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

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

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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.

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“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.”

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“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.”

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

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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.

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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.

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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.

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Global demand rising — diversification key

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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.

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Barriers remain — especially for new entrants

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