestment, and domestic business expansion of SMEs.
- reviewing the relevant personal income tax measures with a view to retaining Canadian resident talent.
- generally examining tax asymmetries between Canada and peer jurisdictions, particularly the United States, to ensure Canadian competitiveness or advantage.
- introducing or expanding measures allowing for full and immediate expensing of capital expenditures related to modernization, digital adoption, artificial intelligence, machinery, and innovation processes in order to accelerate productivity growth of SMEs.
- amending the Income Tax Act to provide investors in SMEs listed on Canada’s junior public markets with tax treatment comparable to Canadian-controlled private corporations, in order to improve access to public growth capital.
- expanding the flow-through share regime beyond the resource sector to other capital-intensive industries where early-stage capital requirements precede profitable revenue generation.
- permitting the deferral of capital gains tax derived from the sale of shares of select Canadian SMEs where proceeds are reinvested within a defined time period into other Canadian SMEs, thereby encouraging the recycling of capital within the domestic economy.
- exploring the creation of targeted investment tax credits or targeted capital gains exemptions aimed at supporting SME investment, attracting new sources of capital, and promoting long-term investment horizons.
- strengthening policies that support Canadian family or employee business succession, including by promoting employee ownership trusts, permitting rollovers, enhancing the lifetime capital gains exemptions in appropriate cases, and exploring support mechanisms to facilitate Canadian acquisition of Canadian firms.
- address limitations on deferred account investments in private companies as regulated by provisions in the Income Tax Act and the Canadian Investment Regulatory Organization.
Recommendation 4
The federal government take action to cause financial institutions to increase and encourage lending to SMEs to levels above the G7 average by:
- examining policy and regulatory options to increase lending to SMEs by federally regulated financial institutions (banks, insurers, and credit unions), including a review of “capital intensity” requirements to ensure they appropriately support SME lending, in particular to intangible asset-based SMEs, while maintaining financial stability.
- taking steps to increase financial sector competition and institutional diversity by reducing barriers to entry for smaller institutions and financially supporting the growth of alternative lenders especially SME-focused institutions with risk models, mandates, and financing tools designed specifically to support growth-oriented Canadian SMEs.
- enhancing competition and access to innovative financial services companies in ways that will pressure Canada’s financial conglomerates to improve their services and offerings available to SMEs, while also requiring them to limit the costs for SMEs to switch to another financial institution.
- expanding government-backed risk-sharing and loan guarantee programs, with particular attention to supporting innovative, community-based lenders and underserved market segments through new and existing entities (for example, the Business Development Bank of Canada, Export Development Canada and Farm Credit Canada) or programs (for example, the Canada Small Business Financing Program and the Venture and Growth Capital Catalyst Initiative). Special effort should be made to not compete with, but complement or support, innovative private sector institutions with similar objectives.
- publicly advocating for increased bank lending to Canadian SMEs and requesting the banks publicly disclose SME data on whether they are increasing SME lending, and in what ways lending is helping the Canadian economy grow and adapt to emerging challenges, such as artificial intelligence and cyber-risks.
- assessing the extent to which the practice of bundling financial products and services across financial conglomerates may limit competition, impede market entry by smaller and alternative financial service providers, and constrain the availability of investment capital.
Recommendation 5
The federal government create incentives that will more rapidly mobilize capital pools in Canada towards SME scale-up and growth by:
- considering policy, regulatory and legislative initiatives to encourage pension funds and other large pools to deploy more significant amounts of their capital into SMEs – either – directly or through co-investment – with venture capital or private debt institutions.
- supporting the establishment of aggregation investment vehicles designed to facilitate institutional investment in SMEs, including through favourable tax treatments, co-investment structures and the potential use of federal guarantees.
- in collaboration with federal programs and Crown lending agencies, including the Business Development Bank of Canada and Farm Credit Canada, streamlining, targeting gaps, and accelerating the deployment of capital through new and existing programs, including the Venture Capital Catalyst Initiative.
- developing and expanding public-private co-investment and co-lending platforms to more rapidly mobilize capital toward SME scale-up and growth.
Recommendation 6
The federal government work with the provinces to modernize Canada’s public markets so that they become once again a viable alternative for SMEs looking to create liquidity and raise growth capital by:
- establishing a standing round table that meets on the competitiveness of Canada’s public markets, involving federal and provincial governments, securities regulators, stock exchanges, investment dealers, including exempt market dealers, and other industry stakeholders. The standing round table should report annually on its progress and recommend actions to improve liquidity, access, and participation in Canadian public markets for SMEs.
- addressing the concentration in capital intermediation by reducing reliance on a small number of large institutions, by supporting diversified channels for SME financing, including small dealers, smaller-scale private investment firms, and other alternative platforms.
- encouraging the provinces and territories and their respective securities regulators, including the Canadian Securities Administrators, to democratize the investment market, by removing or reducing barriers to the use of prospectus exemptions for investors including reducing financial requirements for investing in treasury shares, relying on personal financial limits, expanded self-accreditation, and broker Know-Your-Client rules.
- encouraging the review of the Know-Your-Product rules that have made it almost impossible for stockbrokers to recommend SME stocks to their clients, and that have removed the economic incentives for investment firms to pursue anything but wealth management.
Recommendation 7
The federal government encourage the provinces and territories, relevant regulatory bodies and stock exchanges to introduce proportionality to SME regulatory requirements by:
- implementing a more calibrated securities regulatory regime so that disclosure, reporting, and compliance obligations are proportionate to enterprise size, risk, and stage of development rather than a one-size-fits-all approach.
- clarifying and narrowing materiality standards so disclosure obligations focus on information reasonably expected to affect share price or valuation, thereby reducing unnecessary costs that discourage SMEs from accessing public markets.
- reducing ‘check the box’ compliance standards by reviewing the audit, reporting, and governance requirements for public companies with a view to lowering fixed costs that undermine the viability of an SME becoming and remaining publicly listed.
- considering additional regulations on short selling of SME shares, including limitations on share price or bans.
Recommendation 8
The federal government act to address disparities between communities and underrepresented entrepreneurs in ways that demonstrably improve access to credit and capital by:
- directly or in conjunction with the provinces and territories, supporting the development of regionally or provincially/territorially focused investment funds with local governance structures, mandates to provide long-term capital and alignment with regional economic priorities, community needs, women-led initiatives and social returns (such as Fonds de solidarité FTQ, The51 and Evol).
- implementing policies and programs to expand SME access to commercial lending in rural, remote, northern and underserved communities by strengthening partnerships with community-based lenders and financial institutions that are focused on serving women, Black people, other racialized groups and Indigenous peoples.
- supporting the development of entrepreneurship ecosystems, including mentorship networks, peer-to-peer platforms, and sector-specific clusters that bring together capital, talent, and customers in SMEs.
- ensuring availability of robust accountability measures that capture the impact of federal SME programs in ways that link to specific program objectives.
- ensuring that federal Crown corporations that provide financing to businesses, including the Business Development Bank of Canada, Export Development Canada and Farm Credit Canada, as well as federally regulated banks and trust and loan companies that provide credit to SMEs, make a concerted effort to improve access to venture capital for women-owned businesses and equity seeking groups at all stages of the financing continuum and report with disaggregated data on their progress annually.
Ottawa – Structural issues in Canada’s financial system have resulted in persistent financing gaps for small- and medium-sized enterprises (SMEs), underinvestment of domestic capital in these businesses, and the loss of Canadian talent, business and intellectual property ownership, the Senate Committee on Banking, Commerce and the Economy said in a new report released Wednesday.
SMEs are the primary source of private-sector employment and a key driver of innovation and growth in Canada. After studying their access to credit and capital, the committee found that domestic financial markets do not offer them sufficient competitive, affordable and timely access. The committee is also deeply concerned that Canada’s largest institutional investors — financial conglomerates, insurers and pension funds — and other pools of capital appear disinclined to finance the growth of SMEs.
With globalization and the growing role of foreign investment, Canadian entrepreneurs are turning to other jurisdictions to source the capital they need and promising companies are being prematurely sold to foreign owners, taking with them talent, investments in research and development, intellectual property and future economic value. This limits our country’s ability to capitalize on Canadian talent and help our SMEs scale up and compete globally.
Recent international events have dramatically accelerated the need to address this structural choke point in the economy. The committee is calling for numerous fundamental changes to the Canadian financial system, outlined in eight key recommendations to the federal government. The committee urges the government to promptly implement these recommendations to foster SME growth and scaling throughout Canada, increase overall national productivity and grow domestic champions.
Quick Facts
- Small- and medium-sized enterprises (SMEs) are a key pillar of the Canadian economy, generating nearly half of the private sector’s gross domestic product (GDP) and accounting for nearly two-thirds of its jobs.
- SMEs are underbanked and overcharged in Canada compared to other countries in the Organisation for Economic Co-operation (OECD). According to this study, in 2021, 11.6% of outstanding loans were made to SMEs in Canada, compared to the OECD average of 44%. Additionally, the average interest rate for SMEs in 2022 was 6.2%, compared to the OECD median of 4.4%.
- Between 2002 and 2025, the number of operating companies listed on the TSX Venture Exchange (TSXV) fell from 2,329 to 1,352. The number of companies that graduated per year from the TSXV to the TSX dropped from 72 companies in 2007 to just 11 in 2025.
- Homegrown Canadian start-ups that have raised more than $1 million are increasingly relying on foreign capital investment to grow their businesses. In 2015, 29.5% of funds raised were derived from foreign investors, increasing to 67.6% in 2024.
Quotes
“Structural barriers in Canada’s financial system are preventing small- and medium-sized enterprises from reaching their full potential. These businesses are the backbone of our economy. We must make fundamental changes to help them succeed and keep their innovations in Canada.”
- Senator Clément Gignac, chair of the committee
“Small- and medium-sized companies are the primary source of private-sector employment in Canada and a key driver of innovation and growth. Canada’s long-term prosperity and competitiveness depend on their success and the actions the federal government takes today to drive or hinder that success.”
- Senator Daryl S. Fridhandler, member of the subcommittee on agenda and procedure
“Having experienced the realities of entrepreneurship firsthand, I know how much access to financing can make a difference. We ask a great deal of our entrepreneurs: to innovate, take risks, export and create jobs. We must also ask ourselves whether our financial system is truly giving them the means to succeed, including women and entrepreneurs from diverse backgrounds.”
- Senator Danièle Henkel, member of the committee
Associated Links
- Read the report: From Potential to Prosperity: The urgent case for greater investment in Canada’s SMEs
- Follow the committee on social media using #BANC.
- Subscribe to email alerts for Senate committees.
- Sign up for the Senate eNewsletter.
For more information:
Chelsea DeFazio
Communications Officer | Senate of Canada
343-576-1481 | chelsea.defazio@sen.parl.gc.ca
Senators who participated in this study
Clément Gignac
CSG - Quebec (Kennebec)
Toni Varone
ISG - Ontario
Pierre J. Dalphond
ISG - Quebec (De Lorimier)
Colin Deacon
CSG - Nova Scotia
Daryl S. Fridhandler
PSG - Alberta
Danièle Henkel
PSG - Quebec (Alma)
Tony Loffreda
ISG - Quebec (Shawinegan)
Yonah Martin
C - British Columbia
Marnie McBean
ISG - Ontario
Pierrette Ringuette
ISG - New Brunswick
Pamela Wallin
CSG - Saskatchewan
Hassan Yussuff
ISG - Ontario
Ex officio members of the committee: The Honourable Pierre Moreau, P.C., or the Honourable Patti LaBoucane-Benson, the Honourable Leo Housakos or the Honourable Yonah Martin, the Honourable Raymonde Saint-Germain or the Honourable Bernadette Clement (until January 4, 2026), the Honourable Lucie Moncion or the Honourable Joan Kingston (since January 5, 2026), the Honourable Scott Tannas or the Honourable Rebecca Patterson (until January 4, 2026), the Honourable Flordeliz (Gigi) Osler or the Honourable Robert Black (since January 5, 2026), the Honourable Francis Brian or the Honourable Judy A. White
Other senators who have participated in the study: the Honourable Rosa Galvez, the Honourable Nancy Karetak-Lindell, the Honourable Jane MacAdam, the Honourable Fabian Manning, the Honourable Elizabeth Marshall, the Honourable John M. McNair, the Honourable Sandra Pupatello and the Honourable Raymonde Saint-Germain