Industry Committee on Nov. 25th, 2009

[Chris Warkentin, Conservative, Peace River, AB]

Thank you, Mr. Chair.

Thank you, gentlemen, for joining us this afternoon.

I just want to follow up on a number of different comments that were made. We're trying to, I guess, assess the availability of capital for small businesses. We really appreciate your testimony thus far this afternoon.

Mr. Campbell, in your testimony, you referenced the fact that what has made this downturn somewhat different from other downturns is the general financial health of small business. I'm wondering if you could expand on that. Actually, my question originated before you said that.

When you talk about the general health of a business, are you talking about the general cash reserves vis-à-vis their debt ratio? What exactly goes into your assessment of the general health of a company? Maybe you can expand on that. I don't know if you gentlemen have comments with regard to that, but I'm very interested in that point.

[Terry Campbell]

I'm going to ask my colleague, Marion Wrobel, to address that, if you don't mind.

[Marion Wrobel]

Generally, when we're thinking in those terms, we're looking at the balance sheets of firms. We find that the debt-to-equity ratios are much healthier than they have been in the past. That's true of small businesses as well as of large businesses, generally.

Also, when we look at the data we have on lending to smaller businesses, we find that over the last few years what they've been doing is making sure they have access to credit, but they haven't really been drawing down on it. They've been drawing down on it in smaller and smaller amounts. They want to make sure it's there, but their utilization rate has been falling. The authorizations are there. We're lending to them. But the outstandings have not been growing proportionately. They are, in fact, using their credit very prudently and are using it only when they actually need it.

[Chris Warkentin, Conservative, Peace River, AB]

Thank you. That's interesting. I guess I just assess the general debt load of the average Canadian, and unfortunately we've seen something of a different paradigm when it comes to the personal finances of Canadians. I appreciate your perspective on that.

In terms of those lines of credit, I would reference some of the things my constituents are telling me. They're concerned about the banks' activities. Some banks and some institutions were pulling back on those lines of credit if in fact the borrowers were not utilizing them. Maybe six months ago there was a real effort there. Do you have a sense as to where that stands today? Are banks continuing to go after these unused lines of credit? As you said, many companies were trying to ensure that they would have that leeway if they fell into a situation of needing it. On the flip side, they felt that the banks were requiring that there be a fee now levied against those businesses. What's your assessment of that? Have you done any research on that?

[Marion Wrobel]

If I recall correctly, there was one bank that had that policy, which they very quickly reversed.

[Chris Warkentin, Conservative, Peace River, AB]

You're not seeing a trend in that.

[Marion Wrobel]

No.

[Chris Warkentin, Conservative, Peace River, AB]

That's great news.

I also appreciate the testimony of the gentleman from the BDC. You talk about the fact that BDC has grown in terms of its lending because the traditional lenders have not been stepping up to the plate and lending in the ways they had been. Often constituents will come to my office and ask what we are doing for small business to help them out. I often direct them to you. As a matter of fact, I share a hallway with the BDC in Grande Prairie, so it's not so far. Oftentimes, after going to BDC, they'll come to my office. We have a good working relationship.

[Jean-René Halde]

It is hopefully with a smile.

[Chris Warkentin, Conservative, Peace River, AB]

Well....

[Voices]

Oh, oh!

[Chris Warkentin, Conservative, Peace River, AB]

What I am often asked is what capacity you have that is different from the conventional lender. What makes you different from the conventional lender? What makes you different from the average bank? How much leeway do you have in comparison? Obviously you don't want to undercut the traditional banks. Maybe you could just explain that to our committee, because I think, oftentimes, this question bubbles around.

[Jean-René Halde]

Our approach is to be complementary to the financial institutions. Our role is not to take a deal away from the financial institution. That would not make sense. Through BCAP, which was referred to in both presentations, the concept is that if financial institutions really aren't prepared to do something, because they feel the risk is maybe a bit too high, they will refer them to us. You have to understand that there are 6,600 branches of the chartered banks in Canada, unless I'm mistaken. We have 100 branches. For us to lend more, we need referrals from the banks, obviously, and we've been getting those, thankfully.

I think a lot of entrepreneurs that would have been turned down because they were not considered creditworthy enough we would, in some cases, still take. Having said that, we also will only lend to someone who is creditworthy. We just might draw the line as to what's creditworthy in a slightly different spot.

[The Chair, Conservative, Michael Chong]

Thank you very much, Mr. Warkentin.

Mr. Marston.

[Wayne Marston, NDP, Hamilton East—Stoney Creek, ON]

Hamilton, as you know, was a centre of manufacturing, and a lot of that hinged on the American dollar. At about this time last year, I had two companies tell me that if we go above the 85-cent dollar, we're in severe trouble. Number one, what impact has that had across the banking area in terms of defaults?

The BDC testimony talked about the fact that as people started to get into trouble, you recognized that and you gave them breaks by six months of interest only payments. Is that standard banking practice as well?

The very first testimony here talked about investing in technologies. I'd like to hear people talk about the future of green technologies and how you see that breaking out in our country.

[Terry Campbell]

I think the first set of questions was addressed to us. I'm going to ask my colleague, Mr. Wrobel, to talk about the dollar issue.

[Marion Wrobel]

The dollar issue manifests itself very much with respect to customers that are manufacturers and exporters. Clearly, that is an area that is under a great deal of stress right now. As we do in virtually every other sector, we work with our customers on a case-by-case basis. We try to assess their long-term viability. We work with our customers and we do certain things that we would not do over a normal course of events. It depends very much on the individual case. If a business comes to a bank and says they need some help for a short period of time, if they have a good business plan and they can demonstrate how they can get through this particular cycle, the money will be there.

Because we have long-term relationships, we recognize that there are ups and downs. If over the longer period of time we can make money by lending to these customers, we will. So we will make certain adjustments to lending practices, but we will not change those lending practices.

[Terry Campbell]

As an additional point, the dollar by itself, the level of the dollar, is a factor, but I think you need to look beyond that and look at the strength of the client's customer base, if they have a viable plan, and what their cashload is. The dollar will have an impact, but it's rarely the single factor that pushes somebody over the edge or not.

[Thomas Hayes]

I just wanted to comment on the green technologies. Clean technology is probably the fastest-growing space within the venture capital industry, probably in North America--environmental technologies and so on. We consider GrowthWorks to be one of the leading investors in that sector. It's very much a growing part of what we do, and we're adding to our complement of investment managers who have experience in that sector.

I also wanted to say to my friend here that I have a couple of companies in my portfolio that would love that principal deferment, so we'll talk.

[Jean-René Halde]

Can I just piggyback on this?

On the dollar, you have to realize that it was not that long ago when we had the dollar in the 60-cent and 70-cent range. Many manufacturers at the time, I think, under-invested in the capital that they should have invested in. There's no reason we should not be competitive at par. The problem has been the rate of adjustment for many of them. Some people saw the train coming, invested properly, and are doing okay. Others did not see the train coming and are really struggling with the speed of the dollar's increase. The advice we tell our clients is to assume the dollar is at par and you should be competitive. That way at least you'll be in a good position.

I think it speaks to more than just the dollar. It speaks to the mindset of how to be good in a global environment. That doesn't mean you have to be across the world, but it means understanding in your own industry what's happening, what's happening to your clients, what's happening to your clients' clients, and figuring out a way to expand just outside of your normal comfort zone. I think that's how Canadian companies will do better.

[Richard Rémillard]

If I could just add a comment to Mr. Marston's question about clean tech and build on what Tom has said, if you look at public policy in the United States and in other jurisdictions, including China and the European Union—but let's focus on the U.S.—the U.S. under the Obama administration is committing multi-billions of resources to clean-tech ventures of one sort or another. The last number I saw was $85 billion. We're not quite there yet, to say the least.

I know of two funds that in the past two years have tried to raise dedicated clean-tech funds from investors, and they gave up; they just stopped, because they couldn't raise the money. There's one more out there right now that launched back in September--has not been public--and they're trying to raise $200 million. We'll see if they can do it.

[The Chair, Conservative, Michael Chong]

Thank you very much.

Mr. Sweet.

[David Sweet, Conservative, Ancaster—Dundas—Flamborough—Westdale, ON]

Thank you, Mr. Chairman.

I thank the witnesses as well.

I wasn't going to ask a question, but just now we were talking about clean technology. You're talking about private investors. We have ecoENERGY and ecoTrust. We've also invested money in the community adjustment fund FedDev for southern Ontario investments. There's a quite a bit going on federally. But because we're in a federation we have lots of provincial and territorial participation. There's a lot going on at the provincial level as well, not the least of which was the huge program Ontario announced a little while ago on solar investment for a 20-year guarantee.

You're saying that as far as private funds, we don't have the attraction. Is there any reason for that? Do you think the industry has to mature more before investors are going to get involved?

[Richard Rémillard]

If you look at our recent numbers going back a year and a half or so, you'll see a secular upswing in the proportion of venture capital investments into clean technology. In the last quarter, that was 26% to 28% of all investments. That's the good news. The bad news is that in actual dollar terms that number is going down.

The proof will be in the pudding. The proof for me is how successful funds are in raising capital for their clean technology ventures, and the jury is out.

[David Sweet, Conservative, Ancaster—Dundas—Flamborough—Westdale, ON]

I'll go back to that in a second.

Mr. Halde, you mentioned that your high-risk loans had increased by 60% over the last year. Give me an idea of what that number is. Previously, what percentage of your portfolio would you allow to be higher risk? Give us an idea of what the total is today.