Industry Committee on May 3rd, 2016

[Sylvain Laporte]

Thank you for your question, Mr. Fergus.

It is an excellent question and it reminds us of the extent to which some aspects of space exploration can be a source of inspiration.

If I understand the intent of your question correctly, you are talking about human exploration and not about investments in order to make more communication satellites as is being done in the North. You are asking me what we would do with more money. We have a long list of projects that we could consider, of course. You talked about the moon and Mars. So let me stick to that part of our universe.

NASA has made public its plans for lunar and Mars missions. The American agency has a lot of studies to do before it can go to Mars, for example. However, working in partnerships, scientists could make a lot of technological and medical discoveries when a space station is built on the moon. They could then use the research and discoveries made there to eventually develop the technology necessary to take humans to Mars, or at least into Mars orbit.

As for Canada's role in that, we have internationally recognized strengths that could make a contribution to missions of that kind. We have done a huge amount of research in robotics and vision systems, and medical research too. Canadian university researchers have made amazing strides in areas like neurology, oncology and human aging, thanks to experiments done in space. Who knows what simply unheard-of possibilities the moon could provide for partners working on medical discoveries that could be used on earth?

In terms of investments, Canadian industry is certainly interested in perfecting its technologies so that it can grow because of those possibilities. We also cannot overlook the human aspects of medical research and the possibilities for major investments

in outer space,

in deep space, as they say. We are expecting very productive discoveries that will greatly benefit humankind. If we had to choose an area for investment, rather than in all areas without exception, it would be to work with Canadian industry on technology. That would be an investment in the economy. However, investments in medicine in order to cure some of the problems affecting humanity would be also very attractive.

[The Chair, Liberal, Dan Ruimy]

You have 30 seconds.

[René Arseneault, Liberal, Madawaska—Restigouche, NB]

Mr. Chair, let the record show that I would like to express my thanks to my colleague for his generosity. I only have eight seconds left.

[Voices]

Oh, oh!

[The Chair, Liberal, Dan Ruimy]

Thank you very much, Mr. Arseneault.

[René Arseneault, Liberal, Madawaska—Restigouche, NB]

I will ask my questions in the second round.

[The Chair, Liberal, Dan Ruimy]

Mr. Lobb, you have five minutes.

[Ben Lobb, Conservative, Huron—Bruce, ON]

Thanks.

BDC, thank you for coming.

What rates are you charging borrowers at this time? I'm sure there's a variation on rates and a variety of rates, but could you tell us the range and the average rate for this period?

[Paul Buron]

The rates always vary depending on the risk we are taking. For every transaction we assess the risk not only of the transaction but the client. We put that together and we define the risk, and based on market data we define what premium we should be charging. It depends on the risk, but as a base I can say that the average we charge the client is prime plus 2%, so that gives you an idea of where we are today.

[Ben Lobb, Conservative, Huron—Bruce, ON]

You guys are doing prime plus 2%?

[Paul Buron]

The prime rate plus 2% would be the average we are charging customers.

[Ben Lobb, Conservative, Huron—Bruce, ON]

On a regular basis, would you be communicating strategically with the chartered banks and the credit unions and so forth to make sure that BDC is maintaining its place in the marketplace and is not overstepping on too many occasions what the credit unions and the banks are trying to accomplish?

[Michael Denham]

Yes, at a working level we have those discussions, and then one thing that I made a point of doing since I started was to sit down with each of the chartered bank CEOs and the credit unions and have the discussion around our role. I wanted to make sure that they see us and are acting with us in a complementary way.

[Ben Lobb, Conservative, Huron—Bruce, ON]

If you were going to rate it, with one being not so great and 10 being great, with the current thoughts and feelings of the banks and the credit unions, where would BDC lie right now, as far as maintaining their space in the marketplace is concerned?

[Michael Denham]

From the perspective of the banks and credit unions, they'd probably give us an excellent number, but from what I heard, probably 8.5 or 9. We're doing 2,200 transactions per year partnered with financial institutions and others, many of them pari-passu loans and asymmetric loans. They view us as a real partner when they have issues around single-name exposure and what have you. We're partners with them to advance the interests of their clients.

Again, just based on our role, we're not doing operating lines or lines of credit. By definition, every client with whom we're active has a bank or credit union. In every client situation we're working side by side with another financial institution.

[Ben Lobb, Conservative, Huron—Bruce, ON]

I have a couple of other questions, if time permits.

In your opening statements you may have talked about this a little bit, but could you explain the idea of working with EDC as an SME grows and wants to expand their business and insure their receivables and do all the stuff that they do? That would be one question.

Another one, which I've talked to other businesses about, concerns lines of credit. In some businesses, when you quote for a job you have to get a bond to basically back up that you're going to be able to do the work and not go broke or whatever. For some businesses, if they're in the small range, it's very difficult, because they have to get a line of credit, and sometimes it's just not doable. You can do the work and you can complete the work, but you just can't meet that covenant, either a line of credit or being able to get a bond for $300,000 or $400,000 or $500,000.

Is that something that you do? Is it something that you would look into doing to try to help those small and medium-sized businesses grow?

[Michael Denham]

I'll answer the first, and Jérôme will handle the second.

On the first one, concerning the EDC, I think it's important for Canada to have more SMEs exporting, and 18% of our clients currently export. We work very closely with the EDC. We have the reach—we're in the field, we have 2,000 employees, 45,000 clients—and we're trying to work with them to make them aware of opportunities to export.

To make sure they are competitive so that they can succeed while exporting, in terms of export readiness, we have them pinpoint specific market opportunities to go outside of Canada. Then, as they work towards that goal, there's a natural hand-off to EDC for the insurance, the lines of credit, etc. We are trying to work hand in glove with EDC to help clients from step one right through to being a successful exporter. We work very closely with them at a senior level and also location by location.

Do you want to talk about the bonding issue?

[Jérôme Nycz]

Yes. Thank you.

You are right. It is harder for smaller companies to qualify for a project and to be able to perform according to specs. There are few providers in Canada of bonding for SMEs. One of the ways we've provided some support for these companies is to provide working capital with flexible repayment terms, so that the repayment is matched with the payment on that project. You can have a holiday on repayment of two, three, four years on the capital, depending on the size of the project, and then companies are able to do cash flow sweeps and repay us, if they get their payment in advance. We address that need via the growth and transition team, and we're pretty active in helping these companies be able to qualify and then able to deliver on those projects.

I know EDC is quite active on the international front. They help SMEs bid on international projects in that regard.

[The Chair, Liberal, Dan Ruimy]

Thank you very much.

Mr. Jowhari, you have five minutes.

[Majid Jowhari, Liberal, Richmond Hill, ON]

Thank you, Mr. Chair.

Thank you to both groups for a good presentation.

I'm going to pick up where we just left off. The first question is going to go to BDC.

It's great that you focus on innovation, productivity, and exports, specifically with the SMEs. As they grow and as they scale up, the focus becomes one on exports, especially in the emerging markets outside of Canada.

Can you expand on saying at what point the hand-off happens between BDC, EDC, and the financial institution? I see those three as a three-legged stool for SMEs as they grow, and it's a natural transition, but right now I'm not sure how clear that transition is for many small businesses.

Also, what do they have to do to ease that transition?

[Michael Denham]

I agree with you.

As a bit of a way to bring this to life, we had a meeting with our board last week, and we had five clients come to speak to us before dinner. One of our clients, a company called the Konrad Group, gave advice to the board. It said that when BDC sits in with a client initially, and they map out the financial plan, it should be in a four-way discussion between the client, BDC, EDC, and the chartered bank. For clients serious about growing, you need those three organizations to work together. That was great advice from our client.

We're going to make sure we do that for those companies that are getting organized to seize export opportunities. It's complicated for SMEs. Each of those entities needs to play a role, and we have to make it easier for SMEs to work with those three institutions together.

[Majid Jowhari, Liberal, Richmond Hill, ON]

Specifically on the financing side, some of the financing is going to be in place as they grow, and they need to move into and leverage some of the financing and insurances available through EDC. What are the thresholds? At what point is the decision made to bring in EDC? At what point is the decision made to bring the financial institution into the process?

[Jérôme Nycz]

Thank you.

I can add some colour to the comment.

It's not a threshold as much as it's the purpose of the financing. If the purpose of the financing is to buy a competitor in another jurisdiction, then it could be either through use of equity or debt financing. If the purpose is to have working capital, that's another good example of working with EDC, where they can insure the export and we can finance the working capital. It's a collaboration of where the skill set is best addressed.

Growing companies in Canada, as they expand abroad, is difficult in terms of knowledge of the market. BDC is very hands-on in helping to do a diagnostic on export readiness. We can provide working capital so companies can buy advice, and term lending so they can scale up in terms of machinery and expand their facilities. As they generate sales, EDC can come in and present the financing.

In some cases, we've been able to work with—

[Majid Jowhari, Liberal, Richmond Hill, ON]

Sorry, I have about a minute and a half. I'm watching, because the chair is going to cut me off.

I have one more question. It's not as strategic. Its more local.

I represent Richmond Hill. Last year, the BDC office in Richmond Hill was closed. It moved to a neighbouring riding. I'd like to understand the criteria used when making a decision to move a BDC office from one location to another location.

[Paul Buron]

We have a mapping of where the entrepreneurs are, and it's across the country. We tend to move our business centres where there is a concentration of entrepreneurs. It's as simple as that.