Small Business Financing, Risk Capital, and Tax Measures

Abstract

Making risk capital easier to obtain for new ventures and young, but small, firms is a competitive strategy that aids these ventures to survive, gain financial strength, and be able to obtain other forms of financing when they are established in the marketplace. Canada has a well developed banking system and government programs designed to assist smaller firms, but these are not satisfactory to meet equity and start-up capital needs for new ventures and young but small firms. While recognizing that many people have suggested that the government should use tax measures to induce investment into small businesses, this article attempts to provide general criteria for tax measures used to induce investment and proposes three options for consideration: tax concessions for individuals investing in new ventures; freeing RSP investors from investment restrictions; and recognition of a corporation as an entity and of all expenses of the corporation for tax purposes.