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Immigrant business owners seek financing less than Canadian born ones: study

The Star Calgary with Evelyn Ackah 19 June 2018

Immigrants hoping to launch businesses in Canada are believed to have a much harder time accessing capital than their Canadian-born counterparts, but although they seek financing at lower rates than Canadian-born owners, they are approved at roughly the same rate.

A Statistics Canada study on the matter, published Monday, draws on data collected from surveys in 2011 and 2014. Among other conclusions, it said there is “weak evidence” to suggest access to financial capital is more of an issue for immigrant owners of Canadian small and medium-sized businesses.

Approval rates for debt financing or trade credit applications fall within about five percentage points for both immigrant and Canadian-born owners.

“Overall, both immigrant and Canadian-born owners have very high approval rates,” the study’s authors wrote. “The differences in approval rates appear to be relatively small and may be related to differences in firm or owner characteristics.”

What still separates them are the reasons for rejection. According to the study, 43 per cent of immigrant business owners whose applications for credit were denied were told they had insufficient collateral — compared with 25 per cent for Canadian business owners. The runner-up reason, risk, also saw a gap: 39 per cent of immigrant businesspeople, compared with 28 per cent of Canadian-born business owners.

The study also notes that recent immigrants — specifically those who arrived in Canada within the last 10 years — are much less likely to approach formal financial institutions, such as banks, for access to financing than Canadian-born business owners.

Evelyn Ackah, a Calgary-based immigration lawyer, said it’s still tougher for recent immigrants to get access to financing in the first place. Her firm often works with clients trying to set up businesses in Canada.

“Sometimes, I need to do those calls to banks to assure them that they’re doing everything correctly, and these people do have the incomes they say they have and the means to buy the properties that they want to buy,” she said. “Or invest in businesses they want to invest in.”

This is mainly because recent immigrants arrive without a Canadian credit record, Ackah said. It also doesn’t help that, in her experience, certain Canadian banks may have policies that make financing applications for immigrants tougher.

“You’ve got to show around, and some banks make it harder than others,” Ackah said.

Interestingly, the study notes that Canadian-born owners — not immigrants — are more likely to be turned down for financing because of “poor or lack of credit experience or history.”

The biggest issues for small and medium-sized business owners of any stripe, according to the survey, are fluctuations in market demand for their goods, increased competition, and “rising cost of inputs.” Obtaining financing ranked at the bottom of their concerns, although the study’s authors noted that immigrant business owners were slightly more likely to see it as a problem.

Accessing financing gets a lot harder when it comes to startups, according to the Statistics Canada study, although most immigrant and Canadian business owners draw on personal financing — such as savings or a line-of-credit — to launch a start-up.

Overall, the Statistics Canada study suggested that, aside from a heavier dependence on debt financing — the use of credit cards or term loans — by immigrant businesses, both groups are more or less in the same boat.

“Taken together, these results suggest that immigrants and Canadian-born entrepreneurs finance their businesses quite similarly on an ongoing basis,” the study’s authors wrote.