Consultation on proposed terms of reference for a market study on competition for financing to small and medium-sized enterprises (SMEs)

The Bureau's public Consultation on proposed terms of reference for a market study on competition for financing to small and medium-sized enterprises (SMEs) took place from September 4, 2025 to October 3, 2025 and is now closed.

September 4, 2025

Table of contents

Summary

  • The Competition Bureau (Bureau) is launching a public consultation on the proposed terms of reference for its upcoming market study into the state of competition in the small and medium-sized enterprises (SMEs) lending sector in Canada.
  • The Bureau invites all interested parties to share their views and answer the consultation questions below. To share your comments, please visit the Share your views section, where you will find the list of consultation questions and more details. Comments can be submitted until October 3rd, 2025.
  • SMEs are the backbone of a dynamic Canadian economy. They fuel economic growth by investing, innovating and putting competitive pressure on larger businesses. A competitive financing market is critical to enabling their success and growth.
  • This notice of consultation explains the role of SMEs in Canada, the reasons for this study, what the Bureau proposes to study and how you can support the Bureau in its endeavour.

Notice of consultation

The Competition Bureau (Bureau) is launching a public consultation on the proposed terms of reference for its upcoming market study. We plan to study the state of competition in the lending sector for small and medium-sized enterprises (SMEs)Footnote 1 in Canada. This is a sector of significant importance for Canada’s economic dynamism – access to competitive financing fuels entrepreneurship and SME growth.

Market studies allow the Bureau to assess a sector from a competition perspective to identify relevant laws, regulations, policies or other factors that may affect competition. Through market studies, the Bureau makes findings and provides evidence-based recommendations on ways to enhance competition in a particular sector.

We invite the public to comment on the proposed terms of reference for the market study.Footnote 2 Your feedback will help refine the focus, methodology, and questions that underpin the Bureau's work. To share your comments, please visit the Share your views section, where you will find the list of consultation questions and more details.

Comments can be submitted until October 3rd, 2025.

Background

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.

In undertaking this study, the Bureau is not examining any specific allegations of wrongdoing. However, should the Bureau discover conduct that may raise concerns under the  Competition Act, we will review these issues separately where appropriate.

Public interest considerations for the study

Canada’s productivity challenge and the need for investment

Canada faces a persistent productivity challenge: over the past decades, Canada’s output per hour worked has lagged behind that of other G7 economies.Footnote 3 A key driver of productivity is capital intensity —the extent to which businesses use physical tools, machinery and advanced technologies to work smarter; not harder. Enhancement in productivity requires investment in tangible and intangible assets by businesses. Improving productivity—i.e, how efficiently labour and capital combine to generate output—is central to raising living standards and sustaining long-term growth. Unfortunately, Canada’s investment in assets that are necessary for introducing and spreading new technologies lags behind its peers in the Organization for Economic Co-operation and Development (OECD).Footnote 4

Importance of SMEs

SMEs are the backbone of the Canadian economy. They account for 98.1% of employer businesses and are active in all sectors. They contributed 48% of value added to Canada’s output between 2017 and 2021.Footnote 5 They fuel economic growth by investing, innovating and putting competitive pressure on larger businesses. However, recent studies found that business dynamism has been weakening in Canada with fewer new firms entering the economy.Footnote 6

Figure 1: Distribution of businesses in Canada, by business size based on number of employees.

Figure 1: Distribution of businesses in Canada, by business size based on number of employees.
  • Description for Figure 1

    Figure 1 is a horizontal stacked bar chart showing the distribution of businesses by size based on number of employees.

    Small businesses (1–99 employees) make up 98% of all businesses.

    Within small businesses:

    Micro (1–4 employees): 57%

    Scale (5–19 employees): 30%

    Mature (20–99 employees): 11%

    Medium businesses (100–499 employees) account for 1.8%.

    Large businesses (500+ employees) account for 0.2%.

Source: Statistics Canada. Table 33-10-0661-01 Canadian Business Counts, with employees, December 2022

Although some reports suggest that SMEs are less productive than larger firms, they nonetheless make a significant contribution to the economy. Given this, improving their business environment presents substantial opportunities for further economic benefits. SMEs—with the right mix—such as size, years of operation, and location—are more likely to become high-growth firms that make a greater contribution to employment and revenue.Footnote 7

Financing needs of SMEs

SMEs require funding for various purposes ranging from starting a business, to scaling up operations and maintaining resiliency during economic downturns. Funding can be used to buy new equipment and inventory, or to invest in infrastructure, marketing, and working capital.

Based on the Innovation, Science and Economic Development Canada (ISED) Survey on Financing and Growth of Small and Medium Enterprises, in 2023, 49.3% of SMEs requested external financing. Figure 2 covers various types of financing products available to businesses.

When SMEs can invest in modern equipment and intangible assets—whether that means automated production lines, precision tools or cutting-edge software—they boost efficiency, raise output per worker, and enhance productivity. But such investments hinge on access to capital on competitive and reliable terms. Without reliable financing, firms may not be able to enter new markets and invest in the most promising opportunities to acquire machinery, upgrade facilities, or adopt digital systems today to strengthen Canada’s economy tomorrow.

Term loans play a crucial role here since they are the primary instruments used by SMEs to finance capital assets over a multi-year horizon at relatively lower interest rate. As illustrated in Figure 2, other financing options serve specific purposes—such as short-term cash needs, inventory management, real estate purchase, etc. However, term loans provide a wide range of flexibility, empowering SMEs to make those long-term, capital intensive investments essential for driving productivity and propelling Canada’s economic growth.

Figure 2: Types of financing products and their common uses

Types of financing products and their common uses - definitions
Financing Product Purpose
Term loan

It can be used to finance the purchase of tangible and intangible assets – business expansion, purchase of capital assets, improving operations, etc. It can be an unsecured loan or secured by the underlying asset. The amortization period is often aligned to the useful life of the asset. Interest rates can be fixed or variable and the principal and interest are paid over a fixed time period. It often comes with a lower rate of interest compared to other forms of commercial lending.
Equity financing

Companies raise funds by selling a stake in the ownership of the company to investors. It could be suitable for high risk or high growth sectors such as information and communications technology.
Credit cards

These are used by business for quick short-term expenses or emergencies. Interest rates on credit cards can be higher than those for other secured debt instruments.
Line of credit

A short-term, flexible loan used for working capital needs of the business. This is also called a ‘demand’ loan, as the lender can ask for full repayment at any time.
Commercial mortgages

This product can be used only for purchasing commercial real estate for the business.
Lease financing

A facility used to lease the use of an asset such as machinery, hardware, vehicles, etc. for a certain period of time, in exchange for making regular payments.
Trade credit

A business-to-business loan where customer can purchase goods or services and schedule payment at a later date. It could be used to free up cash flow for the business and inventory management.

Providers of external funding for SMEs

  • Some studies conclude that domestic chartered banks are the main provider of term loans to SMEs, lending to nearly 68.5% of SMEs.Footnote 8
  • Other lenders such as credit unions, and caisses populaires also play a role in SME financing.
  • There are government initiatives that support SME financing. These include the following:
  • Although fintechs and online lending platforms are still in their early stages, they are beginning to emerge as alternative sources of financing.

Overall, while new options are developing, traditional financial institutions continue to dominate the SME lending landscape in Canada.

Challenges in accessing financing

Preliminary information suggests that accessing financing continues to be difficult for many SMEs. According to data from the 2024 Biannual Survey of Suppliers of Business Financing, between early 2022 and early 2024, SMEs appear to have received less new credit, while larger businesses received more. For example, in the second half of 2023, the number of new loans to small businesses dropped by 19%, whereas larger businesses have seen a rise of 14.4%. In addition, studies suggest that many businesses must agree to strict financing terms. In the past three years, more than half of business owners have been required to provide a personal guarantee, and one in four have had to pledge their primary residence to secure a loan.Footnote 9

Challenges accessing competitive financing terms

There are concerns on whether competition is working effectively in this market.

  • Concerns about limited competition: Some studies have concluded that Canada’s banking sector has been dominated by the big banks. Their market shares ranking as a lender to SMEs have remained steady for the past 15 yearsFootnote 10, suggesting a lack of vigorous competition among them. More broadly, the big banks play a dominant role in the financial sector, together holding over 90% of the total assets of Canadian deposit-taking institutions.Footnote 11
  • Disadvantageous loan conditions for SMEs: The 2024 OECD Scoreboard revealed that Canadian SMEs face a larger interest rate premium above large firms compared to SMEs in other OECD countries. In 2021 and 2022, the difference between what SMEs and large businesses in Canada paid was 1.64 and 2.10 percentage points respectively. In contrast, the average difference in other OECD countries was 0.93 and 0.90 percentage points.Footnote 12
  • Barriers to switching providers: Barriers to switching lenders make it more difficult for customers to seek better options, reducing competitive pressures and affecting both loan rates and the quality of services provided. Some studies report that, between 2019 and 2022, only 1 in 10 business owners surveyed actually switched banks, while another 1 in 5 said they would like to switch but have not done so.Footnote 13

Also government programs reflect gaps in the lending market, such as the reluctance of traditional lenders to finance certain SMEs – particularly those from underserved communities – who are perceived as higher-risk. However, these programs do not seek to address any concerns with how competition is working in these markets, and may not fully resolve challenges accessing competitive financing terms for SMEs.

In its Economic Survey of Canada, published in May 2025, the OECD noted that addressing structural impediments such as barriers to finance is key to raise SMEs' productivity performance.Footnote 14

Bureau’s historical work in the sector

The Bureau has a long history of working on competition related matters in the financial sector. Over the years, it has consistently advocated for reforms to enhance competition, reduce barriers to entry, and improve consumer choice.

  • In 2017, the Bureau conducted an in-depth market study on technology-led innovation in the Canadian financial services sector, resulting in five specific recommendations to foster a more enabling environment for alternative lending models (peer-to-peer lending and equity crowdfunding), with the specific goal of expanding funding options for SMEs that may face challenges accessing financing through traditional banks.
  • The Bureau has actively participated in various government initiatives, including by making submissions to consultations on open banking and consumer-driven banking frameworks.
  • In its March 2024 submission to the Department of Finance, the Bureau emphasized the need for a consumer-driven banking framework and advocated for the removal of barriers that hinder consumers from switching mortgage lenders, such as the stress test at renewal for uninsured borrowers.

These efforts underscore the Bureau's commitment to fostering a more competitive and innovative financial sector in Canada.

These initial observations suggest that a focused study on competition in SME financing will provide valuable insights to policymakers. Increasing competition in this industry would help small and medium businesses access the funding they need, support greater productivity, and boost innovation across the sector. Moreover, one of the purposes of the Competition Act is to maintain and encourage competition to ensure that SMEs have an equitable opportunity to participate in the Canadian economy.

Proposed terms of reference

Scope of the study

The Bureau plans to look into the state of competition in the SMEs financing sector by examining three key topics as part of its study:

  1. Competitive dynamics in SME financing sector
  2. Barriers to entry or expansion in providing financing to SMEs
  3. Barriers to switching lenders

Scope of products

The study will primarily focus on financing to SMEs through term loans. Term loans are critical, as they help SMEs invest in crucial assets over a long period of time at relatively lower interest rate. They offer a lot of flexibility in terms of end use, unlike most other financial products (as seen in Figure 2). SMEs can use term loans to make those much-needed investments in tangible and intangible assets which are necessary for enhancing productivity and supporting Canada’s economic growth.

While there are different financing options available to SMEs, we believe that the attention on term loans will enable us to carry out a focussed comprehensive review of the competitive landscape. Being a very popular financing product, a study on the term loans market could also be representative of the broader market for financing to SMEs. We may also address other products to the extent that they are related to term lending.

Geographical scope

The Bureau plans to examine the state of competition in SME financing across Canada to better understand how businesses access credit and how lenders compete in this sector. While the study will take a national view, particular attention will be given to regional disparities in market dynamics, access to financing, and lender presence.

Questions to address during the study

The study will aim to address the following questions:

1. How does competition work in SME lending?
This study aims to understand the competitive landscape of SME lending in Canada by identifying the most active lender types—such as chartered banks, credit unions, BDC, and fintechs—and examining how their presence differs across regions.

It will analyze how lenders compete on both price (for instance interest rates, fees) and non-price terms (for instance repayment flexibility, collateral requirements), and assess the growing influence of digital services compared to in-person relationships.

This study will also examine the impact of government programs on competition in SME lending. It will evaluate how program features—like interest rate caps, guarantees, and loan limits—influence lending products, including loan pricing and target borrowers. The study will aim to assess the competitive impact of these programs in SME lending markets and whether there are opportunities for these programs to enhance competition in SME lending.

This study will also seek to better understand how the different circumstances that borrowers face can shape their experience accessing financing, and explore how increased competition—including from new lenders—may help address inequities.

2. What barriers to entry and expansion do lenders to SMEs face, and how can they be reduced?
The study will examine barriers that make it difficult for lenders to grow or enter the SME lending market, which can limit options and competition for businesses seeking loans. It will mainly focus on steps policymakers can take to make it easier for new lenders to enter and compete more effectively.

For instance, this study will examine if regulatory frameworks, lenders’ funding sources, risk assessment methods, or access to information put certain lenders at a disadvantage.

3. How can SMEs’ ability to switch lenders be improved?
The study will explore ways to make it easier for SMEs to switch lenders. It will assess how easy it is for SMEs to compare loan offers across key terms (rate, duration, collateral, service) and whether bundled services—such as business accounts or insurance—limit SMEs’ ability to switch. The research will identify switching costs (such as exit fees, penalties, risks, borrower time, etc.) and evaluate how effective third-party platforms (like loan marketplaces and brokers) are in making switching easier. Finally, the study will consider best practices from other countries to improve transparency and make switching lenders simpler for SMEs.

Exclusions from the scope of study

While there are many important issues relating to funding for SMEs beyond those mentioned above, for this study the Bureau does not intend to focus on:

  1. trade credit, leasing, lines of credit, credit cards, and commercial mortgages
  2. all forms of equity financing such as venture capital
  3. all forms of government support provided on a non-commercial basis such as grants or loans without interest, tax credits
  4. specific complaints that may raise concerns under the enforcement provisions of the Competition Act. These complaints should be directed to the relevant enforcement directorate or the Bureau’s Complaint Form or Information Centre.

Legislative developments

The following topics include current legislative or regulatory initiatives with potential pro-competitive benefits. As these initiatives are under development or recent, they will not be covered by the study unless relevant outstanding competition issues are raised.

  1. Consumer-Driven Banking
  2. Real time Rail
  3. Finance proposal on fair Access to the Distribution Channel for Brokered Deposits

Duration of the study

The duration of the proposed market study will be 12 months.

Outcomes of the study

The Bureau will publish the results of the study in a public report, which may include recommendations to relevant government authorities on steps they can take to improve competition for the benefit of SMEs, and entrepreneurs.

The study will enable the Bureau to, among other things:

  1. Make evidence-based findings and increase its knowledge and understanding of the competitive dynamics within the sector.
  2. Provide informed advice regarding steps that policymakers could take to further support competition in the sector.

Share your views

We invite all interested parties, including SMEs, lenders, trade associations, advocacy organizations, experts, and members of the public, to review the proposed terms of reference and provide feedback. You could provide such feedback by answering the questions below using our feedback form.

If you prefer to share your comments by email—instead of using the feedback form—you are welcome to send them to smemarketstudy-etudedemarchepme@cb-bc.gc.ca.

You could also mail us your feedback to:

Competition Bureau
Place du Portage I
50 Victoria Street, Room C-114
Gatineau, Quebec
K1A 0C9
c/o Benjamin Klass, Senior Competition Law Officer, Office 2137

Publication of comments

All feedback provided (excluding personal information) may be published on the Bureau’s website, in the language provided, unless it is specifically requested that they be kept confidential. The Bureau may publish a summary of comments from individuals. Submissions from businesses, organizations, and industry professionals (including academics) may be posted on the Bureau’s website in full, unless it is specifically requested that they be kept confidential.

If a submission contains confidential information, we would welcome a confidential and public version of the submission by email at smemarketstudy-etudedemarchepme@cb-bc.gc.ca.

Please submit your comments by October 3rd, 2025.

Consultation questions

The study will focus on competition for term loans to SMEs, one of the main financial products used by SMEs in Canada to make investments that strengthen our economy. The study aims to assess the competitive dynamics in SME lending markets, including potential barriers to entry or expansion for lenders and challenges for borrowers to compare offers and switch their lender.

  1. Breadth and depth of scope of study
    1. In your opinion, is the current scope of study as proposed appropriate for the objectives described?
    2. If you feel it is too wide or too narrow, what would you suggest be added or removed? Please justify and if possible, provide specific information to support your views.
    3. Do you believe there are important stakeholders or voices not represented in the current proposal? If so, which ones?
  2. Funding mechanisms and financial products
    1. The Bureau intends to focus on term loans. Can competition in SME lending be properly assessed without looking at other ways SMEs get funding—like private equity, venture capital, grants, crowdfunding, lines of credit, credit cards, and commercial mortgages? If you think we should include these in the study, please explain why.
    2. Are there specific types of financial products or services that should be prioritized or explored in greater detail?
  3. Geographical focus
    1. Are there specific regions that you think would be particularly informative for us to examine or compare?
    2. What factors do you think are most important to consider when identifying informative geographical regions to examine or compare? (e.g., market size, growth potential, existing support infrastructure, unique barriers to entry)
  4. Other Considerations
    1. Are there any emerging trends, technologies, or policies regarding funding to SMEs that should be considered in our study?
    2. Are there any new technologies or systems (e.g., decentralized finance) on the horizon that can disrupt this market and create more competition?
    3. Do you have any general comments you wish to share?

Next steps

After considering the comments received, the Bureau will publish the final terms of reference. The final terms of reference will include further details about providing information to assist the Bureau in its information gathering phase.

Anticipated timeline

  • October/November 2025: Official study launch with publication of the final terms of reference
  • January 2026: Deadline for contributions to the market study
  • Fall 2025/Winter 2026: Stakeholder engagement and research
  • Spring/Summer 2026: Analysis of potential solutions and recommendations
  • Fall 2026: Publication of final report

Should there be any material change to this schedule, the Bureau will update the notice and advise stakeholders of the changes through the market study webpage.

Confidentiality

The Bureau conducts its advocacy and enforcement activities under the authority of the Competition Act. Section 29 of the Competition Act protects information obtained by or provided to the Bureau, including the identities of the persons who provided the information, and any information that could reveal their identities. However, when information has been made public or where persons providing information authorize its communication to other parties, subsection 29(2) permits the disclosure of such information.

Additionally, subsection 29(1) provides exceptions for the communication of information to a Canadian law enforcement agency or for the purposes of the administration or enforcement of the Competition Act.

The Bureau encourages stakeholders to consult its Information Bulletin on the Communication of Confidential Information under the Competition Act or direct specific questions to the market study team by emailing smemarketstudy-etudedemarchepme@cb-bc.gc.ca.

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