Debates of Feb. 16th, 1998

Small Business Loans Act

[Jim Pankiw, Reform, Saskatoon—Humboldt, SK]

Mr. Speaker, I rise on a point of order. The hon. member is purposefully trying to link a party based on fundamental values of truth and honesty and democracy with a criminally—

[The Deputy Speaker]

I think the hon. member is suggesting the hon. member for Regina—Lumsden—Lake Centre has ulterior motives for making a speech, but this is a debate. The hon. member for Regina—Lumsden—Lake Centre is free to express his views and this is a debate. Hon. members can participate in the debate and the hon. member for Regina—Lumsden—Lake Centre has the floor.

[John Solomon, NDP, Regina—Lumsden—Lake Centre, SK]

Mr. Speaker, the hon. member who just rose on a point of order would not know that his colleague from Souris—Moose Mountain was a member of the Devine party. He was a member of the party that bankrupted the province. It went to the polls and said “government does not work, vote for us and we will prove it”. The Reform Party is saying “government does not work, vote for us, we are going to prove it”.

We have had that experience in Saskatchewan and it will never get elected in Saskatchewan as a government. That is the way it is, because people have memories about $16 billion in debt. The Reform Party does not seem to get it. It figures it can hoodwink or trick people in Saskatchewan once and maybe it can do it twice. I do not think that is the case. We will let the people of Saskatchewan decide whether what it is talking about is truthful or not.

[Sarmite Bulte, Liberal, Parkdale—High Park, ON]

Mr. Speaker, I will be sharing my time with the hon. member for Waterloo—Wellington.

I am rising in the House today to address Bill C-21, an act to amend the Small Business Loans Act. I rise today not only as the member for Parkdale—High Park, but I wish to address this bill as a woman entrepreneur, a founding member of the Women Entrepreneurs of Canada and the former Canadian representative to the World Association of Women Entrepreneurs, les Femmes chefs d'entreprises mondiales.

I commend the government on its proposed amendments, first to extend the lending period from April 1, 1998 to March 31, 1999, and second to increase the aggregate lending ceiling by $1 billion. I do so for one reason and one reason alone, because it is good for small business, and what is good for small business is good for Canada, Canadians and this economy.

Small business is the growth engine of our economy. In the last three years, 80% of new jobs were created by small and medium size businesses in Canada. But small businesses need access to capital.

During the summer I held focus groups on job creation as what the government needed to do to assist small business. One of the things I heard time and time again was “we need help, we need access to capital, what can you do about that?”

One of the focus groups was with the Women Entrepreneurs of Canada, and this concern came up time and time again from women entrepreneurs, all sorts of women entrepreneurs, women entrepreneurs who work out of their homes to women entrepreneurs who have $20 million companies. Yet women entrepreneurs, of all the people in Canada, have had the hardest time accessing capital.

Hon. members across the floor have said that this is just giving money away to the same people who would have qualified for loans anyway. The truth and the reality of it is women have a difficult time getting access to capital. It was not so long ago, 30 or so years ago, when a woman could not get a loan from the bank without her father's or her spouse's signature. Unfortunately a lot of things have not changed. Women still have a difficult time getting access to capital. We as a government must do something to help them.

A young woman in my riding called me in August asking for my assistance and help. She had a great idea. She had contracts that she could bring to the bank but the bank was not willing or able to lend her money. Why? Because she was young, she did not have a spouse, she did not have a father and she did not have heavy duty capital to offset or help with her loan. With my intervention we were able to bring the banks together. I am happy to report that my constituent was able to get a loan.

There is not always a member of Parliament to assist the woman who needs a loan. And it is not just young women. It is also newly separated women and women who have decided to go back into the workforce after having raised a family. One of the best ways they see of doing that is by turning a great idea they have into a million dollar business. But that idea cannot be turned into a business without having access to the capital that is first needed.

Let us not underestimate the value of women entrepreneurs in Canada. As a founding member of the Women Entrepreneurs of Canada association, I personally know the strength of women owned businesses.

Women owned businesses employ more than 1.7 million people in Canada which is more than Canada's top 100 companies. Women own 700,000 businesses in Canada. They create businesses at four times the rate of their male counterparts and create jobs at three times the rate of their male counterparts. Women entrepreneurs are an economic phenomena to be dealt with and recognized.

We must also remember that those 700,000 women who do own those businesses, they are the lucky women, the women who had access to capital. There are many, many other women who have not had that opportunity and have not been able to get that financing.

In my job creation focus groups, many of the women entrepreneurs I spoke to said “The small business loans program works. I have benefited from it”. The numbers I heard varied. It was not always a $250,000 limit. It was $60,000, $50,000 even $15,000. Most people would say “That is nothing. What is $15,000? Anybody can get a loan for $15,000”. That is not the case. For a lot of those women $15,000 was the first loan they ever had to secure by themselves. Perhaps the marriage they were in had ended and they had not had the ability to establish their own credit. This program helped those women take an idea that they had germinated in their own home and turn it into a small and very successful business.

One of the things I have always heard about women entrepreneurs is that women entrepreneurs do not make a lot of money, that they only generally earn between $250,000 or $500,000. That may very well be the case, but these businesses are also stable businesses. While some women entrepreneurs may have businesses around the $500,000 gross revenue mark they still provide employment. They are stable and they do not take risks that easily. They grow slowly but they are there for the long term not for the short term. They will be there for years. They may not be worth $20 million today, but they will be one day.

When we look at the small business loans program we cannot ignore what it brings. It brings investment to this country.

We as a government are investing in jobs. Statistics alone show that in 1996-97 more than 73,000 jobs were created because of this program. In the

Globe and Mail

this morning one of the headlines was “Small firms providing big job gains”. Statistics Canada has released its results that in fact jobs are being created in small businesses, with the self-employed.

Interestingly enough the other thing Statistics Canada pointed out is that the small business sector is where wages are increasing. Employees working in small business are getting the benefit of the growth in small businesses. Little by little the parity between the large corporate employee and the small business employee is coming together. It is a complete success story.

The priority of this government is job creation. One of the things this government is trying to do is target youth employment.

One of Canada's chartered banks not too long ago undertook a comprehensive study of the attitudes of Canada's nexus generation, young people between the ages of 18 and 35. It revealed that this group is much more entrepreneurial and positive than usually depicted. One-third of the nexus respondents stated that their most desirable profession was entrepreneur. This suggests that young Canadians are determined to turn their innovative ideas into business realities.

But how do they do that unless we give the nexus generation access to capital? They are not unlike the women entrepreneurs who have had trouble getting access to capital, who have not established their credit. Yet when we look at some of the loans that have been given out, it is clear that a lot of the loans under the small business program were given out to start up businesses or businesses in their first three years.

The small business loans program is part of this government's all round strategy. Let us look at this also in the context of what else this government has been doing.

The government has also given the Business Development Bank of Canada a new mandate to support the growth of knowledge based, export oriented and small businesses. The bank has responded by building new partnerships with lending institutions and by developing new programs such as technology seed investment funds.

This government has also supported women entrepreneurs by increasing their participation in Team Canada. I am proud of the initiative this government took last November by taking the first all woman business owners trade mission to Washington. What a success that was.

I encourage all of my colleagues to think what this legislation will do for women entrepreneurs and the nexus generation.

[Steve Mahoney, Liberal, Mississauga West, ON]

Mr. Speaker, I congratulate the member on her speech.

I attended a function the member held in her riding in co-operation with the Royal Bank. Women entrepreneurs from her riding and in fact several from my riding were invited to come and talk about issues of mutual concern. I recall some of the comments made by the people who attended the prebudget consultation the member held. There were some very moving comments, discussions and shared experiences. The people from the Royal Bank who were hosting the event were most co-operative.

I wonder if the member has any experience in how the banks feel with regard to the small business loans program. Does it help women entrepreneurs like many who were in attendance that day to access capital? Is it a co-operative thing that is actually working between the banks and the small businesses?

[Sarmite Bulte, Liberal, Parkdale—High Park, ON]

Mr. Speaker, one of the things the banks have done as this government has done is they have realized the economic importance of women entrepreneurs. Many of the chartered banks are now putting in place special programs to assist women entrepreneurs. They have departments geared to dealing with the special concerns of women entrepreneurs. A number of chartered banks have talked with the women entrepreneurs of Canada. They are working together to find out which programs are best suited to their needs.

I believe that all parties of the partnership, the government, the private sector and the not for profit sector have to work together to find the solutions for all women entrepreneurs.

[Peter Stoffer, NDP, Sackville—Eastern Shore, NS]

Mr. Speaker, my question will be quite simple and quite plain. My wife is an independent business person and works very hard at what she does. I just want to ask one simple question. Since the Royal Bank was brought in by the member's Liberal colleagues, does she or does she not agree with the proposed bank merger between the Royal Bank and the Bank of Montreal?

[Sarmite Bulte, Liberal, Parkdale—High Park, ON]

Mr. Speaker, I support the position of the Minister of Finance who has made it absolutely clear that the merger is not a sure thing. It will be dealt with after the task force reports. As the Minister of Finance has challenged, I too will also add my challenge to those banks to ensure that jobs are created and jobs are retained.

[Gurmant Grewal, Reform, Surrey Central, BC]

Mr. Speaker, I listened with interest to the member on the opposite side. She used almost all of her time talking about women entrepreneurs which is good. However, since Bill C-21 deals with small businessmen, when she was talking about women entrepreneurs did she mean small businessmen or was she talking about a different group of businessmen, namely women entrepreneurs?

[Sarmite Bulte, Liberal, Parkdale—High Park, ON]

I am sorry, Mr. Speaker, I did not understand the question. Could I ask the hon. member to repeat it, please.

[Gurmant Grewal, Reform, Surrey Central, BC]

Mr. Speaker, Bill C-21 deals with loans being given to small businessmen. During most of the member's speech she was talking about women entrepreneurs, which I appreciate. But did she mean women as a group would be the same as small businessmen or just women as a special group in the community to deal with business?

[Sarmite Bulte, Liberal, Parkdale—High Park, ON]

Mr. Speaker, women entrepreneurs are simply an economic phenomena in this country. They form part of small business in this country. Their concerns are also shared by many of the male business owners in my riding. They too have the same problems. As I walk down Bloor Street in Bloor West Village I am told time and time again, be they men or women, that they need access to capital. Through the Small Business Loans Act, the government is encouraging the banks to lend to all small businesses.

I happen to have the expertise and knowledge in the area of women entrepreneurs so I bring that to the House. I know that this issue is absolutely as relevant to men as it is to women.

[Lynn Myers, Liberal, Waterloo—Wellington, ON]

Mr. Speaker, I am pleased to rise today to speak to the two amendments proposed for the Small Business Loans Act. The first one is the extension of the current SBLA lending period for one additional year, from April 1, 1998 to March 31, 1999. The second one is the increase in the aggregate lending ceiling by $1 billion, from $14 billion to $15 billion, and the unused authority to lend will expire at the end of the extended lending period.

At the outset I want to say that the people of Waterloo—Wellington and many small business people in my riding applaud this legislation. It is very important for them and they certainly want to see it proceed and go forward.

As we discuss the merits of extending the Small Business Loans Act, I would like to review some of the misconceptions which have been stated regarding the program. It is sometimes argued that the SBLA represents a subsidy to small business. However in 1995 the government took steps to move the program to financial self-sufficiency so that it will be paid for by those who borrow through it.

Current shortfalls are the result of actions taken in 1993. Their effects are now being felt on a time delayed basis since loans can have terms of five or even ten years.

I am pleased to see that the government has already taken the actions needed to rectify the causes of the present shortfalls. Indeed it has already acted on many of the suggestions made by the auditor general in his recent December 1997 report, and further changes are in the works. As a member of the public accounts committee I applaud the efforts of the government to ensure that the problems outlined by the auditor general are rectified and taken into account. That is very important.

Passage of Bill C-21 will enable the completion of the present extensive review of the SBLA program so that we can consider what further improvements can be made to this very worthwhile program.

It is important to note that Industry Canada has already taken significant administrative steps to improve the efficiency and productivity of the program, such as cutting claim audit times, thereby mitigating the cost to taxpayers.

Another false claim sometimes made by critics is that the banks do not risk their own money under the program. This simply is not true. Like other insurance programs, the SBLA pools risk across thousands of users. This of course diminishes risk, however, it does not eliminate it for the SBLA lenders.

The applicants to which the banks make loans under the SBLA are otherwise credit worthy but tend to be start-up companies or firms with low capitalized assets. Indeed the whole point of the program is to get cash to companies which might not qualify for conventional financing. It is very important to note that this is in support of small businesses. They rely on it and they most certainly need it.

Further, it needs to be pointed out with respect to loans made after March 31, 1995 loan losses are shared on the basis of 85% government and 15% lender. The program will pay a bank only 85% of the lender's loss after having liquidated all secured assets.

Second, the total claims which a lender makes cannot be more than roughly 10% of the value of the total SBLA portfolio. In other words, the lender's funds are at risk and the lender will lose money with every claim. This underscores that it is not an incentive to make poor credit decisions.

It also needs to be noted that 94% of the loans have been repaid over the course and the history of the SBLA program. Again this suggests that lenders have been exercising good judgment throughout.

The statistics indicate that the system is working well. In 1996-97 more than 30,000 firms used the SBLA to improve their businesses and created an estimated 73,000 jobs. That is most impressive.

Another false argument circulating with regard to the SBLA concerns small business access to unconventional financing. Some have suggested that small and medium size businesses do not need the SBLA, that they simply can resort to venture capitalists. That is wrong. It is more complicated than that. Venture capitalists are simply not a realistic option for many firms which seek these very important but small loans. At present a mere 2% of all businesses obtain financing from such investors, whereas 54% of all outside capital for business comes from debt financing.

Even if venture capitalists were to double their activity it would still mean that only about 1,200 firms would be able to find financing.

Therefore the SBLA fills a niche in the market for precisely those firms which venture capitalists ignore. Without the SBLA most of the 30,000 firms which were financed during fiscal year 1996-97 would have been unlikely to have found the cash they required. This would have meant lost jobs, which is unacceptable. It simply is not right. It is not what Canadians want and it is not what is good for small business.

The government is well aware that banks should be flexible and open to the needs of small businesses, particularly with respect to lending practices. The industry committee of the House of Commons has heard recently that it is important to have more transparency in the lending process.

For example, banks should move away from evaluating loan applications on the basis of points and formulas and should move more toward a comprehensive and flexible approach.

Second, banks should recognize that intellectual and knowledge based assets are as valuable as hard assets and traditional forms of collateral.

Third, banks should increase the number of smaller loans for youth and micro businesses.

At the urging of the government and the industry committee the banking industry has begun to respond. First, banks have introduced a code of conduct. All the major banks have put in place some form of alternative dispute resolution and have appointed an ombudsman to handle complaints. Second, an industry ombudsman has been appointed to allow for an independent review of small business complaints when internal dispute resolution procedures have been exhausted. Third, the banks have developed special benchmarks with which to assess access to business credit which they report quarterly to the House industry committee.

The government is also moving ahead rapidly to put in place the elements necessary for sustainable growth and job creation in the knowledge economy, particularly with regard to small business. Industry Canada's priority has been to focus on helping Canadian business fulfil its potential to innovate, to grow and to create jobs, and this we have done.

It is important to note that Industry Canada invests in targeted R and D in high tech sectors where its support can obtain the maximum effect and leverage benefits. The National Research Council has many technology transfer programs for industry. The regional economic development agencies offer special help in export support for small businesses.

The government is moving ahead to update many pieces of framework legislation that have a profound effect not only on small business but also on the way in which Canada fosters innovation and the growth of its knowledge based industries. The government is modernizing and renewing the Competition Act, the Co-operatives Act, the Telecommunications Act, the Canada Business Corporations Act and the privacy protection act, especially as it relates to electronic commerce.

These initiatives are helping to create a positive environment for Canada's private sector and the small business community. Many of the government's new policies and programs are already paying off in terms of surging economic growth. The need to access capital remains a critical issue for small business growth in addition to the importance of a positive business environment. The Small Business Loans Act can help provide that access in a way that no other instrument can or does at the time.

Therefore I ask my fellow members of the House of Commons to pass this legislation on which they are about to vote for the benefit of Canada's small business community. It is what Canada needs. It is what the small business community needs.

[Ralph Goodale, Liberal, Minister of Natural Resources and Minister responsible for the Canadian Wheat Board]

Mr. Speaker, I rise on a point of order pertaining to the votes we will take in a few minutes on Bill C-4.

There have been certain discussions among all the parties in this House about the possibility of removing from the draft bill those detailed provisions which deal with additions to or subtractions from the Canadian Wheat Board's current mandate on the condition that members consent to the tabling now of a new provision in the law that would ensure that no minister responsible for the Canadian Wheat Board could attempt to change the wheat board's existing mandate either to enlarge it or to reduce it without first having conducted a democratic vote among the relevant producers and also having consulted with the wheat board's new board of directors.

Mr. Speaker, I would ask that you seek the unanimous consent of the House to allow such a proposal, which I have discussed with each opposition critic, to be deemed to have been duly moved and seconded and ordered to be voted on along with all the other amendments we are about to consider in a few moments.

[The Deputy Speaker]

The House has heard the proposal of the Minister of Natural Resources. Does the House give its consent that the minister may put the motions before the House at this time?

[Some hon. members]

No.

[The Deputy Speaker]

There is no consent.

[Peter Stoffer, NDP, Sackville—Eastern Shore, NS]

Mr. Speaker, I will be asking this question for the third time today. I know from talking to Liberal backbenchers behind the curtain that many of them are opposing this bank merger. With great respect, does the hon. member oppose the merger of the Royal Bank and the Bank of Montreal?

[Lynn Myers, Liberal, Waterloo—Wellington, ON]

Mr. Speaker, I thank the member for the question. I want to reiterate what I said in my speech. The process the government is taking with respect to small business loans and the act proceeding is very important on behalf of small business and for the economy of Canada as a whole.

I think it is important that we proceed accordingly and in a manner that fits with what we are doing for the overall benefit of the economy. It is important to note. We should do so expeditiously.

[Steve Mahoney, Liberal, Mississauga West, ON]

Mr. Speaker, I congratulate the member for his remarks and for his understanding of the small business loan process.

We heard comments in this place earlier today that the maximum amount of $250,000 for a small business loan should be reduced. I do not know that there was a suggested figure. It seemed somewhat arbitrary. I think it was the Progressive Conservative position that the act is okay but the amount is too much. I understand also that the average loan is in the neighbourhood of $65,000 which is obviously dramatically lower than the maximum.

I wonder if the member might have some comments about the importance of leaving a flexible level as high as $250,000 given that these loans can only be used for a capital acquisition such as property or equipment that has actual value. They cannot be for debt consolidation or things where there is no fixed value to the asset that is added to the business.

[Lynn Myers, Liberal, Waterloo—Wellington, ON]

Mr. Speaker, I thank the hon. member for the point. It is an important one. There should be flexibility inherent in this loan system. I think that needs to be underscored to ensure that small business and Canadians who rely on this kind of legislation are able to work in a way consistent to enable the flexibility to be part and parcel of what they have to do in the course of what their business entails.

I think it is very important that flexibility be maintained. I think Canadians want it and certainly small business people want it.

[John Herron, Progressive Conservative, Fundy Royal, NB]

Mr. Speaker, with reference to the comment made by the hon. member, I want to help clarify my earlier comment which arises from the fact that 30% to 40% of the loans that are actually approved under the Small Business Loans Act, as pointed out by the auditor general, would have been approved in the first place without the public guarantee under the small business loans act.

The point is that for the most part those sorts of loans are usually loans of the higher magnitude. They are not the average loans required by the small business sector.

I referenced this quote during my remarks earlier in the day. My point is that there should be a loan guarantee for small business, not a loan guarantee for banks.

Essentially the Small Business Loans Act has become a vehicle for actually reducing the risk of private institutions and not actually for fulfilling the original intent of the Small Business Loans Act.

The greatest concern we have today is that the original intent of the program was to provide access to capital to start-up ventures or small firms that would not otherwise have been granted a loan from a lender.

The relative size of a loan, which is becoming very commonplace, is large but the relative size of the loan was intended to be small so that borrowers could have handled a higher rate or fee in exchange for a loan that did not leverage their personal guarantee.

[Lynn Myers, Liberal, Waterloo—Wellington, ON]

Mr. Speaker, I thank the hon. member for the comment and question even though I am not sure I really understand it. It was very convoluted.

I think the point, though, needs to be made again that this legislation enables small businesses to proceed and do the kinds of things that enable them to do what they do best, conduct business and maintain the kind of activity that is in the best interests of the Canadian economy. I think we should proceed with that expeditiously.

The House resumed from February 12 consideration of Bill C-4, an act to amend the Canadian Wheat Board Act and to make consequential amendments to other acts, as reported (with amendments) from the committee.

Canadian Wheat Board Act

[The Deputy Speaker]

Pursuant to order made Thursday, February 12, 1998, the House will now proceed to the taking of the deferred divisions at report stage of Bill C-4.

Call in the members.

And the bells having rung: