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Why SME Loan Competition In Canada Is Under Review
Competition | Jan 13, 2026
Image: Freepik/pch.vector
Ottawa's Competition Bureau Launches Formal Study Into the Barriers, Switching Friction, and Concentration in SME Lending
On January 12, 2026, Canada's Competition Bureau announced a market study in small and medium sized enterprises (SMEs) financing (see press release), with a focus on term loans. Canada already has extensive data showing that SME lending is concentrated, borrowing costs are higher for small firms, and switching lenders is rare. What it doesn't yet have is proof of why these outcomes persist and is evaluating market structure.
See: Canada’s Public Sector Costs and Productivity Gap
Jeanne Pratt, Acting Commissioner of Competition:
“Access to credit is critical to the survival and success of many Canadian small and medium businesses. Our study will examine competition in lending for SMEs, and how it can be improved. More competition would make a real difference for growth, investment and innovation.”
What The Market Data Shows
In 2023, nearly half or 49.3% of Canadian SMEs relied on external financing, and debt financing remains heavily concentrated among incumbents. Chartered banks supplied 68.5% of SME debt financing, credit unions accounted for 20.6%, government backed lenders provided 9.4%, and online alternative lenders only 2.2%, according to Statistics Canada’s 2023 SME financing data.
Borrowing costs also diverge sharply by firm size. Analysis cited by the Competition Bureau shows that Canadian SMEs pay higher interest rate premiums than large firms compared with SMEs in other OECD countries, with the difference reaching 1.64 percentage points in 2021 and 2.10 percentage points in 2022 compared with OECD averages of 0.93 and 0.90 points respectively. This suggests small businesses pay more not because credit is unavailable, but because lenders face limited competition.
See: Fintech’s Role in Canada’s Productivity Revival
OECD data quoted by the Competition Bureau shows that Canadian SMEs have paid interest rate premiums on loans that exceed those of large firms by more than in most other OECD countries, with the difference reaching 1.64 percentage points in 2021 and 2.10 percentage points in 2022 compared with OECD averages of 0.93 and 0.90 points respectively.
Switching lenders remains rare. Research cited by the Bureau shows that only about 10% of business owners actually switch lenders, even when better terms exist, and that personal guarantees and pledging a primary residence remain common requirements, based on CFIB research on financing barriers facing small businesses.
These figures describe the outcome but they don't break down in detail and explain the cause.
Why Existing Data Does Not Explain The Problem
Aggregate datasets cannot show how competition breaks down in practice.
They don't reveal how long it takes an SME to refinance across providers, how bundled operating accounts, payments, and credit products raise switching costs, or how limits on data access affect underwriting decisions.
See: Market Forces Pressuring Fintech Plans For 2026
They also cannot show whether challenger lenders face higher funding costs or regulatory friction that incumbents do not, or whether government programs close genuine market gaps or quietly reinforce existing lending structures.
That evidence exists only inside real transactions. A market study creates a formal record that allows these details to be tested, compared, and evaluated in a way policymakers can rely on.
Why Term Loans Are At The Core
Term loans fund long term investment in equipment, technology, facilities, and expansion. When competition fails at this level, SMEs delay productivity enhancing investment, not because capital is unavailable overall, but because it is unavailable on workable terms.
This links SME lending directly to Canada’s productivity problem. The Bank of Canada has repeatedly warned that weak business investment constrains productivity growth. NCFA has previously highlighted how senior Bank of Canada leadership has explicitly described Canada’s banking system as an oligopoly affecting competitive outcomes, reinforcing that market concentration is structural, not theoretical.
When a few lenders dominate the market and businesses cannot easily switch, higher costs and tighter terms persist year after year.
Core Question The Study Is Testing
The competition bureau's study is testing one issue with significant consequences.
Are Canadian SMEs paying more and accepting tougher loan terms because of unavoidable risk, or because competition is structurally constrained?
If borrower risk explains the outcome, policy options remain narrow.
If market structure explains it, reform becomes unavoidable.
That distinction will determine how future decisions are made on switching rules, data portability, funding access, and competition policy in SME finance.
What Needs To Be Submitted Now
The Competition Bureau is asking for evidence.
SMEs can submit examples of failed refinancing attempts, excessive collateral requirements, and barriers that prevent moving to better terms. Fintech lenders, brokers, and platforms can submit evidence showing where entry and scaling breaks down, including limits on data access, funding costs, or regulatory friction that incumbents do not face.
See: How Competition Powers Canada’s Economic Growth
Anonymized term sheets, approval timelines, refinancing costs, bundling effects, and side by side comparisons across providers will carry weight.
Why This Matters Now And Where To Act
For fintechs, SMEs, and advocates, this is not a communications exercise. It is a narrow window to place real market evidence on the record before conclusions harden into policy. Submissions can be made through the Competition Bureau’s SME financing market study participation page or by emailing the study team directly at smemarketstudy-etudedemarchepme@cb-bc.gc.ca.
If challengers and SMEs don't define the evidence, incumbents will define the outcome.
The National Crowdfunding & Fintech Association (NCFA Canada) is a financial innovation ecosystem that provides education, market intelligence, industry stewardship, networking and funding opportunities and services to thousands of community members and works closely with industry, government, partners and affiliates to create a vibrant and innovative fintech and funding industry in Canada. Decentralized and distributed, NCFA is engaged with global stakeholders and helps incubate projects and investment in fintech, alternative finance, crowdfunding, peer-to-peer finance, payments, digital assets and tokens, artificial intelligence, blockchain, cryptocurrency, regtech, and insurtech sectors. Join Canada's Fintech & Funding Community today FREE! Or become a contributing member and get perks. For more information, please visit: www.ncfacanada.org
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