This article is co-authored with Celine Bak, President of Analytica Advisors.
Small and medium-sized enterprises (SMEs) are often described as the backbone of an economy, also for Canada and the EU. The phrase is accurate, but it understates the scale of their importance in Canada. SMEs are not a peripheral segment of commerce. They are its primary engine of employment, export diversification, and regional development. Yet they often operate within a structurally constrained financing environment that limits their ability to invest, scale, and compete globally.
Figure 1: Importance of Canadian SMEs for the Canadian economy (2024)
Source: Statistics Canada (Key Small Business Statistics 2025)
At a time when geopolitical fragmentation is reshaping global capital flows and artificial intelligence is starting to redefine labour markets, access to finance for SMEs must move from a secondary policy concern to a strategic transatlantic priority. The Comprehensive Economic and Trade Agreement (CETA) between Canada and the European Union provides the legal and regulatory scaffolding to support this shift, as has been highlighted by the 5 March 2026 press release of the fifth Joint Committee meeting of CETA.[1] What is needed now is political prioritisation and practical execution.
This Insight sheds light on one of many possible ways in which CETA and the current geopolitical environment can be instrumentalised to a deeper and stronger bilateral trade and investment relationship between Canada and the EU.
A Structural Funding Gap Is Hiding in Plain Sight
Canada faces a significant and measurable SME credit gap. Outstanding loans to Canadian SMEs stand at roughly $140–150 billion. By comparison with peer G7 economies and similarly resource-intensive advanced countries, SME lending in Canada would need to increase by approximately $300 billion to reach comparable economy-wide SME credit levels. Even narrowing the gap by one-third would imply mobilising an additional $100 billion in financing capacity.[2]
This gap has real economic consequences. SMEs rely on credit to invest in plant and equipment, digitisation, productivity enhancements, and export expansion. When capital is constrained, firms delay or downsize investments. The result is slower productivity growth and diminished competitiveness relative to firms in the United States and Europe whose credit gearing ratios are higher, while remaining prudent.
The tightening of bank balance sheets since the Global Financial Crisis has exacerbated this dynamic.[3] Regulatory capital requirements have reduced appetite for mid-market lending, particularly for asset-light or growth-oriented firms. Traditional bank lending may stop when firms enter growth phases and may require repayment (e.g. amortisation) of principal before credit has begun to generate returns. Without a robust alternative credit ecosystem, viable businesses encounter financing ceilings that limit their growth trajectories and competitiveness. The funding gap is not a cyclical phenomenon – it is structural – and it demands structural solutions.
The Overlooked Power of Canadian SME Exports
Canada’s export narrative tends to focus on natural resources, particularly oil and gas. Yet over the past decade, Canadian SMEs have collectively exported more annually than the oil and gas extraction sector when averaged over multiple years. SMEs account for roughly 38% of Canada’s total exports and play a disproportionately large role in diversifying trade beyond commodities and beyond the United States.[4] These firms operate across advanced manufacturing, agri-food, technology, clean energy, defence and specialised services. Their exports embed higher value-added content and are often integrated into complex transatlantic supply chains.
Exporting, however, is capital intensive. Firms require working capital to finance inventory and receivables, investment financing to meet regulatory and certification requirements, and growth capital to expand production capacity. Without reliable access to credit, export potential remains latent. If Canada’s objective is to double non-U.S. exports and deepen economic integration with trusted partners such as the European Union, strengthening SME access to finance is not optional – it is foundational.
Jobs, Artificial Intelligence, and the Centrality of SMEs
SMEs account for over 99 percent of Canadian businesses and are responsible for approximately 64 percent of private sector employment.[5] They dominate net job creation across regions and sectors. In the context of artificial intelligence and automation, this reality takes on heightened significance. Large corporations may lead in AI-driven efficiency gains, but SMEs are the absorbers of labour market transitions. They create localised employment opportunities, adapt quickly to niche markets, and embody entrepreneurial experimentation. In communities across Canada – including rural and indigenous communities – SMEs are the primary economic anchors.[6] If these firms lack access to capital, labour market adjustment in the AI era will be even more socially disruptive. If they are well-capitalised, they become platforms for inclusive growth and regional resilience.
Access to SME finance, therefore, is not solely a matter of corporate balance sheets. It is a matter of employment stability and social cohesion.
CETA: A Proven Framework with Untapped Potential
Since its provisional application in 2017, CETA has delivered tangible results. Tariffs on the vast majority of goods have been eliminated, regulatory cooperation has deepened, and bilateral trade in goods and services has expanded significantly. The Agreement has clearly demonstrated that a rules-based transatlantic framework can produce measurable economic gains.[7] [8]
Yet the full potential of CETA has not been realised, including in the domain of capital mobilisation. Modern trade agreements must do more than facilitate the movement of goods and services. They must also enable the financial infrastructure that allows firms, especially SMEs, to participate in cross-border (digitally enabled) commerce. Access to finance remains one of the most frequently cited constraints facing Canadian SMEs. The question is not whether this constraint exists; the data confirm that it does. [9] [10] The question is how to address it in a way that leverages existing transatlantic commitments.
CETA’s Guardrails and the Case for Full Ratification
CETA provides critical legal and regulatory guardrails that support cross-border investment. Its investment protection provisions ensure non-discriminatory treatment and legal certainty. Its financial services chapter balances market access with prudential oversight, creating clarity for institutional actors. Its mechanisms for regulatory cooperation and transparency reduce friction and policy unpredictability.
When fully ratified and in force, these provisions provide a stable platform for scaling cross-border financial intermediation. Legal certainty lowers risk premiums. Regulatory dialogue enhances supervisory confidence. Market access commitments reduce structural barriers.
In practical terms, these guardrails create the conditions under which European institutional investors can allocate capital into Canadian SME-focused credit strategies with confidence in governance, dispute resolution, and regulatory integrity.
Giving Meaning to “SME Access to Finance”
Addressing SME financing challenges requires moving beyond general statements and toward actionable frameworks. The most promising avenue is the development of a deeper private credit ecosystem capable of mobilising institutional capital into structured lending vehicles focused on Canadian mid-market firms.
Private credit has already become a mainstream asset class in the United States and Europe. It provides direct lending outside traditional bank underwriting, offering institutional investors returns that are uncorrelated with public equity and bond markets. In Canada, however, the ecosystem remains comparatively underdeveloped in the face of the structural gap in credit access by SMEs.
Expanding private credit capacity in Canada would not displace banks; it would complement them. It would enable long-term lending to firms investing in equipment, infrastructure participation, clean energy projects, and export expansion. It would also create a channel through which European institutional investors could allocate capital into a stable, rules-based North American jurisdiction aligned with European regulatory and governance standards.
This is where CETA’s architecture becomes directly relevant and facilitative.
A Moment of Geopolitical Reallocation
Global capital is in motion. Geopolitical fragmentation, currency volatility, and regulatory uncertainty in certain jurisdictions are prompting institutional investors to reassess geographic exposure. European asset allocators are increasingly attentive to rule-of-law stability, currency risk, and long-term policy predictability. Canada offers macroeconomic stability, strong prudential regulation, and a legal system aligned with European norms. In an era when diversification within North America is strategically valuable, Canada can position itself as a preferred destination for private credit allocations that support real-economy investment.
The timing for thinking about access to finance for Canadian SMEs is therefore opportune: institutional capital is seeking stable, rules-based jurisdictions; Canadian SMEs require long-term credit; CETA provides the framework. The alignment is clear.
A Political Commitment to Capital Mobilisation
The path forward does not require any change to CETA. Rather, it requires political recognition, on both sides of the Atlantic, that growing SME financing is a shared strategic priority. Providing this political endorsement is exactly what EU and Canadian leaders could do in 2026. The first conclusion of the fifth Joint Committee meeting under CETA is a good first step: adopting the CETA ‘interpretation on investment’ to clarify elements of investment provisions under CETA for investors.[11]
Closing even a portion of Canada’s SME credit gap would enhance export capacity, strengthen supply chain resilience, productivity, support employment growth and guard against AI employment shocks in larger firms by increasing the labour market adjustment capacity of SMEs. It would deepen EU-Canada economic integration not only through trade in goods and services, but through bi-directional long-term capital allocations and returns on these investments to citizens.
In an era defined by fragmentation and uncertainty, the European Union and Canada have an opportunity to build more than a trade bridge. They can build a capital bridge – one that channels institutional investment into the firms that generate jobs, drive innovation, and sustain prosperity on both sides of the Atlantic. And that delivers returns on these investments from ever-stronger SMEs growing trade between the European Union and Canada.
Access to finance for SMEs is not a technical footnote to trade policy. It is the enabling condition for trade itself.
[1] URL: https://policy.trade.ec.europa.eu/news/driving-shared-prosperity-boosting-eu-canada-trade-through-ceta-2026-03-05_en
[2] URL: https://www.oecd.org/en/data/dashboards/oecd-data-lake-on-smes-and-entrepreneurship.html
[3] OECD (2020), “Evolution and trends in SME finance policies since the Global Financial Crisis”, July 2020. URL: https://www.oecd.org/content/dam/oecd/en/publications/reports/2020/07/evolution-and-trends-in-sme-finance-policies-since-the-global-financial-crisis_6d9120ef/d9951b3c-en.pdf?
[4] Government of Canada (2026), “Key Small Business Statistics 2025”, URL: https://ised-isde.canada.ca/site/sme-research-statistics/en/key-small-business-statistics/key-small-business-statistics-2025
[5] Idem.
[6] Government of Canada (2023), “SME Profile – Rural enterprises in Canada”, June 2023, URL: https://ised-isde.canada.ca/site/sme-research-statistics/en/research-reports/sme-profile-rural-enterprises-canada?
[7] Berden, K. T. Berden-Antonenko, M. Ruda, and A. Oger (2025), “Study in support of an ex-post evaluation of the Comprehensive Economic and Trade Agreement (CETA) between the EU and its Member States and Canada”, June 2025. URL: https://www.ceta-evaluation.eu/
[8] OECD (2020), “Linking indigenous communities with regional development in Canada”, January 2020, URL: https://www.oecd.org/en/publications/linking-indigenous-communities-with-regional-development-in-canada_fa0f60c6-en/full-report/enabling-rural-indigenous-entrepreneurship_d62755ae.html?
[9] Government of Canada (2020), “Survey on Financing and Growth of Small and Medium Enterprises”, 2020. URL: https://ised-isde.canada.ca/site/sme-research-statistics/en/survey-data-and-analysis/survey-financing-and-growth-small-and-medium-enterprises/summary-survey-financing-and-growth-small-and-medium-enterprises-2020
[10] OECD (2024), “Financing SMEs and Entrepreneurs 2024”, March 2024. URL: https://www.oecd.org/en/publications/2024/03/financing-smes-and-entrepreneurs-2024_015c0c26.html?
[11] URL: https://policy.trade.ec.europa.eu/news/driving-shared-prosperity-boosting-eu-canada-trade-through-ceta-2026-03-05_en