Finance Committee on May 17th, 2021

[Steve Watton]

Just on the number and value of loans that this program has been facilitating over the last five years, we do in the order of about a billion dollars of financing each year, and that's for about 5,500 to 6,500 small businesses. It depends on the year. Some years it's a little bit higher; some years it's a little bit lower. The last couple of years it has been $1.3 billion for around 6,000 small businesses, so that's our benchmark.

As a result of these changes, we're expecting about $560 million in additional financing, and that would help an additional 2,900 small businesses, approximately, so it would be an increase of about 40% to 43% in lending.

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

Okay. When you look at social enterprise not-for-profits, how many additional businesses, roughly, would you see being eligible for the program?

[Steve Watton]

The not-for-profit charitable social enterprises would be a small component of that additional $560 million. It's in the order of $40 million to $50 million of additional financing expected each year, and that would equate to about 200 to 250 business enterprises.

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

Okay. Out of how many is that nationwide?

[Steve Watton]

How many...?

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

You had stricter criteria before. Now we're broadening the criteria. Finance, I'm sure, would have looked at the number of businesses that were social enterprise, not-for-profit charities or other types.

[Steve Watton]

I don't have the exact number, but there would be in the general order of a million small businesses in Canada. The not-for-profit charitable social enterprises are in and around the 6% figure, so that's probably around 60,000-ish. What we're thinking is that of those not-for-profit charitable social enterprises, their take-up rate for looking for financing would be lower than what a for-profit business would be. That's why the number is a little lower.

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

Thank you. That's very helpful, in terms of the number that are targeted. I've no doubt, and I'm sure all my colleagues on this call would agree, that a wide range of charitable organizations and social enterprises have really been hit hard by the pandemic, and so opening the criteria is definitely to the advantage of those. They're community businesses. There's not one owner taking all the money home, but they can make a huge difference in the economic life of a community.

[Steve Watton]

Exactly. I would just like to add to that. It would be a not-for-profit charitable enterprise. They would still have to have a business. It wouldn't just be a charitable organization or an association, per se. It would still have to be a business.

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

Yes, absolutely.

My example, of course, is my background running the social enterprise that was providing equipment and supports to deaf, deafened and hard-of-hearing people across British Columbia. It is an operating social enterprise, but the access to capital and loans was problematic, so I know for a fact this is a welcome initiative.

I will say one thing. The criteria has not changed with the federal government picking up 85% of any loan losses. What percentage of the loan losses go through Canada's major banks?

[Steve Watton]

Fifteen per cent.

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

Sorry, no, I mean of the $36 million or $32 million a year in loan losses, how many of those loans are with Canada's six big major banks?

[Steve Watton]

Oh, what percentage would that be? I would imagine about 65% to 70% of them would go through the major chartered banks; probably about 20% to the Fédération des caisses populaires, and maybe the rest through the various credit unions across the country and the smaller chartered banks.

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

Thank you very much.

There's $750 billion given in liquidity supports to Canada's big banks, and we're still underwriting their loan losses on this program. I find it perplexing, to say the least, that we're always showering on Canada's big banks money and supports when, after that $750-billion liquidity support package, they should be carrying a bigger proportion of these loan losses.

[The Chair, Liberal, Wayne Easter]

I'm surprised at that statement, Peter, but that's what I expected.

Mr. Fast, you're on.

[Ed Fast, Conservative, Abbotsford, BC]

Well, maybe some of us aren't surprised.

I want to carry on the same line of questioning. Getting back to the whole notion of this being a shared risk program, as Mr. Kelly mentioned, did I hear correctly that the shared risk is 85:15, and has been that way for many years?

[Frances McRae]

The shared risk is 85%. Essentially what a bank does is once they decide they're going to offer the loan, if they decide to use the program they register the loan with the program. Once they've done that, should there be losses on the loan, the bank needs to cover 85% of those losses, and the government covers the 15%.

[Ed Fast, Conservative, Abbotsford, BC]

Okay, so 85% is covered by the bank.

I thought it was the other way around.

[Frances McRae]

Oh, I'm sorry.

Go ahead, Steve.

[Steve Watton]

Yes, 85% is covered by the government, after the financial institutions realize on the securities and the assets that were financed and any personal guarantees. They submit their net losses to us, and then—

[Ed Fast, Conservative, Abbotsford, BC]

That I understand.

[Steve Watton]

—we cover 85% of the eligible loss.

[Ed Fast, Conservative, Abbotsford, BC]

My question was this: How long has that 85% to 15% ratio been in effect, ever since the program came into existence?

[Steve Watton]

Yes.

The program came into existence in 1999 and replaced the small business financing program. It's certainly since 1999, and before that as well.

[Ed Fast, Conservative, Abbotsford, BC]

Okay. What is the default rate, pre-COVID and during COVID?