What Role Does Financing Play in the Success of Immigrant-Owned Businesses?

Immigrants contribute immensely to Canada’s prosperity, and the country’s economic growth depends greatly on immigrants entering the job market.  Moreover, a higher proportion of immigrants than Canadian-born individuals become entrepreneurs. However, despite the commitment and drive of immigrants, immigrant-owned businesses tend to remain small compared to businesses established by Canadian-born entrepreneurs. This underperformance of immigrant-owned businesses is due to many obstacles, including lack of entrepreneurial experience in Canada, language difficulties, or lack of a social network. Other factors that hinder the success of immigrant-owned businesses include rising costs and limited access to financial resources.

Immigrants often avoid seeking external funding, preferring to rely on their limited personal finances as a source of funding for their businesses. Banks are the main source of funding for small businesses, but do banks consider immigrant entrepreneurs as they would Canadian-born entrepreneurs in their loan approval process? For example, an immigrant lacking a credit history might be considered a higher risk and may face higher interest rates and stricter loan terms. This may discourage immigrant entrepreneurs from seeking financial assistance and may, in turn, impede the growth of their businesses. The extent to which the cost of, and access to, debt financing impacts the growth of immigrant-owned businesses is unclear. Additionally, it is not clear whether the experience of residing in Canada helps immigrant entrepreneurs learn about and seek out external sources of financing. Do well-established immigrants face the same challenges in externally financing their businesses as recent immigrants? A better understanding of the barriers that immigrants face in seeking and receiving external financing could lead to improved interventions by government agencies, including financial programs to support immigrant-owned business success, and consequently, a new way to promote the growth of the Canadian economy. 

What is this research about?

Dr. Anoosheh Rostamkalaei and Professor Mark Freel have received a Social Sciences and Humanities Research Council grant to study immigrant entrepreneurs’ access to bank loans. This study uses a longitudinal approach to examine how access to external financing changes over time and whether the usage and cost of debt offered to recent and well-established immigrants differ over time. 

Project Title: Immigrant entrepreneurs' access to and the costs of debt financing

Who will benefit from this research?

This work will provide a better understanding of how immigrant-owned businesses are financed over time and how this affects business growth. This can help policymakers and government agencies establish better opportunities for immigrants to seek advice and support for the growth of their businesses. Overall, the research will help drive the growth of the Canadian economy by securing competitive business ventures and reliable job opportunities for Canadians.