Mr. Speaker, I want to add my support to everyone in Montreal today for the walk for unity. Canadians have come from all parts of Canada and I truly wish the best for everyone in Montreal especially today. This is truly a reflection of our great Canadian spirit and our great Canadian family.
I am pleased to speak on Bill C-99, an act to amend the Small Business Loans Act. For almost 35 years now, the Small Business Loans Act program has provided a valuable means of assisting Canadian small businesses to obtain the financing they need for capital, improvements and expansion.
The government is firmly committed to maintaining the basic nature of this successful program. This act is truly important for the riding of Lambton-Middlesex. I represent a rural riding with the largest urban centre being Strathroy with a population of about 11,000. My riding depends on the small business for economic growth and success. Businesses vary from the manufacturing of clothing and footwear to food processing and auto parts, to name a few.
The Small Business Loans Act encourages financing for small businesses which typically have difficulty in securing fixed asset loans financing for the establishment, expansion and/or modernization.
Under the SBLA, the federal government guarantees loans up to $250,000 which are made to small businesses by private sector financial institutions. New and existing businesses which are not farms or religious or charitable enterprises are eligible for Small Business Loans Act loans as long as their annual gross revenues do not exceed $5 million annually. It is safe to say that the SBLA has been to some degree responsible for the dramatic success of the small business sector in helping keep the Canadian economy vibrant.
Job creation is one of the most important economic contributions made by the small business sector. Since the late 1970s, smaller firms have been the key contributors to net job creation. Between 1979 and 1989 alone, businesses with fewer than 100 employees created over 2.3 million net new jobs in the Canadian economy, 87 per cent of all growth in private sector employment during that period. The self-employed added a further 400,000 new jobs to this total.
The role that the SBLA plays in nurturing small businesses, particularly start-up businesses, is significant. The objective of the act is to assist in the establishment of small businesses and the stats indicate that this objective is being met. From 1990 to 1994, 40 per cent of SBLA loans were made to start-up companies, which together with other very young businesses, those three years old or less, have been obtaining about 50 per cent of all SBLA loans.
The SBLA is meeting its goals and objectives in other ways as well. As is intended, the average size of loans made is modest. From 1989 to 1993, the average size SBLA loan was $38,000 and 38 per cent of the loans were $20,000 or less, 63 per cent were $40,000 or less. In 1994 the average loan size increased to $58,000, mainly because of an increase in the permissible maximum loan limit.
While these stats confirm that the program is serving start-ups in young business and providing loans of smaller amounts, there is other evidence to show that the SBLA is promoting the establishment and expansion of businesses in other ways. In a review carried out by independent consultants in 1992, some 60 per cent of the borrowers surveyed indicated that they would not have been able to obtain a bank loan without the assistance of the program. The review cross-checked and confirmed this finding when lenders surveyed reported that 50 per cent of the loans would not have been granted in the absence of this program.
Another study of the SBLA was undertaken in 1994 by a team of analysts under Dr. Allan Riding of Carleton University. Dr. Riding surveyed SBLA loan files and also worked with the Canadian Federation of Independent Business survey data. Dr. Riding found that the SBLA borrowers tend to be those targeted by the act and, as intended, their businesses tend to be smaller, more risky and with fewer resources than the non-SBLA borrowers.
Dr. Riding concluded that some 50 per cent to 70 per cent of the SBLA loans are truly incremental; that is, the lender and the federal government as guarantor are demonstrating confidence in the borrowers because of the risky nature of his or her business.
The SBLA program is an important one for small businesses and a popular one. A fivefold increase in the use of the program has resulted in a potential annual program deficit of $100 million or more. Clearly this would have been an intolerable burden on the taxpayer, one which would have made the SBLA program unsustainable.
The importance of the program to small businesses required that it be updated and modernized so that it can continue to provide its benefits. In particular, the program needed to be truly sustainable through a move to a full cost recovery. Full cost recovery was supported by all those who made their opinions known, both borrowers and lenders, during the extensive consultations that preceded both the changes before you today, as well as the changes of April 1, 1995.
Significant action has already been taken by the government to achieve cost recovery. Effective April 1, 1995, a new annual fee of 1.25 per cent was introduced on lenders' outstanding balance of SBLA loans made after March 31, 1995. The maximum interest rate charged by lenders was increased by 1.25 per cent to the prime rate plus 3 per cent for floating rate loans and to the residential mortgage rate, plus 3 per cent for fixed rate loans.
Bill C-99 will institute a second set of changes, some of which relate to program improvement and others to the recovery of the program cost. These changes include accelerating already scheduled decreases in the government loan guarantee from 90 per cent to 85 per cent. They will grant authority to make regulations for the establishment of claims processing fees and regarding the release of security, including personal guarantees taken by lenders in repayment of SBLA loans. They will improve the government guarantee coverage for low volume lenders.
Furthermore, they will enable future changes to the level of government guarantees to be made through the regulatory rather than the legislative process. This will add flexibility to the program and permit easier fine tuning in the future.
The move to cost recovery for the SBLA and the introduction of a new fee structure were announced in December 1994 when the Minister of Industry presented the paper "Building a more innovative economy" to the House of Commons. After consultations with all stakeholders the annual 1.25 per cent fee was deemed necessary
to achieve immediate cost recovery on all new loans made after March 31, 1995.
The losses being incurred annually under the SBLA program were threatening to spiral out of control. They were in excess of $100 million a year. The SBLA shortfall was also adding considerably to the overall deficit the government is determined to reduce. The program is a good one. The SBLA performs a valuable service, one that should be continued.
With the changes being brought about by Bill C-99 the move to bring the SBLA to full cost recovery will be completed. Efficiency in making future changes to the SBLA will be improved. Unnecessary subsidies to businesses will be ended and a significant advance will be made in the government's fight to control the deficit.
I urge all members of the House of Commons to work for swift passage of the bill.