Rule change credited for boosting business financing in Ontario

(April 21, 2003) The Ontario Securities Commission says the removal of investment restrictions has led to a dramatic increase in new financing for small- and medium-sized businesses in the province. An OSC report concludes that the number and value of new financings in Ontario has tripled since the change was introduced in 2001.

From 1995 to 1998, the number of annual transactions averaged 1,287, worth $6.2 billion. In the 11 months following the rule change, transactions ballooned to 3,528, with a value of $21 billion.

The previous rule required a minimum investment of $150,000. The rule was changed in November 2001 to update the definition of “accredited” investors, allowing those with assets of more than $1 million or with annual incomes exceeding $200,000 to participate in new financings.

“Our policy change unlocked a significant pool of capital and directed it to businesses in need of new funding sources,” says OSC chair David Brown. “In a year where the overall capital market contracted, especially regarding new issues in high-risk areas, investments in prospectus-exempt firms in Ontario jumped from levels seen in the boom years of the late 1990s.”

As well as increasing trading activity and average size of transactions, the rule revision has also led to a rise in the number of smaller transactions. The most frequent transaction size is now $3,000 although the increased activity has also attracted more large investments.

“Issuers are seeking more financing and seeking it more often,” states the report. “Overall, investors are willing to invest more.”

The study calls the growth in financing “remarkable,” considering the market environment. “The recent conditions have been so severe, that it would have been expected to have infected all sources and venues for financing, eliminating any potential safe havens for seeking capital,” it says, suggesting that that the rule change was likely the most significant contributor to improved performance.

Filed by Doug Watt, Advisor.ca, dwatt@advisor.ca