Fintechs Canada has urged the Competition Bureau to address key regulatory and competitive barriers that limit access to financing for small and medium-sized enterprises (SMEs). The call comes as part of the Bureau’s consultation on the proposed terms of reference for its market study on SME financing.
SMEs account for nearly all employer businesses in Canada. Their ability to hire, invest, and grow depends on affordable and reliable financing. Fintechs Canada’s submission highlights two main areas where change is needed: regulatory barriers to SME lending and structural barriers to competition in the financial sector.
Regulatory barriers are limiting access to credit
Recent amendments to the Criminal Code lowered the maximum allowable interest rate to address predatory consumer lending. However, the changes did not adequately distinguish between personal and commercial loans under $10,000. As a result, the smallest businesses are effectively barred from accessing the short-term, cash-flow-matched financing they need to operate and grow.
Fintech lenders often offer flexible repayment structures tailored to these entrepreneurs, but many of these products are now prohibited under the new rules.
At the time these changes were being consulted on, Fintechs Canada estimated that between 2024 and 2032, 50,000 to 60,000 loan offers worth approximately $230 million would not be made to Canadian entrepreneurs because of the lack of a broad commercial exemption. Other jurisdictions, such as the United Kingdom and Australia, have successfully combined such commercial exemptions with strong borrower protections through lender liability regimes.
Canada’s financial sector needs stronger competition
The submission also calls attention to structural barriers to competition in the financial sector that constrain credit availability for SMEs. Unlike regulators in the UK and Australia, Canadian financial regulators do not have an explicit competition mandate.
The delayed implementation of open banking further limits innovation. With full, real-time access to SME transaction data, lenders could assess creditworthiness more accurately, increase approvals, and compete more effectively on price and service. In addition, the process to obtain a bank licence remains skewed toward large incumbents, discouraging smaller and more innovative entrants.
Fintechs Canada’s recommendations
Fintechs Canada supports the Bureau’s market study and has recommended that it:
- Evaluate the impact of the $10,000 threshold on SME access to credit
- Gather and publish data to benchmark Canada’s SME financing landscape against international peers
- Catalogue regulatory and competitive barriers to SME financing and advocate solutions
- Ensure that open banking is implemented in a way that includes SMEs
- Consider substitutes for term loans to fully assess competitive dynamics
“Canada’s SMEs need a financial sector that works for them,” said Adriana Vega, Executive Director of Fintechs Canada. “By addressing regulatory barriers and promoting greater competition, we can create a more dynamic financial ecosystem that supports entrepreneurship, job creation, and economic growth.”
To read the full submission, click here.
