Defence ramp-up is creating a three-speed divide among SMEs, with many firms still on the sidelines, BDC study finds

A small group is scaling quickly, another is expanding into defence, while a broader group is still preparing to enter the market

MONTREAL, June 18, 2026 (GLOBE NEWSWIRE) -- A new BDC study produced jointly with The Icebreaker reveals SMEs are becoming central to Canada’s defence capability as demand accelerates, but a widening gap is emerging between firms ready to scale and those still on the sidelines, putting pressure on Canada’s ability to build capacity.

“Canada’s defence ramp-up is creating a three-speed growth opportunity for SMEs,” said Peter Dawe, Vice President, Defence Strategy at BDC. “Some firms are already scaling to meet demand and operating at capacity, while others are moving more cautiously, and a broader pipeline is still working to enter a complex and highly regulated market. Each group faces its own challenges, but Canada’s ability to build long-term capacity will depend on all of them moving faster.”

“Canada is not starting from zero, but this study shows the real opportunity lies in converting adjacent SMEs into credible defence suppliers,” said Matthew Lombardi, CEO of The Icebreaker. “The pipeline is there. What is missing for many firms is a clear path through procurement, compliance, and financing. If Canada wants a deeper domestic industrial base, it has to make that path more navigable.”

Out of the 642 business owners surveyed, there was a clear pattern that showed three stages of SME participation in the defence ecosystem:

1. Scaling now (defence-heavy SMEs):
Already active in the sector, these firms are facing strong demand from large defence contractors due to their proven track record, but have limited room to grow quickly, with many operating at or near capacity and facing hiring and financing constraints. This demand is immediate, and they are already being asked to deliver against active programs.

2. Advancing cautiously (defence-light SMEs):
These firms have more room to scale but are expanding more cautiously as they balance defence opportunities with civilian markets and broader economic uncertainty. They need greater visibility and certainty to accelerate investment. Demand is near term, tied to real programs, but not yet predictable enough to justify a shift of capacity.

3. Preparing to enter:
Among these firms, roughly 55% are still in exploration mode, while 45% plan to enter within three years. Their capabilities can meet important defence-sector needs, but they face the steepest barriers, including defence-specific requirements, financing constraints and unclear entry pathways. Their growth opportunity is longer term, as entering and scaling requires time to meet complex requirements and secure a credible position in supply chains.

Global demand rising — diversification key

Many Canadian defence SMEs surveyed are already integrated into global supply chains, with two-thirds active in international trade and 14% not involved at all. While the United States remains the dominant export destination, at 63% of exports, Europe accounts for just 21%, highlighting heavy reliance on the U.S. and limited diversification into allied markets.

Barriers remain — especially for new entrants

• Long and complex procurement cycles
• Defence-specific requirements, including cybersecurity, compliance, and security clearances
• Securing financing can be challenging, with more than half of SMEs expecting difficulty — particularly for new entrants
• Labour shortages in high-demand sectors like aerospace, manufacturing, and IT, with 30% of defence-heavy SMEs reporting significant hiring challenges

“Canada is entering a pivotal moment,” said Pierre Cléroux, Vice President, Research and Chief Economist at BDC. “Rising defence spending is creating real opportunities for SMEs already in the ecosystem, and for those looking to pivot into it. Their ability to seize those opportunities depends on procurement visibility, readiness, and access to the right support.”

Building Canada’s defence capabilities

Since launching its Defence Platform in December 2025, BDC has doubled its activity in the sector, completing over 100 transactions to support Canadian defence and dual-use firms. Through a dedicated team, BDC is focusing on the Defence Industrial Strategy’s 10 key capability areas to help build an innovative, resilient and globally competitive ecosystem of Canadian SMEs and start-ups.

About the study
This study was produced in conjunction with The Icebreaker, Canada’s SME defence innovation network. It is based on an online survey of 642 business owners and decision-makers conducted between March 24 and April 12, 2026. As the sample is non-probabilistic, no margin of error can be assigned. For comparison purposes, a probabilistic sample of the same size would have a margin of error of ±3.9 percentage points, 19 times out of 20.

About BDC, Canada’s bank for small- and medium-sized business owners
BDC focuses on small- and medium-sized business owners, providing them financing, investment, and advice. As Canada’s development bank, we also support entrepreneurs who don’t fit the traditional mold, working with a network of partners, and help develop underserved markets to unlock economic potential. Our mission is to build strong, resilient businesses that drive Canada’s economic growth. BDC is a perennial Canada’s Top 100 Employer and B Corp certified. Learn more at bdc.ca or connect with us on social media. 

About The Icebreaker, Canada’s SME defence innovation network
The Icebreaker is trusted by founders and funders, operators and professionals at DND and the CAF, defence primes and neo-primes, SMB’s, IDEaS, NATO DIANA, and everywhere decisions are made to defend the nation. Their mission is to make Canada a net exporter of defence technology by 2030. Learn more at TheIcebreaker.ca

Media contact
mediainfo@bdc.ca  
1 844 625-8321

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