Canadian tech and business groups plan to weigh in on a forthcoming Competition Bureau consultation on the competitive landscape of debt financing options for small businesses, including startups.
This week, Canadaâs Competition Bureau launched consultations on how to best conduct a 12-month study on competition for small and medium-sized business loans. The agency said the research will explore how Canada can improve the lending landscape for small- to mid-size enterprises (SMEs), which is dominated by big banks. At the same time, it plans to look at how non-traditional financial lendersâsuch as FinTech companiesâcould benefit from increased competition.
The Competition Bureau said it will focus on term loans, not equity or venture capital, in response to concerns about financing access. These include domination by big banks, unfavourable loan conditions for SMEs, and barriers to switching loan providers.
âImproving access to capital and opening up markets is always a good thing.”
Laurent Carbonneau, CCI
The initial consultation, which is open until Oct. 3, aims to source opinions on the âfocus, methodology, and questionsâ posed by the market research. The study will launch in October or November, and should be published in the fall of 2026.
Industry groups that represent Canadian businesses and the tech sector told BetaKit they were pleased that the Competition Bureau is tackling this issue.
The Council of Canadian Innovators, which represents tech scaleups, called the research a âgood topicâ for the Competition Bureau and said it would participate in consultations after discussing with its members.
âImproving access to capital and opening up markets is always a good thing,â Laurent Carbonneau, CCIâs director of policy and research, said in a statement.
Deal terms
When it comes to startups and the innovation ecosystem, such a consultation could provide insight into difficulties securing early-stage financing and FinTech companiesâ challenges securing market share.
Some early-stage startups that struggle to secure traditional venture capital or equity financing have looked to debt financing options, including from government agencies like the Business Development Bank of Canada (BDC). This comes amid a particularly difficult capital-raising landscape for early-stage Canadian tech startups. Data from the Canadian Venture Capital Association (CVCA) has consistently shown shrinking seed-stage deals and an overall decline in funding.
Canadian Federation of Independent Business (CFIB) vice-president of advocacy Corinne Pohlmann, who works with SMEs, told BetaKit she was pleasantly surprised at the Competition Bureauâs study topic.
A quarter of SMEs pursue debt financing, according to Statistics Canada. Debt financing has become more difficult and more expensive for SMEs to secure, prompting many to use credit cards to fund operations. The barriers include higher interest rates in Canada compared to other OECD countries, as well as the prevalence of personal guarantees.
âOften, businesses would prefer to use collateral rather than having to do a personal guarantee, which could potentially bankrupt them personally,â Pohlmann said.
Triptyq Capital partner and entrepreneur Bertrand Nepveu said a lack of competition plays a role in keeping deal terms in Canada less founder-friendly compared to the United States. In addition, lending conditions that include secured debt make it difficult for founders to start a new venture if their first startup goes bankrupt.
Some say the personal cost of failure can push entrepreneurs from the ecosystem altogether. Founder support platform Chapter estimates that the average personal cost of startup bankruptcy is nearly $350,000.
At the same time, some government-backed programs designed to boost entrepreneurship rates, such as BDCâs Business Loan Accelerator Program, require a personal guarantee. Despite BDCâs involvement, banking partners such as the Royal Bank of Canada provide the loans themselves.
Challenger banks
On the lending side, non-traditional lenders like FinTech companies have welcomed the consultation launch. Industry group Fintechs Canada argued that moving forward with legislative projects on open banking and real-time rail would boost competition in the sector.
Advocates like Fintechs say an open banking framework would make it easier for consumers to control their financial data sharing, allowing them to more easily switch between banking and loan providers. In the absence of this framework, many FinTech companies rely on screen-scraping, an insecure method of consumer data sharing.
Open banking and real-time rail, legislative projects that have been in the works for years, will not be explicitly covered by the study, though the Competition Bureau noted they have âpro-competitiveâ potential.
Adriana Vega of Fintechs Canada said in a statement that pushing forward these policies would expand access to capital for SMEs. Giving financial regulators a mandate to boost competition, she added, âwould help level the playing fieldâ by reducing borrowing costs, improving access to capital, and making the markets work more effectively.â
Pohlmann agreed that open banking legislation would likely allow SMEs to switch loan providers more easilyâas long as FinTech providers arenât acquired by Canadaâs big banks.
âThat’s the only thing to watch,â she said. âBut open banking could definitely help in that regard.â
Feature Image courtesy Unsplash