Industry Committee on April 26th, 2022

[Pierre Cléroux]

We are helping SMEs in two ways.

First, we are helping them to have a strategic plan to invest in digital technology. Also, we have a loan with a zero interest rate to help them to invest in the technology they need to do it. These are the two ways we are helping SMEs.

We're not the only ones providing support or advice for their strategic planning, but we can do it, and we are also providing financing.

[Nathaniel Erskine-Smith, Liberal, Beaches—East York, ON]

Thank you very much.

BDC's mandate is to help businesses, specifically entrepreneurship, with some special reference to small and medium-sized enterprises. Could you give us a sense of the percentage of floating-rate loans that BDC has with small and medium-sized businesses? Furthermore, with that number in mind, are you concerned about the impact of rising rates on SMEs and the negative impact on growth?

[Pierre Cléroux]

That's a good question. I don't have the answer on the percentage of floating rates. We can provide you with that later.

We're not too concerned about the impact of the interest rate increase, because in our research we often ask questions about the ability to repay or the ability to take on more debt, and the percentage of companies saying they have the ability to take on more debt has really increased over the last 12 months. It was a difficult situation in 2020, but 2021 was much better for most businesses. Their financial situation has really improved.

In some sectors it's more difficult. Accommodation and food services is a sector that is still struggling, but in most sectors of the economy the financial situation has really improved.

The fact that interest rates are increasing obviously is not good news when you have a loan with a floating rate, but at the same time we're not too concerned—

[Nathaniel Erskine-Smith, Liberal, Beaches—East York, ON]

For the companies that do have loans, it obviously impacts the amount they have to spend to service the loans. If they have to spend more to service their loans, they have less to invest in their businesses, which seems to me might impact growth, but you aren't concerned about it at the moment.

[Pierre Cléroux]

I'm not, according to the numbers we have. As I said, the financial situation of businesses has really improved over the last 12 months.

[Nathaniel Erskine-Smith, Liberal, Beaches—East York, ON]

Thank you very much.

[The Chair, Liberal, Joël Lightbound]

Thank you.

Mr. Lemire, you have the floor for six minutes.

[Sébastien Lemire, Bloc, Abitibi—Témiscamingue, QC]

Thank you, Mr. Chair.

Good afternoon, Mr. Cléroux. Thank you very much for being here today.

If I may, I will say send greetings through you to the president and CEO of the BDC, whom I recently had the chance to meet. Our discussion took place over Zoom, unfortunately, but it was a very constructive discussion.

In your opening remarks, you mentioned the benefits of decentralizing decision-making, particularly for a strategic development fund like yours. I would like you to tell us more about that.

[Pierre Cléroux]

I'm not sure I understood your question. Are you talking about the decision to—

[Sébastien Lemire, Bloc, Abitibi—Témiscamingue, QC]

Actually, I'm talking about the capacity to adapt to the needs of each region, for example. You have regional offices that, to put it simply, enjoy autonomy. Obviously, there are mandate letters to follow and national targets to achieve, but there is still a degree of regional autonomy.

What is the advantage of this decentralization of decision-making authority?

[Pierre Cléroux]

As you say, decisions about loans are made in each of the regions of Canada, following a decision-making structure that applies throughout the bank. That enables us to react very quickly to what is happening in each region of Canada. As I said in my remarks, we also react when the economy weakens. The economy may weaken in a particular region, for a particular reason. For example, fluctuation in the price of primary materials or raw materials might have an impact in only one region of Canada. Our decision-making model enables us to react quickly in order to meet the needs of each region or each sector.

[Sébastien Lemire, Bloc, Abitibi—Témiscamingue, QC]

A year or two ago, at the beginning of the pandemic, I questioned Minister Joly, because I thought it was important for there to be advisory services when money was being disbursed quickly. You talked about that earlier. I very specifically questioned the SADC network, but also the BDC.

As well, I would like to point out that in my opinion, your work has been a success. At a meeting of the Standing Committee on Public Accounts that I recently took part in, the Auditor General voiced criticism regarding the disparity among the regions in the use of funds. In my opinion, the opportunity for each region to have an interpretation to fit its needs is a strength.

In short, does the BDC also believe, in policy terms, that each region benefits from this strength in order to adapt to its own geographic needs?

[Pierre Cléroux]

In fact, our approach is really to help businesses in Canada that need it the most. Given that economies in Canada vary and are pretty diversified, our approach enables us to react quickly.

For example, in 2014, when the price of oil fell significantly, we set up a program specifically for Canadian businesses in that sector. It enabled us to react very quickly to a very specific event. Even though Canada as a whole was doing relatively well, there were sectors and regions that were not doing as well, because of the significant drop in the price of oil.

[Sébastien Lemire, Bloc, Abitibi—Témiscamingue, QC]

I have told Ms. Hudon about a concern I had regarding the role of the BDC in respect of a situation that is being felt particularly in the agriculture sector, but also in other sectors such as forestry. From what I hear, from a large number of businesses in the Abitibi-Témiscamingue region that are applying for financing, my impression is that when applications relate to secondary or tertiary processing, it's harder, even though they are essential levers of economic development that have an impact on the entire ecosystem of businesses in the region.

I'm thinking, for example, of the creation of a slaughterhouse in Abitibi-Témiscamingue, an essential service that we don't have in the area, apart from a community slaughterhouse. A project was started, but getting financing seems to be a challenge, particularly from the federal government and the BDC.

In a context in which we are looking at the productivity of SMEs and the shortage of labour, do you think the programs should be adapted to help SMEs that focus on secondary and tertiary processing or on automating their processes?

[Pierre Cléroux]

We are not involved in the agricultural sector, but we are involved in secondary and tertiary processing, since that relates more to the manufacturing sector. We can consider meat processing, for example, a sector where we have a lot of clients. I don't know the project you are talking about, specifically, but overall, we are involved in processing.

[Sébastien Lemire, Bloc, Abitibi—Témiscamingue, QC]

You can consider my question to be a cry for help and an invitation to think about how the BDC's mandate could be expanded to include agriculture, which, my goodness, could certainly use it where I'm from.

The Bloc Québécois has proposed regionalizing regional development programs, in particular by transferring money intended for the regions to funds to support territorial innovation. I think programs designed by and for the regions are fundamental.

Would you be open to the idea of creating funds that would be made available to the regions for which there would be local collaboration? In a word, the BDC is certainly involved in this. It would mean having decision-making loci where priorities would be set.

For instance, a region like Abitibi-Témiscamingue could use these funds to finance its slaughterhouse project, which is essential to the development of the region.

[Pierre Cléroux]

At the BDC, we don't provide grants. We provide loans, and the cost is based on the risk associated with each of the organizations and each of the projects we finance. So I think that question is more for the Department of Industry, which also has grant programs. In our case, we actually finance businesses, and when they receive a loan, it is actually for a project that is economically viable.

With that said, we are involved in all regions of Canada. We work in partnership with various organizations in each of the regions. However, you do have to remember that we don't offer grants, just loans for the private sector.

[Sébastien Lemire, Bloc, Abitibi—Témiscamingue, QC]

Thank you, Mr. Cléroux.

[The Chair, Liberal, Joël Lightbound]

Thank you.

Mr. Masse has the floor for six minutes

[Brian Masse, NDP, Windsor West, ON]

Thank you, Mr. Chair, and thank you, Mr. Cléroux, for being here.

One of the things I've always been curious about is why the BDC doesn't have a credit card. Maybe you can provide some information on that. The transaction fees and credit costs that small and medium-sized businesses have to carry, and the interest rates, would make a robber baron blush. This is one of the things that could really help small and medium-sized businesses, because there's an absence of competition there.

I'd like to hear why the BDC does not at least venture into this type of an operation with customers of good standing.

[Pierre Cléroux]

Actually, it was studied a long time ago. The result of our analysis was that it was not a product that would be very popular with our clients. The reason was probably the fact that every single client of BDC is also a client of a bank, because we don't offer operations; we offer loans and advice. Every client of BDC is actually a client of a financial institution, often a major bank or credit union.

We did look at this option in the past. I don't have the details of the analysis, which was done a long time ago, but we decided at that time that it was not worth pursuing. The product was not very popular with our clientele.

[Brian Masse, NDP, Windsor West, ON]

Well, I can only imagine the lobbying of the bank industry about that. I would ask that it perhaps be revisited. I don't know of a store that I can go into now, especially a small or medium-sized business, that feels comfortable with the rate they have to pay for transaction fees and also the amount they have to cover.

During the start of the pandemic, I worked really hard to push for lower interest rates, and some were better than others, but borrowing rates that have been historically low are back up again. Even though they're only going up a little bit right now, they're definitely out of line and they're actually a windfall.

Do you have any idea of when that study took place? Have you ever considered a line of credit as well? Those are products that.... You know, the BDC historically has been known as the bank of last resort. It would seem to me that those two items are are highly popular among small and medium-sized businesses that also do not enjoy competition among the banks right now. It's almost similar to the oil and gas industry, with very few margin differences among them.

[Pierre Cléroux]

I don't have the details of the analysis, but we can provide more detail about it in writing.

[Brian Masse, NDP, Windsor West, ON]

Okay.

Would there be consideration of how we would go about even getting to the point of asking BDC customers that you've been doing business with whether or not they would be surveyed? Has there been anything related to that? Are you familiar with, and has the BDC been following, some of the consumer rights organizations and small business organizations with regard to their advocacy about credit card rates and interest fees? Is it part of your normal operations to listen to those organizations and consult with them?

I'm glad you've toured the country to hear from entrepreneurs, but do you also listen to the third party advocates from associations like small independent business associations?

[Pierre Cléroux]

Yes, we definitely meet regularly with the Chamber of Commerce and CFIB. As I said, I'm not fully aware of this research that was done, so we'll make sure that we provide some more detail in writing.