The Economics and Statistics Division maintains archives of previous publications for accountability purposes, but makes no updates to keep these documents current with the latest data revisions from Statistics Canada. As a result, information in older documents may not be accurate. Please exercise caution when referring to older documents. For the latest information and historical data, please contact the individual listed to the right.
<--- Return to Archive
For additional information relating to this article, please contact:
June 25, 2018STUDY: THE FINANCING OF IMMIGRANT-OWNED FIRMS IN CANADA Statistics Canada has released a study on the financing of immigrant-owned firms in Canada. Several studies have identified access to financial capital as one of the main determinants of business creation and growth, which may be limited for newcomers. Although there has been research on this topic focused in the United States and Europe, little is known about the financing of immigrant-owned firms in Canada. The study aims to answer the following four questions:
- Does the type of financing sought by immigrant-owned small and medium sized enterprises (SMEs) differ significantly from that sought by Canadian-born owners?
- Are immigrant-owners of SMEs less likely to seek financing than Canadian-born owners?
- Are immigrant-owned firms more financially constrained?
- Are there differences in start-up financing for immigrant-owned firms?
This study uses data from the 2011 and 2014 Survey on Financing and Growth of Small and Medium Enterprises. In the sample, 23 per cent of firms had a majority owner or general manager who was born outside of Canada. About half of all immigrant-owners in the sample had been in Canada for 30 years or more, and only 7 per cent had been in Canada for less than 10 years. Immigrant-owners were more likely to have a university degree (51 per cent) compared to Canadian-born owners (33 per cent). Immigrant-owned firms tended to be smaller with an average of 9.9 employees, compared to 11.8 for firms with Canadian-born owners. Immigrant-owned firms are also somewhat younger, with 38 per cent established in the previous 10 years compared to 30 per cent for firms with Canadian-born owners.
Accessing financing
In the sample, about 39 per cent of immigrant-owned firms sought additional financing, compared to 46 per cent of firms with Canadian-born owners. Debt financing from a formal institution (i.e. non-residential mortgage, term loan, business line of credit or credit card) was the most common type of financing sought by all firms, while immigrant-owned firms were less likely (22 per cent) to apply for such financing compared to firms with Canadian-born owners (28 per cent). Government financing was less likely to be sought by immigrant-owned firms (3 per cent) compared to Canadian-born (5 per cent). Both immigrant and Canadian-born owners sought trade credit in about one-fifth of cases, and rarely sought equity financing.
Some of this difference may be due to the firm’s characteristics such as size, age, industry, or owner characteristics like education and experience. After controlling for these differences, immigrants who have been in Canada for 20 years or more were about 6 percentage points less likely to seek any type of financing that Canadian-born owners. For immigrants who have been in Canada for less than 20 years, the difference was less than 3 percentage points and was not statistically significant. However, recent immigrants were less likely to seek government financing compared to Canadian-born.
Approval rates
By examining the approval rates for financing applications, the study attempts to address the barriers to credit access that immigrants may face in Canada. In general, firms owned by immigrants and Canadian-born have high approval rates for financing applications, with small differences between the two. For debt financing applications, the full approved amount was approved for 82 per cent of firms with Canadian-born owners and 77 per cent for immigrant owners, with a similar pattern for lease or trade credit and government financing. After controlling for differences in firm characteristics, the probability of a debt financing application being fully approved was not statistically different for firms owned by immigrants and Canadian-born individuals. There were no differences in government financing, although recent immigrants were slightly less likely to be fully approved for trade or lease credit (-4 percentage points). The results suggest that financing applications by immigrant-owned firms are almost as likely to be fully approved as those made by Canadian-born owners.
Is access to capital more restricted among immigrant-owned firms
Even though they have high approval rates for financing, there may still be barriers to financing that are unobserved in the data. For example, immigrant-owners may be less likely to apply for financing if they believe they have a lower chance of receiving it. The high approval rates may reflect only the particularly well-qualified applying, which make up a smaller share of the immigrant-owned firms relative to those owned by Canadian-born. However, firms were surveyed on their perceived obstacles to growth, and “Obtaining financing” was the least important obstacle for both Canadian-born and immigrant-owned firms, while “Rising costs of input” was the most important obstacle for both types of firms. “Obtaining financing” was slightly less common among firms with Canadian-born owners.
After controlling for the differences between immigrant-owned firms and those with Canadian-born owners, immigrants who had been in Canada for 20 years or more were 4 percentage points more likely to rate obtaining financing as a minor obstacle to growth.
Financing start-ups
Obtaining financing for start-ups may create additional barriers for immigrants to receiving financing from formal institutions (language barriers, credit history. Given the nature of start-up data, the results here only reflect the businesses that survived, i.e., were active at the time of the survey.
Personal financing is the most common form of financing for start-ups owned by both immigrants and Canadian-born owners (both more than 80 per cent). Canadian-born owners sought credit from financial institutions more often (45 per cent) than immigrant owners (37 per cent).
The study notes that most western countries promote start-ups in science and technology. It examines financing in knowledge-based industries (KBI – a particular set of science- and technology-related industries) for both immigrant and Canadian-born owners of SMEs. It notes that in 2010, immigrants were 20 per cent more likely to own a firm in the KBI than Canadian-born owners, increasing to 80 per cent for economic class immigrants. Based on the 2011 and 2014 data, immigrant owners of KBI firms are less likely to use personal financing than Canadian-born owners and are more likely to seek financing from friends or relatives.
Source: Statistics Canada, The Financing of Immigrant-owned Firms in Canada
This report is part of the Analytical Studies Branch Research Paper Series (11F0019M).
<--- Return to Archive
