Madam Speaker, we are talking about Motion Nos. 2 and 3.
Anyone who has ever applied for loans probably found it disappointing if they were turned down. It would be unusual if at some time in our lives when we applied for a loan we were not been turned down. It is not always because the idea was not good or the product we wanted to buy was not a decent product but it could just be because the proposal or our income was not sufficient to support the loan.
This does not remove the disappointment but one of the things this bill does is facilitate dependency by groups of businesses that cannot qualify through the normal lending channels. That is one of the thrusts we have been talking about today.
The government is going about financing small business the wrong way. What the government is doing is building a dependency where people who cannot get money through a regular bank can go through the back door by having taxpayers guarantee the loan.
Earlier today when I was speaking on the first group of amendments, I was talking about the alternatives that can be used to get around that. It is not a problem that these businesses cannot get money. Businesses can always get money. But it is the problem of there being a price to be paid for it. Sometimes these people do not want to pay the price.
When it is a new business, a risky venture, it may be a good idea but the banks have never seen it before. Individuals approach various banks and the banks say they have never seen any history of this type of business and do not think they can make it and they do not qualify.
Those individuals are not satisfied that they cannot get the money from the banks. But there are alternatives out there if they pay a bit more in interest.
We have had examples today from some of my colleagues of businesses that were started with borrowed money from friends or from a venture capitalist. I explained that my business, prior to being a member of parliament, was specializing in the financing of home based businesses. Certainly we lent the money out at an interest premium to the banks because we were filling that niche of handling that risky area of business.
The biggest problem we had as a small company involved in that financing sector was that when we used mortgages as a guarantee the government considered us to be in an investment business and it taxed us at a 50% rate on our profits. That took away our ability to reinvest in these people. Yet we were willing to make all sorts of creative financing options for people that made it possible for them to get into business. In the five years we ran the leasing business prior to my becoming a member of parliament we never had a single loss.
Yet we always took on businesses that could not get financing at the regular places. All it took was a little creativity. Instead of going through the normal procedure a bank might go through of making people fill out pages and pages of information about their personal financial history and being unable to prove they had a previous background, we would look instead for stability and trustworthiness.
We did that in a very simple way. We had five telephone directories in our office that went back five years. The first thing we did when a person called and asked for lease financing was look in those telephone directories to see if the person had lived in the same place for five years. If they had, that gave us the first good clue that the person was stable, reliable and would be there.
Second, we asked applicants for their job histories. Had they worked at the same place for a good length of time, four or five years? A second clue that they were trustworthy, reliable and would not run away would be if they had the same job for five years, had just been laid off and thought they would get into business for themselves. If we leased them a fax machine or a photocopier they would not just run away and disappear out of sight.
Third, we asked if we could do a credit check on their credit cards to find out if they were up to their limit. If the people going into business were not up to their credit card limits, that indicated they were not yet under financial stress.
Those were all good signs, being in the phone book for five years, having a good steady job prior to going into business for themselves and having credit cards that were not maxed. If these criteria were met they got their loans. That is all we did. There was no indepth financial investigation of their pasts. We just looked for reliability, trustworthiness and a sense these people would not run away if something went wrong.
Of course a portion of the loans we made started to go bad. People would miss payments. Because these people were trustworthy and believed in their ideas we could approach them, talk with them and make arrangements for them to catch up. They could find alternative positions, to sell the equipment or to make adjustments to their portfolios.
That sort of creativity is possible but because the government taxed away so much of what we made from this exercise we were robbed of capital to expand. The demand for what we could do was much greater than what we could ever fill.
The government response is to build dependency by providing money at a bank market rate by making taxpayers carry the can on any defaults. It was mentioned earlier that only a small percentage are in default. It is about 5.6% to 6%. The aggregate amount that can be paid out under this program is $1.5 billion. A default rate of 5.6% amounts to about $75 million under default at any particular time. That is a significant chunk of money. We should be pretty concerned about the liability faced by taxpayers when they are guaranteeing these sorts of loans.
That is why the amendments proposed in Group No. 2 are being put forward. Motion No. 2 makes sure no loans are made to relatives of the initial borrower to put more money into the same business. It is not right to use a loophole to get around the intent of the act. If we have decided a business can borrow a certain amount it is not right to allow relatives working in the same business to borrow their share and to increase the total amount being risked on a particular business. That was the reason we introduced this amendment stating the loan must not be in addition to other loans made under this act to persons related to the borrower for the operation of the same small business. More than two of my colleagues have given examples found by the auditor general of abuse in this area.
The other amendment we put forward is that the amount given to the borrower does not exceed $100,000. Industry officials had to admit that the average loan size was $65,000, which is still a reasonable chunk of change for people starting a small business.
Borrowing $250,000 for the average person is a lot of money. That is more than starting a small business. There really is no need to go to that level. Restricting it to $100,000 is quite enough, especially if the minister will not agree to preventing this multiple borrowing we are trying to correct with Motion No. 2.
I urge members to support the Reform motions and if they do they will significantly improve the bill.