Cyclicality of SME financing in Canada / : Cyclicality of small and medium-sized enterprises financing in Canada

Abstract This paper quantifies and assesses the relationship between the business cycle, as measured by the output gap, and chartered bank loans to small, medium-sized and large businesses using aggregate data from the Bank of Canada’s Banking and Financial Statistics Database combined with National Account and financial market data covering the 1988 to 2012 period. [...] The more stable the economy and the longer it lasts, the more unstable the foundation for the economy becomes. [...] The downswing in the credit cycle typically continues until the economy shows signs of recovery reducing the risks to lenders, at which point both the business and credit cycles start to rise again. [...] The main relationship of interest was the effect of the business cycle on the supply of financing to SMEs. [...] Separate data on the demand for and supply of loans are not available.3 Explanatory Variables The primary explanatory variable of interest allows for an assessment of the effects of the business cycle on business lending.