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Small business growth hits level not seen in almost a decade: CIBC Capital Markets

Persisting gaps that can be filled include female, youth entrepreneurship, funding and export market diversification

TORONTO, April 19, 2017 /CNW/ - While self-employment has risen noticeably slower than paid-employment since the beginning of the decade, Canadian small- and medium-sized enterprises (SMEs) have been creating a more significant share of jobs since 2010, finds a new report by CIBC Capital Markets.

Between 2010 and 2016, 42 per cent of new jobs were created by businesses with less than 100 employees, up from 30 per cent between 2000 and 2010.

"Beyond the threshold of five employees, there is a clear positive correlation between size and growth, with larger firms within the SME spectrum seeing progressively stronger growth recently," says Benjamin Tal, Deputy Chief Economist, CIBC, who co-authored the report, Canadian SMEs: Strength Beneath the Surface, with Senior Economist Royce Mendes.

"What's more, the share of larger SMEs has risen to a level not seen in almost a decade," Mr. Tal says, noting the trend is particularly strong west of Quebec. "Each province from Ontario to B.C. has exhibited a growth rate of more than nine per cent in the number of companies with employees."

In 2016, more than 350,000 businesses were created and just under 300,000 exited, with the entry rate (the ratio of business creation to total businesses) on the decline since 2004 while the exit rate has been more stable, despite the impact of the fall in oil prices a couple of years ago.

"Small business optimism has been grinding higher since bottoming out early last year and appears headed back to levels seen prior to the oil price shock," Mr. Tal says. "With the Canadian economy in recovery mode, the environment for small businesses remains constructive."

And while the World Bank ranks Canada as one of the best places to start a new business due to access to capital and a favourable tax regime, the report highlights several gaps, including access to financing for certain business.

"From companies with high growth rates to those with young owners, some SMEs do face more acute issues finding financing," Mr. Tal says.

The report also highlights that women remain an untapped resource in the SME space.

"Female participation in the workforce has made significant progress over the past few decades, but entrepreneurship remains an area that could see improvement," Mr. Tal says. "Female majority ownership in the SME space represents less than 20 per cent of all businesses, and recent progress has been slow in coming."

Another gap is youth entrepreneurship. Canadians between the ages of 25 and 39 comprise more than 25 per cent of the population, yet represent less than 15 per cent of small business owners and less than 10 per cent of medium-sized business owners.

Canadians aged 50 to 64 years, by comparison, also represent about 25 per cent of the population but this group represents 47 per cent of small business owners and 51 per cent of medium business owners.

"One reason for this discrepancy could be related to their access to financing. Remember that companies with younger owners face much more difficulty when trying to externally fund their business," Mr. Tal says. "It will be important to watch this segment of the population as Canada tries to compete with other countries in the tech landscape, which is more tilted toward younger business owners than other industries."

Canadian SMEs have also been slow to expand revenue sources outside of Canada and North America.

"SME revenue continues to be geographically concentrated in North America, creating risk," Mr. Tal says. "Currently only 10 per cent of SMEs are involved in any sort of exporting at all, and roughly 90 per cent of those companies are sending their wares to the U.S. In the current political environment, it has become a risky proposition to focus solely on the U.S. market."

The report notes that there is room to increase the ratio of Canadian goods and services being exported to Asia and Latin America.

"The age of digital connection has made it much easier to send Canada's high-end service exports all over the world, something many SMEs could benefit from," Mr. Tal says.

About CIBC
CIBC is a leading Canadian-based global financial institution with 11 million personal banking and business clients and three major business units – Retail and Business Banking, Wealth Management and Capital Markets. CIBC Capital Markets provides integrated global markets products and services, investment banking advisory services, corporate banking, and top-ranked research to corporate, government and institutional clients around the world. Visit www.cibccm.com for more information on CIBC and CIBC Capital Markets. News releases are available at www.cibc.com/ca/media-centre/.      

SOURCE CIBC - Economic Research

For further information: Benjamin Tal, Deputy Chief Economist, CIBC Capital Markets, at (416) 956-3698, benjamin.tal@cibc.ca, or Caroline Van Hasselt, Director, Public Relations, 416-784-6699 or caroline.vanhasselt@cibc.com
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