Finance Committee on June 9th, 2020

[Sean Fraser, Liberal, Central Nova, NS]

Thank you.

Mr. Chair, I assume that's my time.

[The Chair, Liberal, Wayne Easter]

It is, unless you have a very quick one.

[Sean Fraser, Liberal, Central Nova, NS]

I'll pass it on to our next questioner. Thank you.

[The Chair, Liberal, Wayne Easter]

We have Mr. Ste-Marie, followed by Mr. Julian.

Gabriel.

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

Thank you, Mr. Chair.

I'd like to thank our guests for joining our committee this afternoon.

I have technical questions about the Canada Emergency Business Account, CEBA, and the Business Credit Availability Program, or BCAP.

Mr. Burlock, do you guarantee the loan or advance the funds to the financial institution for each of these programs?

[The Chair, Liberal, Wayne Easter]

Go ahead, Mr. Burlock.

[Carl Burlock]

Thank you for the question.

With respect to the Canada Emergency Business Account, our role is indeed that of a government administrator. We are the ones who put in place the documentation with the financial institutions and ensure that the funds are transferred to them according to the standards set out in the program.

In the case of the Business Credit Availability Program, our role is that of guarantor. The financial institutions provide a loan, and Export Development Canada, or EDC, guarantees 80% of the loan.

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

Loans provided under the Business Credit Availability Program are not zero-interest loans. If you had to characterize this interest rate, would you say it is lower, higher or equivalent to market rates?

[Carl Burlock]

These are interest rates set by financial institutions, so they are market rates. Since EDC guarantees 80% of the amounts, the loans are given to companies with more confidence, and in this way we make sure they have access to credit.

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

So this program was put in place because the government was concerned, as you were, that financial institutions would lend less money because of the current crisis. The guarantee means that more loans are being made.

Have your partner financial institutions told you that some of the loans they have provided would not have been available if the amounts had not been secured?

[Carl Burlock]

In fact, we put the program in place with EDC's Business Credit Availability Program board, government departments, EDC, the Business Development Bank of Canada, or BDC, and the financial institutions.

This is indeed the purpose of the program. The program standards were put in place to encourage financial institutions to work in partnership with EDC.

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

As I understand it, EDC acts as an intermediary between the financial institution and the government. If a company were to go bankrupt or be unable to repay its loan, it would be the government, with its funds, that would repay the financial institution, not EDC.

Is that correct?

[Carl Burlock]

There is a difference between the two programs. The Canada Emergency Business Account is a government-backed loan. The Business Credit Availability Program is guaranteed by EDC, but it's really a loan that comes from the financial institution. If a company were unable to repay its loan, the portion guaranteed by EDC would be paid by EDC.

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

All right, thank you.

I imagine you have to work on the basis of assumptions. Economic conditions mean that things are constantly changing.

Have you established a default rate for each program? If so, is it possible to share this with the committee, based on your most recent hypotheses?

[Carl Burlock]

That's a good question.

As risk managers, one of our roles is to properly manage our funds and commitments. I don't have precise figures to give you right now, but I could come back to you with more precise data.

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

We would appreciate it if you would come back to the committee when you can to provide us with the data.

I'm getting the signal that my time is almost up. I'm going to stop here.

I'll try to ask you one more question in the second round.

Thank you.

[Carl Burlock]

Thank you.

[The Chair, Liberal, Wayne Easter]

Thank you, Gabriel.

From New Westminster, we have Mr. Julian, who will be followed by Mr. Cooper.

Go ahead, Peter.

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

Thanks very much to our witnesses for being here. We hope that your families are safe and healthy.

I'd like to continue along the lines that Mr. Ste-Marie was speaking on.

It's particularly around the BCAP. I'm very interested in that. I gather that, of the 400 applications, none have actually made their way to EDC, so at this point, you have nothing to report. Is there any provision for loan forgiveness in this program? What is EDC's charge, either to the business or to the financial institution, in terms of fees or in terms of an interest rate?

[Mairead Lavery]

Carl, would you like to provide some details?

[Carl Burlock]

Yes, thank you.

The financial institution will provide a loan to the customer at its normal business rate. EDC charges a fee of 1.8% per annum to the financial institution to cover its guarantee percentage. In terms of forgiveness, there is no provision for forgiveness in these loans. As Ms. Lavery mentioned at the beginning, EDC typically does not provide grants, so the loans are on a commercial basis.

I think the other part of your question was around what we expect to see. Currently, our sounding with the financial institutions indicates that there are about 400 loans in progress in their systems.

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

Yes, but none are completed at this point.

[Carl Burlock]

None have been reported to us as completed. We get periodic reporting, so there may be some that are complete that we haven't seen yet. We will get some more reporting at the end of the week.

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

In the program, is there any cap on interest rates? I know you're saying that it's normal business rates for the banks, but is there any cap or are there provisions on limitations? What is the average interest rate that Canada's big banks would be charging those businesses?

[Carl Burlock]

I can't tell you specifically the rate that each bank charges. They are their normal business rates. This program is open to 120 different institutions, so there's an ability for companies to use different institutions for these programs.