Not ones to stand still, Canadian small business owners have turned to innovation and research in response to the economic downturn, with over half (55 per cent) reporting that they have accelerated their innovation efforts, according to the latest quarterly American Express Small Business Monitor.

More than half (56 per cent) of the businesses say they are experiencing a slowdown in business, with 21 per cent characterizing the slowdown as significant.

An investment in innovation is seen as a way to improve profitability (90 per cent), better attract new customers (87 per cent) and improve their product offerings (87 per cent). Forty eight per cent of businesses say that innovation is a top priority.

"Small business owners don't hide during difficult times - toughness and resilience is in their DNA," said Howard Grosfield, VP & General Manager, Small Business Services, American Express Canada & International. "They never take their eye off the future and what it will take for them to come out on top."

Where are small businesses finding the cash to make these investments?

Reinvesting company revenues is the top source of cash for innovation projects, with 66 per cent of respondents using this source of financing. Almost a third (32 per cent) of companies are using personal reserves, while 20 per cent are using credit cards, charge cards or bank loans.

"Small businesses owners continue to dig into their own pockets during this downturn," Grosfield said. "In our last Monitor we saw small business owners continuing to pay bonuses to employees while foregoing their own salaries, and now we see they are also financing new initiatives from their personal funds. It's a telling illustration of their dedication."

Small businesses would like more support for their innovation efforts. Of the Canadian small business owners surveyed, 87 per cent think that the financial industry should be doing more. Most small businesses believe that the federal (82 per cent) and provincial (81 per cent) governments should be doing more, while 80 per cent want more support from their own industry associations.

The Monitor found that small businesses have roughly the same level of confidence as they did 3 months ago. However, they are more optimistic about the future. Forty four per cent are hopeful that their revenues and profits will climb, which is up 40 per cent from the previous survey.

Nationally small businesses in the Prairies are the most confident, with 83 per cent saying they are confident about their business prospects over the next six months. Businesses in BC are next in line, with a 77 per cent confidence rate, followed by Ontario (74 per cent), Alberta and Quebec (72 per cent), and the Atlantic provinces (71 per cent).

Small business owners are less stressed about the recession than they were 3 months ago, but stress levels are remain high at 59 per cent compared to 67 per cent in the previous survey.

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