Mr. Speaker, it is important for people to understand that to be eligible for a small business loan under the current system the loan has to be applied toward certain conditions. For example, it is not to be used for working capital; it is to be used for the purchase of equipment, leaseholds, things that have true and sustained value.
If a loan is in default under the Small Business Loans Act, that equipment has a value. It can be sold. When the value of that equipment or leaseholds that have been sold has been realized, the
amount that is left over is subject to a 25 per cent personal guarantee.
For example, if you have a loan of $100,000 for equipment, under the Small Business Loans Act you have to have a minimum of approximately 15 to 20 per cent. The amount of exposure right off the bat is $80,000. Of course, you are in the process of paying it down almost immediately because it is always part of a programmed return. If your business goes bad and you at least realize half of the value of the equipment, then your exposure on that $100,000 is approximately $30,000. Then, from a personal guarantee you are only exposed to 25 per cent of that.
Because of the way banks have been dealing in Canada traditionally, there is this mindset right now that when you go to get a loan they want your home, they want your RRSPs, they want your life insurance as security. They want four and five times security for the loan. That is not what we are talking about here.
We are saying under the Small Business Loans Act the personal guarantee is limited to 25 per cent of the amount that is left over after everything has been liquidated. From a normal commercial business point of view I do not see that as a bad thing. It is a big improvement over the traditional type of security that banks would want on most other small business loans.
We are not going to support this motion. The bill is designed in a way that gives much greater flexibility. Once the loan repayment reaches a certain level, where there is security in the assets to cover the exposure, under the current act the personal guarantee, the25 per cent, can be released. Once their exposure was reduced most banks would release the personal guarantee. I believe that is fair and that we should not change that aspect of the bill.
The member for Trois-Rivières has put forward good ideas and thought provoking points. However, on balance the design of the bill is quite solid and will probably do the job we intend it to do.
As this is the last motion, I should like to say that the industry committee is very good. It has had a very tight focus on the issue of access to capital by small business. This is the third time in less than three years the bill has been through the House of Commons. It was amended three years ago by the then Conservative government. By the way, it went through all three readings in the House in one day. We supported the Conservative government in amending the bill three years ago because we believed in the importance of the issue of access to capital and some kind of instrument that would act as a catalyst to sensitize the banks and to push the banks forward.
As much as I support the bill, I am becoming a little concerned that we are creating too much of a crutch for the banking institution. I listened to the critic from the Reform Party this morning. He mentioned that the float capacity in the last two years under the legislation had gone up from $3.5 billion to $12 billion. The total small business float last year for all financial institutions and small businesses in Canada was $28 billion. Now we are suddenly letting the small business float go up to $12 billion, and this is the one the crown guarantees.
In my judgment we are doing the work the banks should be doing. We are taking all the risks of decision making away from banks.