Nine years ago, at the urging of the federal government, Canada’s biggest banks and insurers created the Canadian Business Growth Fund (CBGF), seeding it with some $500 million to invest in mid-size companies with ambition to grow. 

Former prime minister Justin Trudeau’s government was excited. “The entrepreneurs I’ve met from coast to coast to coast have been asking for access to exactly this kind of capital and mentorship,” Bardish Chagger, who was the minister of small business and tourism at the time, said in a press release. “I can’t think of a better vote of confidence in the great potential of Canadians who own and work in small and medium-sized businesses.”

I never saw it that way. To me, it was the opposite of a vote of confidence. Each of the CBGF’s backers—which included Canada’s Big Six banks and a few smaller ones, along with Sun Life, Great-West Life and Manulife—easily could have put up funds of their own to invest in smaller companies, or simply could have opened their lending spigots a little more. 

These highly protected companies are left alone to extract billions of dollars from households and businesses every quarter, in part because it’s understood that they will make sure that money finds productive uses. Yet those companies felt they needed to pool the risk of investing in Canadian upstarts, and only after then-finance minister Bill Morneau prodded them to do so. 

To be sure, half a billion dollars is real money. Still, at the time of the 2017 announcement, there was talk of creating a $1 billion fund over the coming decade. That hasn’t happened. The CBGF had invested $435 million as of Dec. 31, according to its 2025 annual report. The fund invested in three new companies last year, taking the total to 34. That’s less than four companies per year. 

I’m not here to judge. Maybe the universe of investable Canadian small and medium-sized enterprises (SMEs) is exceedingly small. Maybe those firms are as averse to risk as their notoriously conservative lenders. The Canadian Bankers Association insists that SMEs have “ample” access to debt financing, and would have access to even more if not for onerous government regulation.  

But I will submit that the finance oligopoly missed its chance to lead a revival of Canadian entrepreneurship. While the banks churned out government-backed mortgages and prioritized the lucrative business of providing wealth management, Canada’s entrepreneurial heartbeat slowed. In February 2017, Statistics Canada counted about 598,000 self-employed workers who were incorporated and had employees, representing 3.3 per cent of the total workforce. Last month, there were 559,000 such workers, representing 2.7 per cent of the total workforce.  

The banks would deny responsibility. Miwako Nitani, an associate professor of finance at the University of Ottawa, told the Senate banking committee this week that the supply of bank loans to SMEs is “healthy and stable,” citing loan application approval rates of around 90 per cent over the past decade. There are other variables, including demographics. Entrepreneurs from the boomer generation are retiring, and they aren’t being replaced. 

Canada might have ample credit for smaller companies, but it costs more than it does elsewhere. Nitani also told senators that Canadian SMEs tend to pay higher interest rates than their international peers, something that C.D. Howe Institute has also observed. When you charge more for something, you get less of it. In the case of Canada, the shortfall in lending to smaller firms could be in the range of $300 billion, according to Céline Bak, president of Analytica Advisors, an Ottawa-based consulting firm. 

Bak spends most of her time working on the energy transition, and access to credit is a “constant theme” for cleantech firms, she said. Bak wanted something harder than anecdata. Using Organisation for Economic Co-operation and Development data, she calculated that SME loans outstanding as a share of total loans outstanding in Canada is dramatically smaller than in the other G7 countries and three other rich-country peers: Spain, Australia and Norway. 

Canada’s gap with the median of that cohort is some 220 per cent, or more than $300 billion. That’s how Bak came up with her ballpark figure for a market and policy failure that many of us have come to treat as background noise—even as we wonder why the country faces a productivity crisis. 

Again, there are lots of variables, but expensive capital must surely be among the most important. Productivity comes from innovation; innovation comes from new ideas; new ideas need capital to scale, and too many of Canada’s potential innovators exist in capital deserts. “The order of magnitude of the gap suggests that this isn’t a minor problem,” Bak said. “It’s a structural problem.”

There’s some evidence that Ottawa is alive to the problem. The Competition Bureau is in the middle of a market study on small business lending. Nitani was at the Senate banking committee because that body is conducting its own research on the subject. The federal banking regulator plans to ease restrictions that apply to SME lending, and recently decided to fast-track applications for banking licenses from credit unions and fintechs. The latter could be good for competition, while the former will test the banks’ contention that it’s the government’s fault that credit conditions for SMEs are tight, not extreme industry concentration. 

Solutions can’t come fast enough. The latest hiring numbers show the yo-yo effect of trade uncertainty could stall the economy. 

Former Bay Street banker Andrew Spence proposed in his book Fleeced that the federal government could mandate that the six biggest banks provide a minimum amount of SME lending. If that’s too severe, Spence said, Ottawa could order the banks to contribute to a fund that would help other financial service providers lend to SMEs, perhaps backed by a government guarantee. 

Spence’s idea of a fund dedicated to SME lending is similar to something Bak has been thinking about. Given the emergence of private credit as an asset class, she thinks Prime Minister Mark Carney could rally tens of billions of dollars from institutional investors by creating a large fund that a network of regional asset managers could then tap to lend to SMEs.

The federal government would have to provide a backstop, but this shouldn’t be a barrier. Canada Mortgage and Housing Corporation underwrites much of the housing market, so why not extend that model to the broader economy, at least for a decade. Rebuilding the economy will require builders, and right now, too few of them can get loans. 

“We’re running as fast as we can, but we aren’t able to go as fast as everyone else,” said Bak. “We have cement in our shoes.” 

Kevin Carmichael is The Logic’s economics columnist and editor-at-large. He has spent more than two decades covering economics, business and finance for outlets including Bloomberg News, The Globe and Mail and the Financial Post, where he also served as editor-in-chief.