TORONTO — October 23, 2024 — A new survey conducted at the close of Q3 2024 reveals a complex landscape for Canadian small and medium-sized businesses (SMBs). While projecting optimism and resilience in the face of economic uncertainties, these businesses simultaneously contend with significant financial and operational challenges. The study underscores an urgent need for enhanced institutional support and more efficient financial tools specifically designed to help SMBs access capital, manage finances effectively, and focus on strategic growth.
The State of SMB Finance in Canada research study, conducted by Float Financial, the leading business finance platform for Canadian businesses, surveyed nearly 700 SMB owners and operators. The study was designed to uncover the complexities of SMB management and the disconnect between these businesses and the traditional financial ecosystem in which they operate. The accompanying infographic provides insights on their challenges and opportunities for innovative financial services that cater to the unique needs of SMBs.
“Canadian SMBs are ambitious and optimistic, but they’re being held back by an unmotivated banking sector and outdated financial tools and processes,” Rob Khazzam, co-founder and CEO, Float Financial. “The current financial ecosystem is stunting the growth of the very businesses that drive our country’s economic engine, and they deserve better. At Float, we recognize that SMBs can’t afford to wait for the financial industry to catch up. That’s why we’re leading the charge in reimagining financial services, and our approach is simple: deliver immediate value through higher returns, flexible funding, and solutions that drive efficiency, while constantly innovating to stay ahead of our customers’ needs.”
Resilient optimism meets financial reality: SMBs navigate significant financial pressures
Canadian SMBs are displaying remarkable resilience and optimism as they enter the final quarter of 2024. A striking 87% of SMB owners and operators express confidence about their current performance, with 60% feeling more optimistic than a year ago. This positive outlook is bolstered by positive profit projections, with nearly half (49%) of respondents anticipating year-over-year profit growth exceeding 10%.
However, this optimism exists alongside significant financial challenges. SMBs are faced with high operating costs (43%), steep interest rates or financial product fees (40%), inconsistent revenue (33%), insufficient cash flow (29%), and difficulty accessing capital (25%). Worryingly, four out of 10 (40%) report that their financial difficulties have escalated over the past year, aligning with broader economic challenges. Persistent inflation, high interest rates, and global supply chain disruptions have created a particularly challenging environment for SMBs, which often have less financial cushion to weather economic storms compared to larger corporations.
Despite these hurdles, SMBs remain growth-oriented. With additional capital, 38% would prioritize expanding and improving operations, while 33% would invest in human capital through hiring or improving compensation. One in three (33%) would build cash reserves, and 32% would allocate funds to developing new products or services.
The hidden cost of banking inefficiencies: Delays and cumbersome processes strain SMB finances
Frustration with traditional banks is mounting among SMBs, who feel their needs are being overlooked. Almost six out of 10 SMBs are unhappy with interest rates on savings accounts (59%) and cashback / rewards programs (58%), and half (50%) find cash balance yields uncompetitive.
The inefficiencies of traditional banking systems extend beyond being merely inconveniences — they actively contribute to financial strain for SMBs. For example, insufficient cash flow is a major concern for 65% of SMBs dealing with long processing times for financial transactions and 59% experiencing lengthy loan approval processes. Low credit limits on business credit cards and high interest rates or fees on financial products are also major pain points, with 50% and 41% of SMBs struggling with these issues respectively reporting worsening financial challenges over the past 12 months.
The overall value proposition of banks is also under intense scrutiny. More than half of SMB owners and operators believe banks lack understanding of their unique needs (51%) and are not interested in supporting them (52%). Customer service is a key friction point, with nearly two-thirds (64%) reporting inadequate support. This perceived lack of support has tangible consequences — 45% of SMBs who do not feel supported by their banks report that their financial challenges have worsened over the past year. And to top it off, nearly half (47%) of all SMBs feel their bank’s financial insights do not help them make better business decisions.
Newer businesses face heightened financial challenges and dissatisfaction with banking: SMBs that are 0-5 years old are more likely than well-established businesses (more than 20 years old) to report struggles with accessing capital (70% vs. 21%) and insufficient cash flow (56% vs. 48%). They also report significantly higher levels of dissatisfaction with banks, reporting that traditional banks are not interested in supporting them (63% vs. 39%) and provide inadequate customer service (72% vs 52%).
Business leaders underestimate daily fiscal challenges while finance teams sound the alarm: There is a significant disconnect between the leadership (CEOs, executives, owners) and the financial operators (accountants, finance executives, finance management, ops / admin) of SMBs in perceiving financial challenges. Financial operators consistently report higher levels of concern across key areas such as operating costs (80% vs. 69%), cash flow issues (56% vs. 47%), and manual data entry burdens (72% vs. 59%). They have a more acute awareness of the day-to-day financial hurdles and inefficiencies that may be overlooked by leadership focused on broader strategic issues.
The SMB financial bottleneck: Outdated tools and processes block business growth
Canadian SMBs face significant operational challenges in managing their finances effectively. More than half (52%) find their current financial reporting processes inefficient, and one-quarter (25%) report having inefficient financial processes or systems overall. Two out of three (66%) SMBs report that their team spends too much time on manual data entry, and half (50%) spend 10 to 40 hours a month on payments and reconciliation processes. Alarmingly, 51% of SMBs encounter errors in their financial records that require correction, casting doubt on the reliability of information used for critical business decisions. Overall, 43% of SMBs operate without good visibility into their cash flow or the ability to predict potential problems, severely hampering their ability to make informed decisions and plan effectively.
SMB tools often exacerbate financial difficulties: More than half (55%) of SMB owners and operators report their current financial tools do not integrate well with each other, and nearly half (49%) of this group feel their financial challenges have intensified over the past year. In fact, SMBs using poorly integrated tools are more likely than businesses using streamlined tools to report insufficient cash flow (57% vs. 46%) and dramatically poorer visibility into their cash flow (60% vs. 30%).
Seven out of 10 (70%) SMBs who do not have a single source of truth for financial data report poor visibility into cash flow and more than half (51%) report worsening financial challenges over the past 12 months. Comparatively, among SMBs operating with a more holistic view of business performance, only 24% and 36% report the same.
When it comes to using financial tools and platforms, even the user experience and design play a crucial role in financial health. More than half (52%) of SMB owners and operators find their systems clunky and unintuitive. Compared to those using user-friendly platforms, these SMBs are more likely to report insufficient cash flow (63% vs 45%), poor cash flow visibility (58% vs 29%), and worsening financial challenges (47% vs 31%).
Empowering SMB success through financial innovation
The State of SMB Finance in Canada study reveals a stark contrast between SMB optimism and the reality of their financial ecosystem. They are hindered by an outdated financial infrastructure and inefficient tools and processes, which directly impact SMBs’ operational capabilities, financial stability, and growth potential.
The time is now for financial institutions and fintech companies to reimagine Canada’s financial infrastructure with SMBs in mind, focusing on three critical pillars:
- Speed: Accelerating financial momentum by ensuring money moves as swiftly as business happens;
- Access: Unlocking access to capital to provide SMBs with personalized, readily available funding options; and,
- Ease: Simplifying financial management with integrated, user-friendly tools that free up valuable time for SMBs to focus on core business activities and growth.
Float builds its products and solutions on these three pillars, recognizing their importance not just for individual businesses but for Canada’s economic future as a whole. The company’s commitment to SMB empowerment is reflected in its easy-to-use business finance tools and tailored solutions.
Financial institutions and fintech companies have the opportunity to not only better serve the SMB market but to also play a pivotal role in driving economic growth and innovation in Canada. The optimism and resilience demonstrated by SMBs, coupled with the right financial tools and support, could unlock significant potential for this vital sector of the economy.
Resources
Survey infographic: The State of SMB Finance in Canada, 2024
Float Financial’s manifesto: The SMB Manifesto: Reimagining a Financial System that Actually Works
Research methodology
Survey responses were collected by Float Financial from 682 SMB owners and operators in Canada from September 30 to October 6, 2024. The findings highlight the complex financial landscape navigated by Canadian SMBs, including their challenges, aspirations, and the critical need for innovative financial solutions tailored to their unique needs.
About Float
Float is on a mission to simplify finance for Canadian companies. We empower businesses with financial solutions to eliminate complexity and unlock opportunities. Our integrated suite of products—including corporate cards, bill pay, reimbursements, and financial services—provides everything needed to manage spending and cash flow efficiently, allowing teams to focus on what truly matters: growing their business. To learn more, visit www.floatfinancial.com.
