Mr. Speaker, it gives me pleasure to speak to the debate today. I have been involved in the question of how we provide financing to small business for some time and it is my feeling that the act in some way is somewhat misnamed.
If we reflect on it for a moment, perhaps we should call it the Canadian banking system failures act, because it is the failure of our banking system to adequately provide support to small businesses that makes the act necessary.
In the late 1980s and early 1990s I had the privilege of co-chairing a task force on the Manitoba economy which travelled the length and breadth of the province. It held meetings with chambers of commerce, town councils, small business people and large business people from all over the province of Manitoba. The one thing we heard over and over again was that for small, remote centres access to financing was extremely difficult.
We must ask ourselves why that is. We have a comprehensive system that the government has supported since the creation of the country. Banks throughout the country function in an oligopoly and have incredible protection from competition. They have the ability to fall back on the government and the taxpayers to bail them out whenever they make a mistake in a foreign country.
Why cannot banks, which as a result of that protection have become incredibly profitable, adequately meet the needs of small business? That is an important question we must ask ourselves and must keep asking the banks until we get an answer. We are correcting a flaw that should be corrected by the banking system.
We are talking about raising the loans, capital or equity available to small business to an average level of about $4 billion a year. We say that will cost us, if it spirals the way it has been, about $100 million a year. I ask members to reflect on what percentage of last year's bank profits is $100 million. If they do the mathematics they will find that it is something less than 1 per cent. Is it too much to ask the Canadian banking system to invest 1 per cent of its profits in Canadian small businesses? Why is it incapable of meeting this challenge?
An example that comes to mind is a small business in south central Manitoba in the riding of the member for Lisgar-Marquette. It had 12 employees and made electrical equipment. It designed a yard light. The principal of the business was something of an amateur inventor. He developed a number of successful products that are now being marketed throughout the world and can certainly be found in almost every farmyard in western Canada.
Through ingenuity and hard work he managed to convince a giant company, Quebec Hydro, of the efficiency of one of his products. Quebec Hydro gave him an order. It is a huge company that is certainly capable of paying its bills. The first order in the series was something like $9 million. However there was a catch. He had to meet the just in time requirements that are quite common in today's business world. He had to run up his inventory to a level that would meet the demand requirements of the order from Quebec Hydro.
Despite the fact he walked into the bank he had been doing business with for 20 years with the signed contract in hand, he could not get the bank to lend him the money. It could not happen because it was larger than the bank's policy for that area or because the bank did not understand that a business capable of doing that amount of business could exist in a small rural town in Manitoba. Whatever its rationale the bank did not respond to his need.
The banking system that we protect, that we bail out when it gets into trouble, that we protect because we want to have secure access to capital available for the economy, could not respond to his need. It is a tragedy.
If we look at whom we are talking about here and we look at the Carleton study we see the average business which received funding under the legislation had 7.5 employees. They have annual sales of roughly three-quarters of a million dollars and before tax profits of just under $50,000. These are the small businesses of the country.
On average 88 per cent of the businesses that received funding under the act created 5.3 new jobs. They did what we have claimed small business would do. If we give them access to capital they will create the jobs and they will create per dollar more jobs than will large corporations. That is one of the reasons we agreed to increase the total lending available under the legislation.
Nearly 30 per cent of small businesses reported that as a result of the loans they were able to obtain they became more efficient and decreased their costs, and 41.7 per cent reported their loans helped their firms to survive.
I support the legislation. It is a necessary and important change that makes it possible for small businesses in Canada to continue to fulfil a role in our community that is important to all Canadians, the creation of jobs, allowing people to obtain work and live in dignity. This is the foundation of the economy. Why cannot large banks, the banks with the billion dollar profits, find it within their operations to fill this niche? Why cannot they find resources within their huge operations to meet the needs of small businesses?
We have a real problem. I was disappointed today to hear the question of the member of the Reform Party from Lloydminster who spoke strongly against regional economic development and against the provision of capital to businesses in western Canada. It showed a profound misunderstanding of some of the problems businesses face.
Another example I will use that came across my desk recently is of a company in Winnipeg, not a small town but a relatively large centre with some financial strength. It is extremely profitable and doing very well in the construction sector. It has lots of work and has never been at risk. All of a sudden its credit lines were changed. It had not defaulted on anything. Its business was still strong. It was doing well. It inquired into why there was a change in the payment of certain bills from 90 days to 30 days.
The answer had nothing to do with western Canada. It had nothing to do with that business. The answer was that losses had been sustained in southern Ontario.
There is a real problem. If we talk to people with medium size businesses in western Canada we find there is a serious problem. They can grow to a certain size but to get above that the capital is not there. Or, if it is there, they have to work harder and pay more for it than a similar business in Toronto. That is not right. That is a failure of the market in the same way that the legislation represents a failure in our banking system.
Those are the places where government can play a role. Those are the places where government can act to ensure that the necessary resources are available so small businesses continue to produce the jobs members of Parliament and our constituents want them to produce.
I support the legislation I am sure all members of our caucus support it. We will be voting for the legislation when it comes forward. We are saddened by the fact that the banking system has been unable to respond to this need. We feel it is such a vitally important area that the government must continue to be involved and strengthen its involvement in support of small business.