Financing of Entrepreneurial Firms in Canada: An Overview

Flexibility theory of capital structure, asymmetric information, credit rationing, life cycle theory and market timing are consistent with many patterns of financing of entrepreneurial or small/medium size enterprises (SME) in Canada. Tax theory of capital structure does not seem to play a significant role for SMEs as opposite to large companies while it may affect the choice of securities by firms that use venture capital. More research is required to explain why the amount of loans to SMEs is growing although it increases slower than other loans and why the ratio of SME loans to all business loans is smaller relative to average ratio in other OCDE countries. Despite the wide variety of government support, Canadian entrepreneurs feel that governmental programs need improvement. The volume of equity financing and government financing for entrepreneurs is not significant although it was a substantial increase in venture capital financing in 2014-2015. New forms of financing such as crowdfunding are on the rise. This article provides an overview of entrepreneurial financing in Canada, discusses its major challenges and makes some suggestions.