Finance Committee on June 9th, 2020

[Annie Koutrakis, Liberal, Vimy, QC]

Thank you, Mr. Chair.

Thank you to all of our witnesses from the BDC this afternoon. It is truly useful information that is being shared.

One of the recommendations that has been made by the BDC for building small business resilience is to diversify the product and supply chains. It goes without saying that this will be easier for some businesses and more challenging for others. What business or sector is the BDC expecting to struggle most with this diversification, and what can the BDC as well as the federal government do to support these businesses as they diversify their products and supply chains?

[Michael Denham]

This is a very important topic, and we researched it hard a couple of years ago.

What we found with diversification is that a staggeringly high number of companies, especially, frankly, in Alberta—a service provider to the oil and gas industry—were dependent on one client for over 60% of their revenues. We're not talking about diversifying from oil and gas to airlines or from retail to wholesale; we're talking about diversifying your source of revenue from client one to client two.

We think every company needs to diversify its client base, even within its core market, its client base, the geography-dependent traits and the segment it sells to. There are lots of sales and marketing tools, techniques and strategies that we've been introducing as a way to help people to migrate from a highly consolidated source of revenue to something much more diversified and, as a result, more stable and less risky.

[Annie Koutrakis, Liberal, Vimy, QC]

The businesses that you've been in touch with or from what you're hearing out there, are they open to the recommendations? Are they willing to work and move in that direction based on the recommendations that are being made?

[Michael Denham]

Yes, they all get it. A challenge a lot of companies face.... We meet with some very small clients. We have some clients that are very small that are owner operated, and it's just hard for that owner-operator to have that. He or she is so busy fulfilling demand and taking care of the current customer set that it's just hard to find the time and the tools to diversify.

I think, without question, all entrepreneurs get it, because diversification means stability. The big challenge is just finding the tools and finding the time to make it happen.

[Annie Koutrakis, Liberal, Vimy, QC]

How has BDC's experience been working with financial institutions to provide loans for the new programs? Can you comment on any challenges that the BDC has experienced in these partnerships and how have they been managed?

[Michael Denham]

Since we were formed 75 years ago, we've worked alongside banks and we have relationships with them in place. By definition, every client we lend to has a bank account and operating line from a bank, so our business is just working alongside banks.

On your question with respect to BCAP, what we've found is that the structure of our co-lending solution actually works and it's smooth and easy to administer. The thing we just need to collectively look out for is to make sure that the banks are taking full advantage of this credit enhancement to get outside their traditional and pre-existing risk sweet spot.

That's the collective challenge, so that they do what's expected and it puts it in the deal to find ways to lend more to clients than would otherwise be the case. That's a function where we have information flowing now and we have a dialogue in place.

That's the key thing that we need to make sure we get right.

[Annie Koutrakis, Liberal, Vimy, QC]

What role does the BDC see young entrepreneurs playing in Canada's COVID recovery?

How important are programs such as Futurpreneur Canada to ensure that young entrepreneurs get the funding and the resources and professional service that they need to succeed? How will the government's commitment of $20 million be used for young entrepreneurs?

[Michael Denham]

I might ask my colleague Karen if she's comfortable with answering that question, because one of our key partnerships, frankly, one of the most important partnerships we have at BDC, is with Futurpreneur. As you know, we provide the vast majority of capital that they lend. That, frankly, is our best vehicle to provide loans to young entrepreneurs.

Karen, perhaps you can answer that question since you're closest to that relationship.

[Karen Kastner]

We were thrilled to find that Futurpreneur was given additional capital to be able to help during this very serious time.

As Michael said, we've been a long-standing partner of Futurpreneur, both in terms of providing capital that piles onto the capital that they provide to individual young entrepreneurs and also that we have a really good referral relationship with them. That's one of the things we've tried to do during these last couple of months, to really make sure that the ecosystem is working well together, whether it be building on our existing partnerships with organizations such as Futurpreneur, or making sure that where we can't help there's a warm hand-off to another organization that can. That goes for Futurpreneur, and we've also been working with the RDAs and with other partners just to make sure that the ecosystem is working as best it can in support of the businesses that really need our collective help.

[The Chair, Liberal, Wayne Easter]

Thank you, Ms. Kastner.

We'll turn, then, to Mr. Ste-Marie and Mr. Julian, for a couple of minutes each, if they could.

Mr. Ste-Marie.

[Gabriel Ste-Marie, Bloc, Joliette, QC]

Thank you, Mr. Chair.

Madam, gentlemen, my question concerns your corporate clients. The health crisis is having an economic impact. That is why the government has put in place various measures such as income support measures.

What is the picture that emerges from your client companies regarding salary support measures? Are they satisfied with the Canada Emergency Response Benefit and the Canada Emergency Wage Subsidy? Which of the two measures is used more often?

Furthermore, I have just raised the issue of maintaining workers' wages, but there is also the issue of fixed costs. There has been no direct subsidy in that regard.

Do the companies that do business with you feel that such a program would have been necessary, or do they feel that current loan programs are sufficient to cover these costs?

[Michael Denham]

I don't want to offer any conjecture on this point.

What I see, though, and I've mentioned this point before, and my inference from it is that through the reduction in demand on BDC for online financing loans and working capital loans, the clients are getting their needs met largely through the government programs that have been put in place around wages, around rent, around CEBA and so on.

I don't want to speak personally, because you've asked the question about what BDC knows. We haven't actually surveyed this question directly per se, but by inference, through the reduced demands on us, our assumption is that the needs, at least right now, are being met and have been met through these programs.

[Gabriel Ste-Marie, Bloc, Joliette, QC]

I'm going back to the question I asked before, which wasn't clear enough.

Now that the economy is picking up, some restrictions are being lifted and people can start going back to businesses. Do your business clients see that the demand is there?

Earlier I was talking about income support. Is it enough? Isn't it more a question of consumer behaviour, whether it's related to the fear that people are still feeling, or the fact that they've changed their buying habits?

What do your client companies say about this?

[Michael Denham]

Right now, when I think about the obvious examples of retail or restaurants, it is clear that clients' habits have changed. We're not visiting these places as we used to. We're buying disproportionately online. As I said before, companies that had close to zero online sales are now quite active online. In many cases, it is the online sales that have saved the business.

Consumer buying factors, consumer buying behaviours, have changed significantly. What nobody knows is the extent to which that is going to endure in the months ahead as people feel more confident to get back into restaurants and get back into retail. Will they, or will they continue just to demonstrate the buying behaviours they're demonstrating now, which is buying things disproportionately online?

It's a very good question. I can't predict which way it's going to go. Frankly, a lot of our clients in these sectors are preparing themselves for a much more active online book of business, rather than the traditional come-in book of business. They're seeing these behaviours enduring. I guess we'll see in the weeks and months ahead. It's important for clients to be prepared for a much higher penetration of online business.

[Gabriel Ste-Marie, Bloc, Joliette, QC]

Thank you.

[The Chair, Liberal, Wayne Easter]

Thank you.

We'll go to Mr. Julian next, who will be followed by Mr. Cumming. Then Mr. McLeod will wrap it up.

Peter.

[Peter Julian, NDP, New Westminster—Burnaby, BC]

Thanks so much for being here today, Mr. Denham. I appreciate your comments about concerns with the banks.

I'm very much in touch with small businesses in my riding. A lot of them have found that there's been no support at all from Canada's big banks despite the fact that, as the OSFI tells us, there's been an accumulative level of support of three-quarters of a trillion dollars, $750 billion in liquidity, showered on Canada's big banks. They've declared five billion dollars' worth of profit so far in the pandemic. There is a real, emerging concern about this. I appreciate your legitimately saying that this is something that we absolutely have to monitor.

Do you have a sense of what the average interest rate would be for the BCAP loans once they start to be approved?

I understand that there's no cap, but do you have a sense of what the average interest rate would be or what the range would be from Canada's big banks on these loans?

[Michael Denham]

I don't. As I mentioned, we don't get the information until next week.

I want to make just one comment. If you look at the data from the Bank of Canada and look at non-mortgage—you know this—lending for March and April, you will see that it was up 22% in March and another 30% in April. In total, it's up $61.5 billion from the banks. This is putting aside the CEBA and other stimuli.

I hear the same frustration from a lot of our clients, partly relating to us, partly relating to the banks. We can't lose sight of the fact that there has been a pretty significant extension of non-mortgage lending from the financial institutions to the economy: $61.5 billion, 22% and 30% increases. Your comments are valid, but I want to make sure that we calibrate that in the sense that the financial institutions really have put a lot more credit into the market than was the case.

[Peter Julian, NDP, New Westminster—Burnaby, BC]

Fair enough. However, I would just compare our local credit unions, Vancity and Community Savings, which reduced their interest rates to zero on lines of credit and credit cards because people are so desperate that they are having to borrow just to make ends meet and get through the month. The banks, as you know, have not done that.

I understand your point. The point back from individuals and businesses is that, ultimately, the banking sector is going to reap windfall profits from this crisis. It is already starting to. At the same time, it is not passing on all the largesse that it has received in the last few months to small businesses and to consumers.

I'll pass the microphone back to you, Mr. Chair.

[The Chair, Liberal, Wayne Easter]

Thank you.

[Michael Denham]

We will keep our eye on that as well.

[The Chair, Liberal, Wayne Easter]

We'll turn to Mr. Cumming, followed by Mr. McLeod.

Mr. Cumming.

[James Cumming, Conservative, Edmonton Centre, AB]

Mr. Denham, you quantified that you're here to help the banks because they don't have the risk appetite. You said, “four times the risk”. Is there a risk premium associated with that? I'm thinking of the co-lending program, where you're actually providing the capital, not a guarantee. What's the risk premium for that?

[Michael Denham]

Again, the banks do the adjudication, the decisioning, so it's the banks that will determine to authorize the loan. The banks will price that based on the risk they see on that individual loan. When I talk about “four times”, that's our direct lending, where we take risk well beyond what I'm describing, but again, it's with the banks to price it. It with the banks to process it.

[James Cumming, Conservative, Edmonton Centre, AB]

So whatever the—