Applications are not demand: what we filed with the Senate Banking Committee on small business credit

Zenbooks has submitted a written brief to the Standing Senate Committee on Banking, Commerce and the Economy for its study on access to credit and capital markets for small- and medium-sized enterprises.

What we filed

The Standing Senate Committee on Banking, Commerce and the Economy is studying access to credit and capital markets for small- and medium-sized enterprises as the basis for growth and improved productivity in the Canadian economy. The committee was authorized to conduct the study in November 2025 and must report to the Senate by October 31, 2026. It has heard from the Business Development Bank of Canada, Innovation, Science and Economic Development Canada, the Canadian Federation of Independent Business, Desjardins, the Canadian Credit Union Association, First Nations Bank of Canada, the Canadian Securities Administrators, the Ontario Securities Commission, the TSX Venture Exchange, the Bank of Canada, and a range of private funds and academics.

We filed a nine-page written brief with the clerk of the committee. It draws on the Zenbooks Financial Clarity Index 2026, our nationally weighted survey of 565 Canadian small and mid-sized businesses, and on our own practice preparing the financial records that lenders ask to see.

This post carries the substance of that brief in full. The filed version is available as a PDF, but everything material is set out below.

The question the committee has not settled

The evidence before the committee contains a disagreement that was never resolved.

The Bank of Canada told the committee that the binding constraint on small business credit is demand rather than supply, and that federal lending capacity is not being fully drawn on. Business owners and community lenders told the committee the opposite, and described businesses that cannot obtain an operating line of $50,000.

Both accounts describe accurately what each party can see. They conflict because applications are being counted as demand, and applications are not demand.

Lenders and program administrators count applications, because an application is the only demand signal they receive. A business that never applies is, in that data, a business with no need.

What applying actually costs

An application is not free. It is priced in the owner's time and in professional fees, and the bill is payable whether or not the loan is approved.

In our practice, a credit application of any substance takes something in the order of 15 hours of the owner's own time. Preparation, document assembly, clarification requests, and the reconstruction of records that were never maintained to a standard a lender will accept. On top of that, applications routinely require accounting work the business would not otherwise have commissioned: books brought current, statements prepared, forecasts built, all before any lender has expressed interest.

Consider when this happens. Businesses go looking for credit because cash is constrained. The application then demands discretionary spending at the point in the year when the business has the least of it, and takes the owner off revenue-generating work at the same moment, in exchange for an answer the owner already expects to be no.

Owners who have been declined more than once frequently stop applying. They do not describe it as a financing decision. They describe it as not being willing to spend the money and the time again.

Canada already measures this, and buries it

The discouraged borrower, meaning a creditworthy business that does not apply because it expects refusal, is a long-standing concept in the small business finance literature.

Canada does measure it, thinly. The Survey on Financing and Growth of Small and Medium Enterprises asks businesses that did not request financing why not. In the 2023 iteration, 50.7 per cent of businesses did not request external financing. Of those, 81.4 per cent said financing was not required. Beneath that headline, 6 per cent were unaware of available sources, 6 per cent expected financing to be too costly, 2 per cent believed a request would be turned down, and 2 per cent found applying too difficult or time consuming.

Three limits make that measure hard to use. The survey runs roughly every three years, and the 2023 results were collected in early 2024 and released in February 2025. The reasons are reported as subcategories under a headline finding that most non-applicants had no need, which is the figure that travels. And nothing in the published output connects discouragement to whether the business would have qualified.

That last limit is the one that matters. A business that did not apply because it had no need, a business that did not apply because it expected refusal, and a business that expected refusal and would in fact have been refused are three different things. Only the third is a market failure. The published data does not separate them.

Canada already does something close to the right thing in the labour market. The Labour Force Survey identifies discouraged searchers, people who want work and have stopped looking because they expect to find none, and reports them in the supplementary unemployment rates precisely because the headline rate would otherwise miss them. That measure is monthly, named, and published as a series in its own right. The credit equivalent is triennial and buried.

Why applying costs so much: findings from the Zenbooks Financial Clarity Index 2026

An application requires reconstruction rather than retrieval because most Canadian small and mid-sized businesses do not hold current, decision-ready financial information. The Zenbooks Financial Clarity Index 2026 measured this across 565 nationally weighted businesses.

• The national mean score was 56.7 out of 100. A majority of Canadian small and mid-sized businesses, 56.5 per cent, scored below 60.
• 29.1 per cent of Canadian small and mid-sized businesses track key performance indicators consistently.
• 18.1 per cent have no cash runway or do not know what their runway is: 10.6 per cent report none, and 7.5 per cent report that they do not know.
• 24.9 per cent hold neither an emergency fund nor a credit line.
• 23 per cent of owners do not know what their business is worth.
• Businesses running fully integrated financial systems scored 71.9. Businesses running mostly manual processes scored 44.1. The 27.8-point difference is the widest divide in the dataset.
• 77.2 per cent of owners rated their own financial management as good or excellent. 43.5 per cent scored in that range.

These are associations measured at a point in time. The Zenbooks Financial Clarity Index does not establish that weak financial systems cause credit refusal, and the brief does not argue that they do.

What the Index establishes is the starting position. A business that does not track indicators, does not know its runway and cannot say what it is worth has nothing to hand a lender. The application starts with a build.

One point from practice is worth adding here. Lending and grant applications never ask an owner to rate their own financial management. They ask for documents. The barrier is not confidence or self-perception. It is whether usable records exist, and where they do not, somebody has to be paid to create them.

Why the refusal is often predictable

The cost of applying would matter less if the odds were good. For a large and growing category of Canadian business, they are not, and the reason is structural rather than a question of performance.

Commercial lending in Canada is built around security. That model works for a manufacturer with equipment, a contractor with a fleet, a business that owns its premises. It fits poorly with businesses whose value sits in people and contracts.

Ask any regional economic development agency what kind of business is actually being started in their region this year. It is not a manufacturing plant, and it is not capital-intensive. It is a services business, a software business, somebody with an idea and a laptop.

A professional services business turning over $1 million a year is a serious operating business by any measure. It also owns almost nothing a lender can take security in. No equipment worth pledging, leased premises, no inventory. Businesses in this position find conventional bank credit very hard to obtain on reasonable terms, and what is available is usually secured against the owner's house.

The shift to monthly recurring revenue makes this sharper. Under a subscription or retainer model, a business invoices and collects close to the point of service, so accounts receivable at any given moment are small. Where a lender sizes a facility against the receivables ledger, a business that has improved its cash conversion cycle has simultaneously shrunk the borrowing base it will be assessed on. Getting paid faster reduces the amount you can borrow. And where the business collects ahead of delivery, sound cash management practice, the money appears on the balance sheet as a deferred revenue liability.

So a business can do everything the productivity literature recommends, move to predictable recurring revenue, collect promptly, carry no idle inventory, and end up less able to borrow than a slower competitor sitting on aged receivables and depreciating equipment.

An owner in that position who declines to spend 15 hours and several thousand dollars on an application is not being pessimistic. They are reading the underwriting model correctly.

Where the demand goes

Demand that leaves the regulated lending system does not disappear. It moves into channels no federal dataset captures.

Businesses that stop approaching lenders commonly finance through loans from family and friends, or through equity sold to local business owners who have cash on hand. In our practice this is the routine substitute for bank credit, not an exceptional one.

That bears on something the committee has heard repeatedly. Witnesses described Canada as a country of stranded assets, and raised the drift of business ownership into distant hands. Informal equity reaches the same destination by a quieter route. An owner who cannot borrow $200,000, and who sells a share of the business to a local investor instead, has given up permanent ownership to solve a temporary cash problem. Nothing about that transaction appears in an application statistic, an approval rate, or any measure of credit demand.

This is practitioner observation, not survey evidence. The Zenbooks Financial Clarity Index did not ask businesses to identify their financing sources. The 2027 wave will.

The four recommendations

1. Report discouraged borrowing properly. Increase the frequency of the financing questions in the Survey on Financing and Growth of Small and Medium Enterprises, and report non-application as a structured measure rather than a subcategory: businesses with a financing need that did not apply; within that group, those who did not apply because they expected refusal or because applying was too costly or time consuming; and the observable characteristics of that group, so the extent of discouragement among otherwise viable businesses can be assessed.

2. Let a business assemble its financing information once and present it to multiple lenders. Extending the consumer-driven banking framework to business accounts, on terms permitting a single data authorization to support more than one application, is the first mechanism for achieving that. Households solved this problem with mortgage brokers. Business owners have no equivalent within practical reach.

3. Address underwriting for asset-light businesses. The Business Development Bank of Canada should report application, withdrawal, approval and pricing outcomes by tangible-asset intensity. If those data confirm a material access gap among otherwise viable asset-light businesses, it should assess and pilot proportionate underwriting based on recurring revenue and cash flow.

4. Disclose Business Development Bank of Canada outcomes by financing band. Documentation requirements, median time to decision, completion and withdrawal rates, and approval rates. If a discontinuity in applicant burden exists around a particular financing size, it will be visible in that data.

What the brief does not claim

Some of the missing demand is genuine caution rather than discouragement. Owners have told us they will not take on leverage while they cannot judge whether conditions ahead justify it. That is a considered commercial decision and should not be counted as a barrier. On this point the Bank of Canada is partly right.

The difficulty is that nothing in the available data distinguishes the cautious owner from the discouraged one. Both show up as an absence.

The Zenbooks Financial Clarity Index measures financial clarity. It does not measure credit access, approval rates or lender behaviour, and it should not be cited for any of those.

Declaration of interest

Zenbooks is an advisory-led fractional finance team serving more than 300 Canadian small and mid-sized businesses. The firm sells bookkeeping, controllership and advisory services. Nothing in the brief recommends the purchase of those services, and none of the four recommendations would increase demand for them. We said so in the submission itself, and we are saying it here.

About the Zenbooks Financial Clarity Index

The Zenbooks Financial Clarity Index is an annual national benchmark of financial clarity among Canadian small and mid-sized businesses, published by Zenbooks Tax Services Professional Corporation of Ottawa. The 2026 edition, the first wave, surveyed 565 businesses and weighted the results to Statistics Canada regional, size and sector distributions using an iterative proportional fitting procedure. The design effect was 1.10, producing an effective sample of approximately 513. The sample was drawn from an online research panel and is a nonprobability sample weighted to national totals. All findings are descriptive associations and the design does not support causal inference.

The Index scores five disciplines: awareness, forecasting, decision-making, systems and risk management. The national mean for 2026 was 56.7 out of 100. The second wave fields in March 2027.

The methodology and weighting approach were reviewed, in an individual capacity and not on behalf of his institution, by an economist at the C.D. Howe Institute. Additional comments were provided by Corinne Pohlmann of the Canadian Federation of Independent Business, by Professor Francois Brouard of Carleton University, and by Professor Ryan Riordan of Queen's University. Professor Riordan is a client of Zenbooks and that relationship is disclosed alongside his comments in the published report.

The scored dataset is available to researchers and journalists on request, including cuts not present in the published tables.

Suggested citation: Saumure, E. (2026). Zenbooks Financial Clarity Index 2026. Zenbooks Tax Services Professional Corporation, Ottawa.