Mr. Speaker, I pleased to speak to Group No. 2 which contains Motion Nos. 2, 3, 4 and 5. The bill is about small businesses. If there is a big storm the big trees fall. Only the grass remains green and survives a big storm. It is very important that we take care of small businesses at least as much as big businesses.
I have no difficulty in supporting the motion, but one thing that is clear is that the Liberal government has had all the opportunities. Some amendments were brought forward from 1993 and so on, but nothing significant was addressed or taken care of to enable small businesses to get the benefits the act intended, not to mention that medium and big businesses borrow money from it.
The rationale behind Motion No. 2 which we are dealing with is that it is designed to prevent one family member who is part owner of a small business from taking out a loan if another family member has already done so. The idea is that the system should be more equitable. It should be fairer and should not be subject to abuse as it has been in the past according to the auditor general.
According to the Small Business Loans Act each borrower has been limited to a maximum loan of $250,000. The auditor general detected a few cases in the sample loan file where certain individual corporations with substantial common ownership managed to collectively obtain numerous loans far in excess of the stipulated maximum loan amount of $250,000.
In one case, according to the auditor general, a group of 23 related corporations managed to collect more than $4 million under the SBLA. This is a gross abuse of the system. Although Industry Canada had already notified lending institutions in writing that such loans would not be covered under SBLA after July 1996, detection of such cases by the department is difficult because of the lack of complete access to loan file information during review of submitted claims. These practices are contrary to the intent of the act.
The auditor general also noted that while the Small Business Loans Act specifically defined the eligibility conditions of those who may borrow under the program, there were no provisions designed to prevent a group of entities with substantial common ownership from gaining multiple access to loans under the program.
The auditor general recommended a clarification of this issue to ensure the SBLA program meets the goal of providing financial assistance to smaller businesses within the acceptable risk exposure of the government.
These practices are contrary to the intent of the act. Currently there are no provisions under the Small Business Loans Act to prevent this even though such rules exist under the Income Tax Act, which has provisions designed to limit access to the low corporate rate of tax for smaller businesses and to prevent abuse by the creation of a number of related corporations. More rigor is needed to address the issue.
We would like to support Motion No. 3. We know that the government is slow in learning, but I am the one who brought forward the issue in Motion No. 2 and No. 3 in the first debate we had on the bill. I am glad that it is learning but learning slow and I am glad to support Motion No. 3. The rationale is that the amendment lowers the maximum amount of a small business loan from $250,000 to the pre-1993 level of $100,000.
Groups such as Canadian Federation of Independent Business made presentations before Senate and House committees which called into question whether the ceiling of $250,000 was too high. Industry officials concede that the average size of loans made under the old SBLA was only $65,000. In view of this, present levels could be trimmed. I am glad the government has learned that.
The problem of column shifting appears to be more pronounced in loans over $100,000. This could mean a number of things, but most likely there is an inverse relation: the larger the size of a loan to an SME, the smaller the bank's willingness to underwrite the loan. There is an inverse relation between the amount of the loan and the willingness of the bank.
From its inception to March 31, 1993 the program made $339 million in net payments to lending institutions over a 32 year period. Following amendments to the Small Business Loans Act in 1993 the program considerably broadened eligibility criteria and increased the maximum loan amounts per borrower from $100,000 to $250,000. The auditor general noted it and it has been addressed. I am glad that it has been addressed in the bill.
The Canadian Federation of Independent Business which has over 90,000 members has been saying that if the current abuses of the Small Business Loans Act were curbed and if the parameters of the program were restricted, the program would require less of an allocation of funds while being effective in meeting the program's objective. The thresholds for financing are too high in the old SBLA. The legislation defines small businesses as those firms that have up to $5 million in sales. That is not small.
The CFIB says that we are not talking about small businesses in this case. What we are talking about is medium or large size businesses. That becomes an alternative source of financing for medium and larger businesses, depriving smaller business of the facilities which are intended for them. Small businesses are not being given any advantage compared to what medium and larger firms are getting from Bill C-53.
If the size of the loan and the size of the annual sales of the business were reduced, we would have a system that serves smaller businesses. We would also have a system with a drastically reduced rate of abuse, which is important.
As I said in the beginning the government cares about larger businesses, not about smaller businesses. When the storm comes, the government will remember that smaller businesses which are supporting our economy can survive any type of storm but the big firms are subject to falling.
The government has been giving big businesses all the big benefits it could give. We know that Bombardier got $25 million worth of interest free loans. We know that Bombardier or some other businesses like it have been getting all those facilities. Bombardier also got sole source contracts of $2.85 billion from NATO through the government.
Smaller businesses have been subject to abuse. They have been subject to high taxes by the government. CPP and EI premiums have been so high that smaller businesses could not cope. Even the government knows that $350 per employee and $500 per employer are being paid too much by the smaller businesses.
I summarize by saying that I am happy to support Motions Nos. 2 and 3. Motions Nos. 4 and 5 are more of a technical nature rather than of any significant legislative importance. We will be supporting Motions Nos. 4 and 5 along with Motions Nos. 2 and 3.