Evidence of meeting #44 for Finance in the 43rd Parliament, 2nd Session. (The original version is on Parliament’s site, as are the minutes.) The winning word was program.
A recording is available from Parliament.
3:15 p.m.
Conservative
Tamara Jansen Conservative Cloverdale—Langley City, BC
How do you make sure, if there are no actual parameters set, that these funds are actually used for the types of business you're trying to encourage?
3:15 p.m.
Manager, Policy, Canada Small Business Financing Program, Department of Industry
We request very specific documentation from financial institutions about where the money is going and for what purposes it is being used. Right now the three asset classes are real property, equipment and leasehold improvements.
We're looking to expand those asset classes, but when they submit a claim for loss now on term loans, etc., we require specific documentation that supports proof of purchase and payment for those asset classes.
3:15 p.m.
Conservative
Tamara Jansen Conservative Cloverdale—Langley City, BC
Right, but I guess what I'm more concerned about is that this is a fantastic program meant to ensure that small businesses that would not normally be able to access funding because they are riskier can get access to it; yet we don't have, say, a risk level number that you would say is the parameter under which this person would be....
It seems to me it would be very easy for a not very risky business to access funds in this program because the bank wanted to be a little more careful.
3:15 p.m.
Manager, Policy, Canada Small Business Financing Program, Department of Industry
That's possibly the case; however, it requires a lot more administration for the financial institution to use this program than to use their conventional resorts. In addition, we charge a 2% registration fee up front based on the value of a loan. If you get a $1-million real property loan, there's a 2% registration fee sent in automatically, and on an annual basis there's a 1.25% administration fee that we charge the financial institution, which lowers their profitability.
It's thus only appealing in situations in which it's riskier for them, because it's more administratively burdensome, it takes longer for them to run a loan under our program than through conventional purposes, and it's a lot less profitable for them.
3:20 p.m.
Conservative
Tamara Jansen Conservative Cloverdale—Langley City, BC
I was going to ask whether there is an interest rate cap on a loan like that.
3:20 p.m.
Manager, Policy, Canada Small Business Financing Program, Department of Industry
Yes, there is. We have prime plus 3% on the variable loans. It's the residential mortgage rate plus 3% on the fixed-rate loans.
Out of that prime plus 3%, 1.25% is paid to us. Their cut of this is thus only 1.75% over and above prime.
3:20 p.m.
Conservative
Tamara Jansen Conservative Cloverdale—Langley City, BC
The government, then, is also taking a portion of the interest rate on these loans.
3:20 p.m.
Manager, Policy, Canada Small Business Financing Program, Department of Industry
Yes, so of the prime plus 3% we take 1.25%. It's meant to help offset the cost of claims.
3:20 p.m.
Conservative
Tamara Jansen Conservative Cloverdale—Langley City, BC
Then let me just ask one more question. Well, it may become more than one.
During COVID, I know of a local restaurant that...well, many of them were not able to get the HASCAP and all these different things, because they're required to do things. They're locked down and they're supposed to give a projection of sales, which, of course, in lockdown they can't.
How many of these were able to come to you? As I say, many in the tourism industry were not able to access those HASCAP loans.
3:20 p.m.
Manager, Policy, Canada Small Business Financing Program, Department of Industry
I would say the majority of them, to a large extent. In the last couple of years we've done $1.3 billion in financing. This past year, given that you have CEBA, you have HASCAP, you have BCAP—these other business support programs that have been out there—we've dropped the number and value of supports that we were able to provide this year, I think primarily because of that and because of the risk environment as well. We're still, though, close to the $1 billion marker. We still did pretty close to $1 billion in financing over the past COVID year. There was, then, quite a bit.
3:20 p.m.
Conservative
Ted Falk Conservative Provencher, MB
Thank you, Mr. Chair.
Thank you for all the information you're providing. I do, though, have a few questions.
You indicated that there's an interest rate. You also said there were registration and administrative fees charged to the bank, which reduce their profitability. Is there a provision that banks are not allowed to pass on those costs to the borrower?
3:20 p.m.
Manager, Policy, Canada Small Business Financing Program, Department of Industry
There are provisions that they're not allowed to pass them on to the borrower other than through the interest rate. They're allowed to charge prime plus 3% and that's it, of which 1.25% of that prime plus 3% comes back to the program.
3:20 p.m.
Conservative
Ted Falk Conservative Provencher, MB
Okay.
Are you typically finding that most lenders charge that prime plus 3%?
3:20 p.m.
Manager, Policy, Canada Small Business Financing Program, Department of Industry
It's pretty close, yes. It's prime plus 2.75% or prime plus 3%. It's primarily because they're a riskier clientele as well.
3:20 p.m.
Manager, Policy, Canada Small Business Financing Program, Department of Industry
Yes.
3:20 p.m.
Conservative
Pat Kelly Conservative Calgary Rocky Ridge, AB
When you mentioned loans that are for real property, I guess that's not a new part of the criteria of this program. Have purchases of real property always been eligible under this program?
3:20 p.m.
Manager, Policy, Canada Small Business Financing Program, Department of Industry
Yes, that's correct.
3:20 p.m.
Conservative
Pat Kelly Conservative Calgary Rocky Ridge, AB
How much of this program on an annual funding basis is typically for purchase transactions of real property?
3:20 p.m.
Manager, Policy, Canada Small Business Financing Program, Department of Industry
On your first question, the three primary asset classes under the program are real property, equipment and leasehold improvements.
On the second question about the percentage, about 20% goes to real property, 50% goes to leasehold improvements and about 25% to 30% goes to equipment—that is, purchases. On a billion dollars, you'd have about $200 million-ish going to real property financing.
3:20 p.m.
Conservative
Pat Kelly Conservative Calgary Rocky Ridge, AB
Do you set out criteria separate from, say, that of the BDC—or other regular commercial lenders, for that matter—on mortgages for real property?
3:20 p.m.
Manager, Policy, Canada Small Business Financing Program, Department of Industry
If they're registering the real property under a program, they have to take first rank in security on that asset.
