Madam Speaker, I rise today to speak on Bill C-53, an act to increase the availability of financing for the establishment, expansion, modernization and improvement of small businesses.
For the purpose of brevity, this bill seeks to replace the Small Business Loans Act with a new Canadian small business financing act. In essence, parliament will be guaranteeing that the principles of the success story known as the Small Business Loans Act will continue into the next millennium.
Since 1961 the Small Business Loans Act, implemented by the Progressive Conservative government of John Diefenbaker, has helped over half a million Canadian businesses. In the 37 years that have followed parliament has shown its resolve to assist small business by continually updating and innovating the act to ensure that it remains responsive to the needs of Canada's small and medium size enterprises.
By and large, this duty has been discharged with commitment and diligence.
Since its inception, the SBLA has experienced a successful repayment rate in excess of 94% of all loans. When we consider that during this period the program has guaranteed loans worth $22 billion, the numbers become all the more impressive.
In 1997-98 SBLA borrowers reported that they would create 74,600 new jobs. This is even more significant when we understand that over 50% of all loans made under the provisions of the act would never have been made under conventional lending practices.
This is easy to believe when we note a 1996 study entitled “Economic Impacts of the SBLA”. The study found that approximately 45% of the borrowers in this sample were companies less than a year old. In comparison, only 5% of non-SBLA loans went to start up firms.
Much has already been done to facilitate the work of this House as well as the industry committee when it begins its indepth examination of Bill C-53. To date a comprehensive review of the financing needs of small business has been completed with special emphasis on economic impact studies, compliance and default studies, stakeholder consultations, cost benefit analysis and future evaluations, and capital leasing studies.
As well, our hon. colleagues in the other place finished their committee work, a review of the Small Business Loans Act.
I am very pleased that an issue I raised at second reading and with the department has been addressed, specifically the treatment of non-arm's length transactions under the new Canadian small business financing act. At that time I spoke about a clause in Industry Canada's review of the SBLA. Specifically in the booklet entitled “Meeting the Changing Needs” on page 27 there is a reference to asset transfers. Included in this is a reference to non-arm's length transfers of assets of going concerns.
The issue I raised was that the sale of a business from a parent to a child was specifically itemized as being excluded from the CSBFA guaranteed loan. This needed to be reviewed, and for a very good reason. We no longer live in a time when the purchase of family businesses is financed by long apprenticeships; that is to say, children working at below market value with the understanding that some day the businesses will be theirs.
Instead, the inherent value of small businesses represents the equivalent of an RRSP to many business owners. This provision would have resulted in children being unable to secure the proper financing. Then what would have happened? I suggest parents who are facing the insecurity of retirement would have been forced to look at selling their businesses to a non-relative who would not know the ins and outs of that business but who would have access to the Canadian small business financing loans guarantees, a possibility that would have been inconsistent with Canada's reputation as a fair, small business-friendly nation.
At a time when high taxes and a lack of opportunity is leading to brain drain and breaking down the family unit, we do not need to make this situation worse with punitive anti-family legislation.
For that reason I am pleased that the industry department reversed this decision and saw fit to withdraw this provision.
The other contentious provisions of Bill C-53 would have seen leasehold improvements removed as a valuated asset for financing purposes. This would have had a huge negative impact on several industries but especially the restaurant industry. This is an industry that has suffered particular difficulties accessing financing over the years. Once again the process works and this provision was successfully removed.
I have spoken thus far about the positive outcomes of the efforts of my colleagues on the industry committee. I think we have accomplished much as a committee in an exceptionally co-operative manner. The reason for that is very clear. We trust one another and the process that allows us to make changes to legislation.
In light of this I feel I must comment on the decision by the government to invoke closure on debate for the ninth time in this parliament. Sixteen amendments to Bill C-53 were listed on the order paper. Some may have more merit than others. However, through the course of parliamentary debate members of the House may have come to appreciate the motions put forward by others. Unfortunately we will never know. If the government has a problem with the process perhaps it should undertake to reform it. The censoring of members should only be undertaken as a last resort.
Many provisions of the SBLA have remained unchanged. The loans loss ratio remains at 85% of the cost of claims for loans in default. This is same rate it has been since 1995. Lenders remain responsible for the remainder. The Liberal government reinstated this ratio in 1995 after the Conservative government reduced the risk to lenders in 1993. The Conservative government did this to encourage greater financial sector participation in the SBLA.
When a government sets up a program like the SBLA, which guarantees loans for small business, it does so for one very obvious reason. Without such an act, loans would be labelled too high risk by lenders and they simply would not be given. Therefore I have to question the judgment used by the government when it increases the risk to lenders. At the risk of attributing motives, this appears to be an instance where good politics took precedent over good policy.
I say that because since the Liberals did this, studies have shown that SME lender dissatisfaction has been steadily increasing. Rather than point fingers at the lenders or the borrowers the legislation should instead be focusing on improving the environment for both.
A few other program parameters have not changed but should be noted. The maximum loan size remains at $250,000. My colleagues in the Reform Party have been actively working to lower this figure to $100,000. However, while the average loan is still well under the $100,000 threshold, there are numerous examples of situations where that figure is just not enough.
I have heard from many individuals in the tourism and restaurant industries. They face large equipment and infrastructure costs before they are able to open for business. Therefore the Progressive Conservative Party is pleased to see the $250,000 threshold remain.
The percentage of the cost of eligible capital assets accepted for financing remains at 90%. This is a reasonable figure and there is no need to review it.
If there is a shortcoming in the bill, it lies in its failure to come to grips with the issue of the lack of access to the SBLA that currently exists for knowledge based industries. The minister raised hopes when he asked for a report on whether the SBLA should be expanded to target knowledge based industries. When the answer came back that something definitely needed to be done unfortunately he chose to ignore it.
Knowledge based industries are among the most dynamic job producing companies in Canada today. The problem lies in the fact that their major assets are intellectual and thus are not capable of being financed under current criteria. In the past the Minister of Industry has indicated his willingness to encourage the development of knowledge based industries. My party stands ready to assist, although it is possible that we have missed an opportunity to use Bill C-53 toward this end.
I turn my attention to the specific changes that will come about when Bill C-53 is implemented. First is the mandatory program review provision. This will mean the end of current provisions that require an automatic ending of lending authority if a new bill is not passed, as we saw last year with Bill C-21. While we are still a little short on the details of what would constitute this review process, it appears to be a good idea in general terms.
Under the current system the government is in a situation in which it must present a bill to parliament in order to keep the program alive. The bill could potentially contain clauses the government of the day would like to slip through while at the same time keep the opposition handcuffed by inherent time constraints.
With this in mind, the review process is a better way to deal fairly with any necessary changes. Under the proposed process the review would see data collected over a five year period prior to the review used to give parliamentarians and policy makers the tools needed to evaluate where changes need to be considered.
At the end of the five year period currently designated as March 31, 2004, the minister would have 12 months in which to cause a comprehensive review. At this point we are not prepared to comment on the reasonableness of these time constraints and we look forward to reviewing them at committee stage.
There is a new component to the act that Bill C-53 proposes, that is the idea of pilot projects both for capital leasing and for the voluntary sector. Capital leasing has been an ever growing and popular financing option for SMEs. This type of lease ensures that the lessee will own the equipment at the end of the lease. A provision of this nature seems to protect the interests of taxpayers, as the equipment would become an asset of the company at the end of the lease.
A revealing analysis of the financing realities of the SME sector was brought to light in the conference board study published last fall entitled “What is new in debt financing for small and medium size enterprises”.
The study highlights two major findings. First, the size of the business debt financing market targeted at SMEs continues to be misunderstood usually because analyses limit their review to term loans and lines of credit provided by the large deposit taking institutions. In the process they capture only about half the financing provided to SMEs. Sources of SME funding are much broader. One of the main conclusions of the report is that SMEs are being funded by a wide variety of providers of financial services using various innovative products, services and delivery channels.
The second major conference board finding was that while the total business debt financing market has grown, increasing 7% over the last two years to $271 billion, growth has been relatively even. The bulk of the growth has come from specialized finance companies that experience a 31% increase in total business debt financing. The study identifies the specialized finance institutions as heavily represented in the financing and leasing industries. At present the leasing industry does not approve leasing for firms under two years old that are seeking less than $100,000. This typically excludes a majority of present SBLA borrowers.
The other proposed pilot project deals with the voluntary sector. The document “Securing our Future Together” made a commitment to reviewing federal small business programs with a view to extending their mandate to the voluntary sector. This program raises many questions. In fact in recent hearings concerning this issue witnesses generally were opposed to extending provisions of the SBLA to the voluntary sector. Some of the reasons cited included cost as well as instability of revenues.
These are legitimate concerns. I am also concerned that we are about to put in place a program which would allow non-profit or voluntary organizations to unfairly compete with other business interests. If Bill C-53 is passed, it will be incumbent upon all MPs to monitor any negative impact this pilot project might have on businesses in their ridings.
Cost recovery is a worthy goal in the Canadian Small Business Financing Act. Toward the achievement of that, Bill C-53 seeks to allow the government the ability to restrict access to program loans or guarantees. I would caution that any legislation covering this area must be generous in scope with allowance for various contingencies. We already have a heavily regulated financial services sector. If any abuse of process is suspected, other avenues may exist to achieve compliance.
The next area I wish to address is that of the proposed accountability framework. This proposal by Price Waterhouse will access the CSBFA over the next five years. Several criteria will be used including the visibility of the program to potential borrowers, its impact on creating and maintaining jobs, and the performance of the borrowers.
The auditor general in his report, “Management of the Small Business Loans Program”, pointed out that claim audit procedures needed to be strengthened. This is an area that will have to be dealt with, with great sensitivity to the viability of the program as a whole.
I remind the House that the reason this act exists is due to the unidentifiable fact that a program exists. The problem was the unwillingness of banks to lend to SMEs. Any attempt to change the program so as to put greater compliance demands on lending institutions will only result in fewer small businesses getting the financing they desperately need.
I am not opposing the provision at this time. I am suggesting that we tread carefully. As I have indicated throughout my address today, my party is supportive of Bill C-53 and much of its intent. However there is an issue that needs to be raised in the interest of full disclosure.
When the comprehensive review was undertaken one of the issues to be reviewed was the issue of personal guarantees and whether or not they should remain in effect. In the end personal guarantees were deemed to be a necessary component and thus they were retained.
The PC Party has no problem with this. When we were in government and performed a review of the SBLA we did not remove the personal guarantee either. However there is a difference. Perhaps members across the way will want to brace themselves, as I am going to discuss the entire discredited Liberal red book of 1993. In that fictional collection of whimsical vote getting prose on page 49, for those keeping score at home, a commitment was made to remove personal guarantees from the act.
I realize this was just an election promise much like eliminating the GST or tearing up the free trade agreement. The new leader of our party has certainly seen this in the past. He saw the willingness of Liberals to promise anything to get elected, and they turned around and increased the gasoline tax anyway. Some of the hon. members across the way will remember this incident.
I reiterate that my party has no problem with the personal guarantee being retained. We just wish the Liberals had recognized its importance before they started making wild promises to voters which they knew they could not possibly keep.
In conclusion, my party is pleased with Bill C-53 and the work of the industry committee in making it a better piece of legislation. All members of the committee deserve special commendation for their co-operative approach in making necessary changes to the bill. Out of this process we now have a small business loans tool which will stand up to any comparable legislation in the world.