Finance Committee on May 17th, 2021

[Frances McRae, Assistant Deputy Minister, Small Business and Marketplace Services, Department of Industry]

Thank you very much.

We're pleased to be able to be speaking to the committee today about Canada small business financing program.

The Canada small business financing program is a statutory program. It helps small businesses access financing. Under the program, the government shares the risk with financial institutions in order to encourage lending. This would otherwise be unavailable to small businesses or would only be made available under key favourable conditions. It was established in 1999 and it replaced the small business loans program.

The amendments being proposed are designed to enhance the availability of financing to help small businesses by expanding the loan class eligibility to include lending for intangibles, including intellectual property, as well as start-up assets and expenses. They are also designed to increase the maximum loan amounts from $350,000 to $500,000 and to extend the loan coverage period from 10 to 15 years for equipment and leasehold improvements. They are also intended to expand borrower eligibility to include non-profit and charitable social enterprises to include the classes of businesses that are eligible to apply. Finally, they are designed to introduce a new line of credit product that will help with liquidity and to cover short-term working capital needs of businesses.

It is important to note that this program is available across the country. It is delivered, as I mentioned, with financial institutions. The adjudication of the loans rests with financial institutions and it's their funds that are put forward in the loan. The government then pays out losses against the loans in the amount of 85%.

I am happy to take questions.

[The Chair, Liberal, Wayne Easter]

Thank you.

We'll start with you, Mr. Kelly.

[Pat Kelly, Conservative, Calgary Rocky Ridge, AB]

Thanks. I have a couple of questions.

First, I would like a quick explanation of how the budget allotment for this program works. This is a shared risk program, so the dollar figure in the budget does not represent the portfolio of loans to be made.

Is this the loss provision? What exactly is the budgeted amount expended on?

[Frances McRae]

I'm going to turn to my colleague, Steve Watton, who's the manager of the program. He'll explain the specifics in terms of the budget amount and the amount of funds we believe have been estimated as going back into the economy, in terms of private sector lending as a result of these amendments.

[Steve Watton, Manager, Policy, Canada Small Business Financing Program, Department of Industry]

I am the policy manager with the small business financing program.

Basically, as a result of these proposals, we're expecting about $560 million of additional financing to small businesses across the country.

The budget allocation is basically $36 million over the first five years. Then, as things stabilize—because the loan portfolio can be upwards of 10 to 15 years—it'll be $32 million a year, ongoing. That $32 million is associated with, as Frances pointed out, our share of what the net defaulted losses would be to the program.

When a loan goes into default, we cover 85% of the eligible losses. The financial institution covers 15% of those eligible losses.

[Pat Kelly, Conservative, Calgary Rocky Ridge, AB]

When the minister says they're putting half a billion dollars into the small business credit program, what it really means is they're going to put $36 million into the loan loss provisions of sharing risk with the banks that will actually lend the money.

[Steve Watton]

This program is a loan guarantee program. It facilitates access to financing. It's the financial institutions' money.

[Pat Kelly, Conservative, Calgary Rocky Ridge, AB]

Okay, I see the hands piling up, so I don't want to take too long because I do have another question or two here.

If short-term liquidity is a new criteria for this program, will a business that could not prove the reduction in revenue year over year and was thus excluded from the wage subsidy or the rent subsidy but has nevertheless suffered catastrophically as a result of COVID be eligible? For example, would a brand new business, a new restaurant whose grand opening date was March 15, 2020, be eligible for a loan under this program?

[Steve Watton]

It would certainly be eligible for a loan under this program, yes.

[Pat Kelly, Conservative, Calgary Rocky Ridge, AB]

What other criteria would it face?

[Steve Watton]

Basically the financial institutions would do their due diligence about the feasibility of the business and its ability to repay the loan. Basically the businesses have to have annual revenues of less than $10 million, but there are not more conditions as a result of the line of credit facility versus the term loan side of the program.

[Pat Kelly, Conservative, Calgary Rocky Ridge, AB]

Okay, so not demonstrating a loss is not a deal-breaker, but they would still be subject to all the regular criteria that a lender would have, which would normally include profitability and revenue, which these businesses would not have.

[Steve Watton]

Exactly. That's correct.

[Pat Kelly, Conservative, Calgary Rocky Ridge, AB]

So this isn't really going to help anybody who can't demonstrate those things. This isn't a relief measure or something that would likely help. It's not a COVID relief measure.

[Frances McRae]

Right. Sorry, if I could just add, it's not a COVID relief measure. It is a program that has been in place, as I mentioned earlier, for a very long time, and what we are doing now is modernizing the program.

I would note though, in terms of start-ups and businesses in their first year of operation—and I'll ask Steve Watton to confirm this—my understanding is that between 2014 and 2019, which is the period of the last comprehensive review, which is public for this program, that approximately 60% of the loans were given to start-ups and to businesses in their first year of operation.

Is that correct, Steve?

[Steve Watton]

That's correct. Actually, it's between 60% and 65%, yes, depending on the year, but that's right.

[Pat Kelly, Conservative, Calgary Rocky Ridge, AB]

Thank you.

[The Chair, Liberal, Wayne Easter]

We'll go to Gabriel Ste-Marie next.

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

Thank you.

I just wanted to let you know that in the French version of the Q & A section of the big reference document on the bill is actually in English. Would it be possible to have this corrected?

Thank you very much.

[Frances McRae]

Thank you.

We apologize for this error. We will ask our colleagues to correct this.

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

Thank you very much.

[The Chair, Liberal, Wayne Easter]

Mr. Julian, please go ahead.

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

Thanks so much to our panellists, our public servants, for being here. I certainly hope you continue to stay safe and healthy during this pandemic. We appreciate your contributions to our country during this time.

I'd like to zero in on the number of businesses that generally have accessed this financing over the last five years and what the difference would be in expanding the eligibility criteria. How many additional businesses would potentially be able to access this? We're certainly talking about charitable organizations, social enterprises and community organizations. I would be interested in knowing those figures, if you have them.

[Steve Watton]

I could take that, Frances.

[Frances McRae]

Go ahead, Steve.