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The Business Development Bank of Canada (BDC) and Equifax Canada have partnered to launch the innovative Canadian Small Business Health Index. The index was created to assess the financial wellbeing of small and medium-sized enterprises (SMEs) in Canada.
The Health Index combines real world data from BDC’s Investment and Financing Outlook Survey (IFOS), anonymized credit bureau data from Equifax, and macroeconomic data from Statistics Canada and the Bank of Canada.
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“Our innovative idea was that if we could combine the BDC and Equifax data, we could create a definitive measure of the business landscape in Canada,” said Sue Hutchison, chief executive of Equifax. “We have about 1.2 million small businesses in Canada, and they employ about 11 million people and represent over 50 per cent of our GDP. We’d heard from some of our lenders and other stakeholders that there was a gap in terms of available information on this segment.”
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Unlike other confidence indexes, which measure the business owners’ optimism about the economy and sales expectations, the Health Index combines business sentiments with real financial data, including statistics on bankruptcies and credit card spending by small businesses.
According to Pierre Cléroux, vice-president of research and chief economist at BDC, the Health Index uses 20 variables, as opposed to the one or two typically employed by other confidence indices, and will be updated quarterly to ensure it keeps up with the evolving economic landscape.
Cléroux says the wealth of data will allow stakeholders to not only follow the current situation of SMEs, but also better understand the reasons behind it.
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“For example, right now, we are seeing that the level of confidence is increasing (among business owners), but their sales growth expectation is not,” said Cléroux. “So that means that, despite the fact interest rates are going down and people are more confident about the economy, they haven’t seen the real impact on their business yet.”
After its launch, Hutchison and Cléroux expect the index will evolve and improve based on feedback from stakeholders, which include businesses, government, and lenders. It is also expected to change over time based on the needs of the market.
The index currently covers Canada and provides performance insights based on data from different region. There are indexes for Ontario, Quebec, Alberta, and B.C., and one that groups the Atlantic provinces, as well as one for Manitoba and Saskatchewan. “We are looking at (grouping) by sector,” said Cléroux, “but we’re not there yet.”
Hutchison points out that regional insights and realities are often varied depending on which sector the business is in.
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“Are they in agriculture? Are they in technology? Are they in services? Having those regional insights will be really important. That will be version two of the index, which we’re excited to launch,” said Hutchison.
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