Industry Committee on Nov. 25th, 2009

[The Chair, Conservative, Michael Chong]

Good afternoon. Welcome to the 46th meeting of the Standing Committee on Industry, Science and Technology this 25th of November, 2009. We're here pursuant to Standing Order 108(2) for the study of the recent economic performance of small and medium-sized enterprises in Canada.

In front of us today we have six witnesses from four organizations. We have Monsieur Rémillard, who is the Executive Director of Canada's Venture Capital & Private Equity Association. We have Mr. Campbell and Mr. Wrobel from the Canadian Bankers Association. We have Mr. Hayes from GrowthWorks Atlantic Ltd. And finally we have Mr. Halde and Mr. Nycz from the Business Development Bank of Canada.

It's nice to see all of you here.

We'll begin with opening statements of about five to seven minutes from each of the four organizations, beginning with Canada's Venture Capital & Private Equity Association.

[Richard Rémillard, Executive Director, Canada's Venture Capital & Private Equity Association]

Thank you very much, Mr. Chair.

Good afternoon, ladies and gentlemen.

It is a great pleasure for me to be here with you today. If memory serves me well, this is the first time that we have been invited by the committee to testify. We are very mindful of your interest in our activities.

I'm going to confine my remarks to three broad areas: an introduction to the venture capital industry; some of the challenges the industry is facing, especially as they pertain to small business; and some solutions that have come to our mind.

We're the only national association for venture capital in Canada. We were founded with six funds in 1974, and we have grown to 130 funds, with $75 billion in capital under management. That's considerable growth over a 35-year period.

Venture capital funds invest almost exclusively--over 90%--in high-technology companies. Venture capital is the principal source of financing for the high-tech sectors in Canada, like RIM, Intel, Google, and Microsoft. Our investments are principally in information and communications technologies, life sciences, and, increasingly, clean technology.

Research that we commissioned together with Industry Canada, the BDC, and four provincial governments shows that venture-capital-backed companies tend to be high exporters, high job creators, and high R and D-intensive companies--much higher than the Canadian company average.

Venture capital is facing a perfect storm right now, and the perfect storm is a crisis on several fronts. Investments are down significantly by any measure. Fundraising is down humongously. There are no exits, no initial public offerings for companies, and merger and acquisition activity is incredibly slow. For example, in the third quarter of 2009 the industry raised $1 million in Ontario. That funds half a company for one year.

The consequences of this dire state facing our industry is that there are fewer smaller investments in Canadian SMEs, particularly in the high-tech sectors. Canadian firms get only about a third of what they do south of the border in the United States. Commercialization of all that R and D we invest in as a country is a missed opportunity. We are not creating the jobs that we could and should be creating.

We have a couple of solutions that I'll suggest to the committee.

One, government could set up a substantial fund of funds to help recapitalize the industry. There are some examples in Ontario, Quebec, and Alberta principally.

Two, major international corporations that are awarded government contracts should be encouraged to invest in venture capital funds, in part fulfilment of their offset obligations.

Three, retail investors should also be further encouraged to invest in the venture capital asset class. SR and ED tax credits should be further enhanced. There is one particular section of the Income Tax Act that is preventing foreign capital from coming into the country. It's called section 116, and it is a black mark on Canada's investment record and its ability to attract foreign venture capital. As a result, foreign venture capital numbers are going down in the country.

Lastly, we believe the committee might want to ask the Departments of Finance and Industry whatever happened to recommendation 37 of the Wilson panel. Mr. Wilson headed a panel on competitiveness and reported on it in June 2008. Recommendation 37--and I paraphrase--says that the Ministers of Industry and Finance should put together and release a paper on private venture capital options for consideration.

It's now mid-November and we haven't seen that paper yet. It's probably worthwhile to consider an expert panel on commercialization. We're missing a big opportunity.

Thank you for your time.

[The Chair, Conservative, Michael Chong]

Thank you very much.

We'll now hear from the Canadian Bankers Association.

[Terry Campbell, Vice-President, Policy, Canadian Bankers Association]

Good afternoon. My name is Terry Campbell and I am the Vice-President, Policy, for the Canadian Bankers Association. I am joined today by my colleague Marion Wrobel, Director of Market and Regulatory Developments.

We thank the chair and the committee for the opportunity to be here today.

As you may know, the Canadian Bankers Association works on behalf of 50 domestic banks, foreign bank subsidiaries, and foreign bank branches operating in Canada, and on behalf of their more than 263,000 employees. Canadians are justifiably proud of their banks, with their continued strength and stability, at a time when many banks around the world required massive taxpayer bailouts to continue operating and, quite frankly, while many other banks around the world no longer exist.

By contrast, our banks, as a result of being well managed, well regulated, and well capitalized, have not been a burden to taxpayers. In fact, they're continuing to provide financing to both consumers and businesses, including small businesses, through this tough economic period. This is an advantage for Canada as we begin our economic recovery.

On a year over year basis to June 30, 2009, credit authorized to small and medium-sized enterprises, that is the supply of funds by banks, increased by 1.2%, while the amount of credit outstanding, that is the demand for funds by businesses, declined slightly. What this means is that businesses are making sure they have access to credit but are using it only as needed.

The vast majority of bank business customers are small businesses, and banks have continued to work hard to meet their needs. We did a survey of SMEs just last summer, and we found that 89% of respondents felt they had a good credit relationship with their banks, with just 4% who believe they had a poor relationship. Also, 90% of respondents who approached their banks felt that the banks were willing to help them through this tough period, with over 50% noting that banks were very willing to help. Only 5% of bank customers felt that access to credit was their biggest economic challenge.

While the provision of credit to creditworthy businesses remains important, not all SMEs are seeking financing at this time. In fact, our survey found that 68% of owners said they were unlikely to seek additional credit for their businesses in the next six months, likely due in part to decisions to postpone investment and to postpone expansion plans as a result of the recession.

Something that's often overlooked in the question is that banks represent only about one-quarter of the broad business financing market in Canada. A year ago at this time, just as the global financial markets were at their most fragile, Canadian bank lending to businesses accelerated as banks stepped in to fill gaps left as other lenders reduced credit or as other lenders left the marketplace altogether.

Despite the fact that banks stepped in to provide some of the shortfall, they were not able to fill the credit gap completely, and this is where the federal government stepped in. The federal government recognized this in Budget 2009, with the introduction of the business credit availability program, BCAP, which provides at least $5 billion of additional lending to firms with a viable business model. The finance is provided through Export Development Canada and the Business Development Bank of Canada, in cooperation with private sector lenders. Banks are actively engaged with BCAP as part of their efforts to find solutions for creditworthy business clients.

Up to the end of August 2009, the total amount of financing extended under BCAP was approximately $2.7 billion, or almost 6,000 businesses. The vast majority of these businesses, 98% in fact, were small businesses with sales of under $25 million.

It's important to point out that SMEs turn to banks for a variety of business solutions, not just financing. From deposit services to cash management to foreign exchange and succession planning--these types of services--banks work day in and day out to provide advice and to help find solutions for their nearly two million SME clients. In fact, going back to our survey again, when asked about the most important factor in their relationship with banks, an overwhelming majority of 92% of business owners cited having a face-to-face relationship with their banker.

In conclusion, Canada's banks play an essential role in the operation of small and medium-sized businesses and are proud of these positive and long-standing relationships. Our banks remain open for business and are committed to providing credit and a host of other business solutions for SMEs. Banks welcome the opportunity to work with the government and parliamentarians to ensure the continued success of our nation's businesses and to be an instrumental part of Canada's economic recovery.

Thank you for the opportunity, Mr. Chairman.

I look forward to your questions.

[The Chair, Conservative, Michael Chong]

Thank you, Mr. Campbell.

We'll now hear from Mr. Hayes from GrowthWorks Atlantic Ltd.

[Thomas Hayes, President and Chief Executive Officer, GrowthWorks Atlantic Ltd.]

Thank you, Mr. Chair.

I'm pleased to have an opportunity today to address this committee on such an important topic.

My colleague, Richard Rémillard from the CVCA, has provided you with an excellent overview of the state of the venture capital industry in Canada along with several recommendations on how to fix it. In my remarks I will provide you with the perspective of an active venture capital manager who is dealing with these challenges on a daily basis, as we work with our existing portfolio companies to try to help them grow and prosper in this difficult economic climate. I should also mention that for a number of years I owned and operated my own business, which was also a recipient of venture capital.

First, a few words about GrowthWorks. Outside of Quebec and the Solidarity Fund, we are the largest manager of retail venture capital in the country, with total VC assets under management of $750 million. We are national in scope, with offices in Vancouver, Saskatoon, Winnipeg, Ottawa, Toronto, Fredericton, Halifax, and St. John's. We have invested in approximately 300 portfolio companies in the various funds we manage. In recent years we have merged with or taken over the management of the following retail funds: Working Ventures, Capital Alliance, Canadian Science and Technology Growth Fund, First Ontario Fund, Workers Investment Fund, the Ensis Fund, and our most recent acquisition, the Canadian Medical Discoveries Fund.

My specific responsibility at GrowthWorks is to manage the GrowthWorks Atlantic Venture Fund, which focuses entirely on investment opportunities in Atlantic Canada. However my observations and experiences in the Atlantic fund are very consistent with my colleagues who manage the other GrowthWorks funds across Canada.

Before going any further, I should define the term “retail venture capital”, which is also known as labour sponsored venture capital. Unlike institutional funds, which raise their capital from pensions, corporations, or endowment funds, we raise all of our capital from individual retail investors, who are encouraged to do so with the help of federal and provincial tax credits. Since this program was introduced in the 1980s, over a million Canadians have invested over $12 billion in this alternative asset class.

To cut to the chase, l would have to say our number one issue nationally at present is the lack of capital to invest in both existing portfolio companies and in new companies who approach us seeking investment. A close second would have to be the lack of syndicate partners to invest with when we are actively trying to make investments. What l mean by syndicate partners are other VC firms who help us with the due diligence, who share the risk, who help lever the investment dollars we have available. The number of syndicate partners has declined dramatically in recent years for the same reason, lack of capital to invest.

These issues have very serious consequences for the fledgling firms that we already support and for new companies seeking our support. The worst thing that can happen to a VC fund is to run out of capital. It's generally accepted that when we invest in an emerging company, the initial round is just that, the first step on a long road to moving this company through the various stages of growth to success. Follow-on investments in these portfolio companies are almost always a given. If we can't continue to support them with additional capital, two outcomes are obvious: the VC fund itself will get crammed down or diluted, significantly reducing returns to fund shareholders and, more importantly, the investee company itself will eventually run out of cash at a critical juncture in its development and either cease operations or move south of the border to try to access capital there. These are not outcomes anyone in the business wants to experience.

Is there a simple solution to all this? Well, Richard identified a number of initiatives that would certainly address these current challenges, and for simplicity I will focus on one that I think the federal government should consider as it relates to retail VC funds.

When this program of offering tax credits to investors was begun in the early 1980s, the federal tax credit was set at 20% combined with a 20% provincial tax credit. The annual contribution limit was set at about $5,000, the same level as the RSP limit at that time. The program became very popular in the 1990s and significant amounts of capital were raised. So both levels of government scaled back their tax credits to the current level of 15%. The annual contribution amount was not increased and remains at $5,000, even though the RSP limit now is north of $20,000.

Times have certainly changed. As Richard said, there are very few folks left in the business, even fewer who are actively trying to raise new capital, and for those who continue to do so, like GrowthWorks, the amount the industry now raises annually pales in comparison to the 1990s, excluding Quebec. In those days I think we raised about a billion dollars annually and today it's around the $100 million mark.

Can we reverse the fundraising trend for retail venture capital, thereby ensuring significant levels of additional capital becoming available for these new emerging companies who are focused on clean tech, information technology, life sciences, and advanced manufacturing as opposed to sunset industries? We think the answer is yes. And the simplest way of doing this is by modernizing the existing program, by reverting back to a 20% federal tax credit to match a number of provinces who have just done this in recent provincial budgets, and by bringing the annual contribution limit in line with the current RSP contribution limit of $20,000.

If these two measures were put in place for the 2010 RSP season, we are convinced the industry would increase its capital raising immediately and these moneys would flow to emerging companies shortly thereafter, as the infrastructure is already in place to make this happen.

Thank you.

I'm happy to expand on any of these points during the Q and A portion of the session.

[The Chair, Conservative, Michael Chong]

Thank you.

Next, we will hear from the Business Development Bank of Canada.

[Jean-René Halde, President and Chief Executive Officer, Business Development Bank of Canada]

Good afternoon, everyone. Bonjour.

On behalf of my colleagues at BDC, thanks for the invitation to join you today.

Naturally, we are pleased to contribute to your deliberations.

I would like to share with you BDC's observations on the challenges that small and medium-sized business entrepreneurs are facing. I will then share with you what we see in our portfolio of entrepreneur clients across Canada, as well as what they are telling us. To stay focused on the mainstream economy, I will not specifically address the situation of the technology-based businesses in which we invest as part of our venture capital program, but I will be happy to respond to any questions you may have.

Generally, Canada's small business entrepreneurs have shown real resilience over the past months, but they're not out of the woods yet. They're still under stress, and I think the next 12 months will be critical.

BDC provides over $13 billion in financing and venture capital, as well as consulting services, to in excess of 28,000 clients. We seek to build long-term supportive relationships with our clients. We have clients in most sectors of the economy and certainly in all parts of the country. We therefore believe that our portfolio, generally speaking, reflects the financing market for small and medium-sized enterprises, known as SMEs.

Our portfolio has changed since the start of the credit crisis and recession, and that's because in our role as Canada's development bank we have increased our lending to record levels. In the first six months of this fiscal year our lending went up by 54%. A large share of the new lending has flowed from our participation in the federal government's best business credit availability program that Mr. Campbell was talking about, known as BCAP.

Through BCAP, BDC is working with EDC and the private sector financial institutions to improve access to credit. Between February and October we provided $1.9 billion in financing to businesses under BCAP. I want to take this opportunity to acknowledge the fact that this increase in lending was achieved as a result of great cooperation between the financial institutions and ourselves.

We've always accepted more risk than private sector banks, and that's our role. But over the last year we've increased our support for entrepreneurs' high-risk projects. Our volume of high-risk transactions has increased by 60% compared to last year.

When we examine our portfolio for indications of how our clients are doing, we see very concrete signs of the continuing stress I referred to earlier. Let me give you some examples. The delinquency rate--the percentage of clients who've fallen more than one month in arrears--has reached a new peak. The percentage of clients whose files have been downgraded to “impaired”--generally defined as clients who've missed three consecutive payments--rose to its highest point this year in October.

There are other more subtle indications of pressure on businesses. The proportion of loans going to new clients is higher than usual, and I think this can be attributed to the difficulty they're having in obtaining credit elsewhere. Many entrepreneurs shop around when looking for credit. This means that a relatively stable percentage of potential clients--entrepreneurs to whom we have offered loans--say no and cancel their applications, usually because they've found less expensive alternatives. This cancellation rate is now the lowest it's ever been, which indicates to us that entrepreneurs require the close cooperation that we and the private sector financial institutions have fostered during these difficult months.

Let me turn to what our clients are telling us. They talk to us in two ways: through regular conversations with our employees across the country and through regular surveys. Our clients tell us that their top challenges are the general health of the economy and their competitive position in the marketplace.

An important sign of optimism is that three out of every four of our clients have investment plans they're considering moving forward, which is significant. A full 74% plan to make capital investments in the next 18 months, and that is a very hopeful development for the future.

To sum up, we're seeing both negative and positive signals from our clients. On the negative side of the ledger, we're seeing continuing signs of stress in our delinquency rates. We're seeing indications that many businesses have to search to get the credit they need. On the positive side, entrepreneurs are showing growing optimism and strong intentions to invest in their businesses in the coming months.

We at BDC are cautiously hopeful about the speed of the recovery, but we also believe we're coming to a critical juncture. We need to see more entrepreneurs turn their optimism and good intentions into action. That's what Canada needs now to accelerate the recovery. Regardless of where we are in the economic cycle, Canada's future prosperity depends in large part on risk-taking, hardworking entrepreneurs. We need them to create a greater number of adaptable, globally competitive companies.

In closing, BDC is here to support them, always in cooperation with other financial institutions. As you saw in the Statistics Canada study, which my colleague, Jérôme Nycz, forwarded to you this summer, the results speak for themselves: BDC clients generated more revenue, added more employees, and survived longer than other businesses. When clients combined our consulting offering with our financing, the results were even stronger.

We're proud of the difference we make to SMEs.

We'll happily answer questions you have. Thank you.

[The Chair, Conservative, Michael Chong]

Thank you.

We have 90 minutes for questions and comments from committee members. We will begin with Ms. Coady.

[Siobhan Coady, Liberal, St. John's South—Mount Pearl, NL]

Thank you very much.

Thank you to each of you for coming here today and for your presentations. We certainly appreciate the information and your availability, so thank you.

This is a very important issue--access to capital--that we feel Canadian businesses are grappling with. And I think, as each of you indicated, this is continuing. This is not something that will come to a magical end any time soon.

I'd like to start with some questions on the venture capital side, if I may.

I appreciate, Mr. Rémillard and Mr. Hayes, your candour in bringing forth some of the issues you think need to be addressed in our country to ensure a robust venture capital market. I've been in the high-tech sector, so I know a bit about attracting financing and the difficulties and the challenges there.

There are two issues here. One is how we ensure that in Canada we have the environment to attract venture capital. I think, Mr. Hayes, you gave some indication as to how you can attract more money through a labour-sponsored fund. How do we attract and develop more robust venture capital, not only today but for the future as well?

We're looking at some of the challenges in this particular period of time. I know you talked about Mr. Wilson's panel and the fact that we should assemble an expert panel on commercialization and that we need to look at some of the venture capital options. Could you express some of what you think should be done in order to encourage a robust venture capital market? Mr. Hayes has given some indication of what needs to be done immediately for the labour-sponsored funds.

Second, could you talk to the issue of angel investment? I know you're on the VC side, but I think the first toe in the water is actually on the angel investment side, and that's weak in this country.

I'll turn it over to you, and then I have some questions for the banks.

[Richard Rémillard]

Thank you very much, Ms. Coady.

I guess, from our perspective, there is no single magic bullet you could fire that would solve all the problems tomorrow. From our perspective, it really has to be comprehensive and has to address several aspects or issues at the same time, almost concurrently. At the bottom, though, at the very heart of the problem, is that the VC industry needs to be able to attract more money so it can recycle that money, actively manage companies—that's its value-added—and then have really happy exits.

In the short term, there are some aspects of the situation that may be beyond many people's control. That has to do with the state of capital markets and the appetite of capital markets for initial public offerings of tech companies. There were none in 2009 up to the end of October; there was one in 2008. The industry needs some exits so it can post some returns and then attract money into its coffers.

On angels, I think angels are an important, valuable part of what we tend to call in our jargon the ecosystem of entrepreneurial risk financing. Many angels have formal, in some cases informal, relations with venture capital funds, particularly if those venture capital funds are themselves focused on early stage enterprises. For example, you have a genius with an idea but not much money and not much management. In many cases, after turning to family and friends, he or she will come upon an angel. We work very closely with them, so we see it as symbiotic. The angels tend to—and there are always exceptions to the rule—invest at an earlier stage with smaller amounts of money.

[Siobhan Coady, Liberal, St. John's South—Mount Pearl, NL]

I'll stop after this question, but there seems to be a hesitation in this country for funding in the high-tech sector--well, in any sector actually. There seems to be more hesitation than there would be in the international markets. I was in biotechnology, so we thought we would go outside, go to the United States, because there's a better appreciation. Has that been your experience, or could you speak to that issue? There seems to be a hesitancy, or a perceived hesitancy, for investments.

I see a troubled look on your face.

[Richard Rémillard]

Yes, I guess from our perspective, over 90% of venture capital investments are in high technology. The proportion depends from quarter to quarter. The last quarter was a little different, and I'll explain why in a second.

Generally, information and communication technologies take up 40% to 55% of investments. Life sciences, including biotech and medical products, take up 25% to 35%. Increasingly, clean tech is taking up more investment interest. In the last quarter, I think it was 26% to 27%, and that's off a low, just right at the bottom lows.

The lead on information communication technologies has been pretty long standing, and what we call traditional industries for our data collection purposes are minimal, less than 10%.

[Siobhan Coady, Liberal, St. John's South—Mount Pearl, NL]

I only have a minute left, so I want to ask two quick questions, and one is to Mr. Hayes.

I can appreciate that you need to attract more money into your labour sponsored funds. I know there is an issue. I know regionally--especially regionally, I'm from Atlantic Canada--there were some challenges there. You've given us some good ideas, I guess, as to ways we could help labour sponsored funds.

My concern, of course, is when we looked at that--and I'm from St. John's, Newfoundland and Labrador, and you say you have an office there--there wasn't a whole lot of involvement in the local community. How do we ensure that venture capital is spread across the country? Atlantic Canada has a specific challenge in that area.

Mr. Campbell, if you could, speak on the Small Business Loans Act for two or three seconds, because I know I'm running out of time.

Thank you.

[Thomas Hayes]

The first point I would like to make is that we did some analysis in our company, which we've included in a report that I sent to the clerk. Hopefully you'll get that eventually.

Governments and the private sector spend huge amounts of money--close to $30 billion a year in R and D--but there's a huge gap once that investment is made, and the gap is in commercializing all of that work.

It's not helping the labour sponsored funds. What I'm suggesting is the retail venture capital funds...we're just the mechanism. We're trying to deal with the supply side here and increasing the supply side. From our perspective, this is a very quick way of doing it.

This isn't just an issue in Atlantic Canada. If you listen to Richard's statistics, the Q3 statistics in 2009 were disastrous for Canada, not just Atlantic Canada.

[Richard Rémillard]

If I could, I'll just add to that. There was $16.7 million in investments in Newfoundland and Labrador in the third quarter of 2009. In Ontario, it was $24 million.

[Thomas Hayes]

I can speak to the other comment on angel investment in terms of Atlantic Canada. We have a good network now, the first angel network in the Maritimes. There's also an organization in Newfoundland and Labrador that is focusing on angel investment. It's very important. We deal with those folks all the time. Hopefully we're going to generate a lot of the companies, which we can then do A rounds of investment down the road.

[The Chair, Conservative, Michael Chong]

Thank you very much, Mr. Hayes and Madam Coady.

You have the floor, Mr. Vincent.

[Robert Vincent, Bloc, Shefford, QC]

Thank you, Mr. Chair.

I am pleased to welcome you here this afternoon because we have many questions for you about businesses.

The first question concerns the economic downturn of the past year. Have businesses truly been impacted by this downturn? Have many shut down? Have many businesses declared bankruptcy?

I would also like to get your thoughts on the coming year. Are we heading in the right direction, or do you predict that the economy will stagnate? Is lack of financing a problem? Are business entrepreneurs really having a hard time getting venture capital to start up their business or to purchase needed business equipment?

The questions are directed to all of you.

[Thomas Hayes]

Certainly from my perspective, the challenge we have is lack of capital. In the particular fund I manage, we have 14 companies. All of them are struggling emerging businesses. Some of them are at a very critical stage in their development. It's essential that we have money in reserve to provide follow-on rounds and investments in these companies. It would be a shame to lose some businesses simply because we have no additional capital to invest.

It's a tough environment out there. The current economic climate has made the sale cycles longer for some of these companies. It's harder to attract capital. There's aren't as many players out there. All of those things impact the emerging types of businesses we invest in.

None of the companies we invest in are bankable. We're not providing credit; we're providing equity, which is the first stage in bringing a company to success.

It's a very tough environment. We're going to lose some of these businesses if we don't have the available capital to keep them going.

[Terry Campbell]

I agree with everything that Thomas has said. But I'm going to look at it from a bit of a different perspective—the macro perspective.

One of the perspectives we had coming into the recession was that a lot of existing small and medium-sized businesses—I'm not talking about start-ups or the venture capital clientele—are actually better positioned than in previous recessions. The balance sheets and debt loads are in better shape; they have a more disciplined approach to finances and cash management.

As a result—and I'm not denying for a moment that there aren't areas of problems—a lot of businesses have been able to withstand the pressures of the recession relatively well. They've been able to use the challenge they face and turn it into opportunities. They've been very disciplined on cost. They've been very disciplined in seeking out ways that they can become more efficient—because they do have challenges with existing customers who weren't able to carry on—in trying to find new markets.

It's not a gloom-and-doom story universally. There is strength coming into the recession on the part of small businesses. If you look at the global statistics on small businesses, there are actually more being created.

But for the 20% of the marketplace that exports, going forward the big challenge is the United States of America. Is that market going to turn around? Are American customers going to be buying again? Domestic firms that rely on the domestic marketplace have in some ways had an easier go of it. So I think a lot depends on what happens with our friends south of the border.

[Robert Vincent, Bloc, Shefford, QC]

You talked about businesses that fared the best, that are the best organized, that have sound output levels or that successfully streamlined their operations. Would these be large or small businesses?

In 2007, the value of the loonie spiked, along with the price of oil. As a result, all businesses turned to a just-in-time production system. At some point, there is no additional room for improvement and costs can no longer be slashed. The businesses you are referring to were likely well-established ones, not new ones.

What happens to new businesses that cannot streamline their operations? Were they forced to file for bankruptcy or did they try and find other credit sources? Regarding Mr. Hayes' comments about new credit—in Quebec, we refer to the Fonds de solidarité FTQ—would it be fair to say that the $5,000 contribution limit should be increased and that we should revert back to a 20% tax credit for both levels of government, in order to directly inject some venture capital into businesses?

I'd like to get your opinion on these two questions.

[Terry Campbell]

There are many questions there, and I think my colleague Mr. Halde will probably want to take some of them.

I think it's hard to generalize with regard to small and large businesses. I found the testimony from the Manufacturers and Exporters and the CFIB on Monday very instructive. They have very, very different stories, and I think that makes sense. Much has to do, not so much with size, although that is a factor, but whether businesses are exposed to the dollar or more reliant on the domestic marketplace.

As you probably recognize, the dollar question is a two-edged sword. In one sense the run-up to the dollar has been happening for several years now. Companies have been able to make adjustments to that run-up, to the extent they can, which positioned them better as the recession hit. On the other hand, of course, it makes imports of machinery, productivity, and efficiency-enhancing capital investments that much easier.

It's not so much a question of big and small as it is where they're placed in the economy.

Jean-René?

[Jean-René Halde]

If I could just add to that, with our 28,000 clients, we have a pretty good cross-section of businesses. There is no question whatsoever that manufacturers that export their products, especially those that export mainly to the United States, are the most affected. Mr. Campbell's comments were spot on.

[Robert Vincent, Bloc, Shefford, QC]

Admittedly, 85% of our exports are headed to the United States. Therefore, it's a serious problem.