Mr. Speaker, I am pleased to rise on behalf of the Bloc to speak at second reading, that is, when parties take a stand on the principle of a bill, in this case in favour of Bill C-21, which extends by a year and $1 billion the availability of funds under the Small Business Loans Act.
I would add right off that we feel obliged to vote in favour of the bill so as not to deprive small and medium size businesses of credit in the months to come, even though it is inadequate and the guarantees of government management were sharply criticized by the auditor general. We feel we must vote in favour of the principle of the bill, even though we will no doubt make recommendations during committee hearings and at third reading.
The Canadian Small Business Loans Act dates from 1971. It was revised in 1995 and serves to guarantee loans to small and medium size businesses. However, we have many criticisms of it. After looking at the broad use of this legislation in Quebec, I will have a look at the criticism levelled by the auditor general and, no less importantly, by the Canadian Federation of Independent Business, which is an umbrella organization for many small and medium size businesses, which it regularly surveys.
I would first like to say that, again, Quebec's take on this issue is unique. The caisses populaires in Quebec administer more than half the loans under the SBLA, the Small Business Loans Act. In 1995-96, over 6,000 loans were granted by caisses populaires for a total of $321 million, whereas the banks gave out 5,600 loans worth $385 million. Financial institutions have therefore given a total of 11,952 loans worth $732 million.
I should point out here that, even though the bill allows the loans to reach the maximum of $15 billion, it does not mean that the government is lending out $15 billion. It means that the government has agreed to pay back the lenders, either the banks or the caisses populaires, up to 15% of the loans granted, but never more than 10% per borrower.
So the figure of $15 billion can be bandied about, but in fact the risk to the government is much less, understandably. It is not in the business of lending money.
I would point out that this $732 million for 1995-96 represents Quebec's share of a total amount of $2.233 billion and 34,000 loans across Canada. The number of loans for 1996-97 is slightly lower in Quebec as well as across Canada. The amount loaned and therefore guaranteed is also lower, that is to say $662 million in Quebec and $1.999 billion for Canada as a whole.
I think it is interesting for those who are following this debate—although I am pretty sure that, in Quebec, many more are watching RDI and following the supreme court proceedings, which I would no doubt be doing if I were not here, but for the benefit at least of those who may catch the replay this evening and those following the House of Commons proceedings live across Canada, it is certainly interesting to know that the auditor general reiterated that the purpose of the departmental program is to encourage lenders to extend loans on reasonable terms for the establishment, expansion, modernization and improvement of businesses.
We readily agree with this objective. The problem, if I may challenge the auditor general, is that loans extended as provided by the act for the purpose of buying land, building offices or plants or acquiring new equipment cannot in any way meet the objective stated here. The objective is to provide small business with reasonable terms to get set up—in other words start-up assistance—and expand or grow. It is as risky for a business to expand as it is for it to start up.
While statistics vary, it is generally agreed that, over a ten year period, two or three businesses out of ten or two out of every five will make it. It is not a matter of life or death. Studies have been conducted, but there is a close link between the capacity of a small business to start up and develop and its management of course, but also the availability of capital.
I would add that it is all the more true, and the auditor general emphasized this point at the end, that, in this era of knowledge-based economy, the necessary investment and working capital may be much greater than for a small or medium size business in the service sector, for example.
The auditor general made a number of interesting points, some of which are worth mentioning for the benefit of Canadians. He said that, in recent years, many studies were conducted on the small business sector. At the federal level, the 1994 report prepared jointly by the Department of Finance and Industry Canada on the development of small businesses—nice, but what does it really mean?—pointed out that the growth of small businesses is a determining factor for job creation in Canada. So, the growth of small businesses is a determining factor for job creation in Canada.
I will get back to this, but let me first continue. He added that the report also stressed the critical importance of having access to capital, and the need for an operational environment that promotes the growth of small businesses. The report mentioned the means that the federal government—but we know that some provincial governments are just as active in this area, in a totally independent fashion, which can lead to overlap and even contradictory policies—intended to take to create such an environment: to work in close co-operation with the other economic stakeholders, and to set up new policies and programs to support small businesses.
That was in 1994. The important point is that the review of the Small Business Loans Act in 1995 was very limited. I would like to mention here that Bloc Quebecois members on the committee stressed how unwise it was not to include working capital as eligible for loans under the Small Business Loans Act.
I was pleased to hear the minister say earlier, when announcing a review of the act, that he was thinking of including working capital. How many problems, lost jobs and failures of small businesses could have been avoided if the government had considered loan guarantees for working capital.
This may sound technical, but it is really very simple. When people set up a business, or when are looking at a period of growth, they incurs expenses and then wait for the money to come in. Often, owners of businesses put everything they have into getting a business started. Accounts payable are often due in 30 days, but accounts receivable sometimes go to 90, with the result that, if the owners do not have the necessary working capital, they lose everything they have put in. Often, they lose your savings, as well as the savings of their friends and relatives.
Ensuring that the SMEs have sufficient access to allow them to start up and expand operations—and this includes working capital—it was extremely wise of the colleagues in the Bloc Quebecois to point this out.
The auditor general continues. He makes an extremely important observation, repeating a comment by the Committee. He said “The Committee also believed that the government guarantee should be used to increase the availability of credit rather than to allow lenders to reduce their risk on loans that they would have made without the guarantee”.
Further on, the auditor general went on to say that it was found—in a variety of ways—that close to half of the loans were made without government guarantee.
Since these guarantees are being used on loans that would have been made in any case, they limit access to credit where they would have been really necessary. The banks need to be followed up on closely, since they may be tempted to take advantage of this opportunity. It is understandable, too, that it is not necessarily easy for the department to follow every action of the banks. This matter must be looked into, most definitely, as the auditor general says.
Another passage that he gives emphasis to, and one which merits repeating here, is a committee recommendation which was not followed up on. It recommended a series of initiatives to provide a sound basis for small business growth and development. Those initiatives included increasing financial institutions' participation in debt financing, together with using the government's leverage to encourage competition among financial institutions to significantly increase their appetite for lending in the small business market. The auditor general reiterated his interest in this question further on.
What did the auditor general recommend further? That the program's objectives be clear. That the projected results be equally clear.
He notes that the objectives include recovering costs, not losing money, as the Reformers insist the government ought to do, but he also stresses that the target of creating jobs must comprise a precise strategy for doing so, be it through the establishment or the expansion of businesses.
The auditor general points out that certain loans intended to modernize businesses kill jobs rather than create them. Naturally, it can sometimes be said that it is better to modernize and lose a few jobs rather than lose all the jobs a few months later because the business is no longer competitive. The question remains: how can this program be used to help create jobs?
The auditor general proposes an optimum design for the program. If the aim is to promote growth, this objective should be made clear. For it to be made clear, the approach must be considered.
He pointed out, after studying the situation, that only 54% of loans granted to small and medium business, including new business, could be considered to contribute to growth. This is not a significant proportion. Here we come to the most important sentence in his report “We consider that the dual objectives of increasing the availability of loans at reasonable rates while recovering all costs need careful analysis”.
This is the most important point, and I wonder if the government or our colleagues from the Reform Party gave it much thought. On the one hand, there is indeed a need to recover the amount of the loans guaranteed with taxpayers' money, but on the other hand, if this curtails the effectiveness of the program as a whole, then we are no further ahead.
Small business is one of the main engines of growth, job creation and wealth in Canada as well as in Quebec. It needs us to give serious thought to what can help it start up, develop and modernize, instead of constantly struggling to survive, which gets in the way of being the engine of growth that it can be.
When he talks about serious consideration, are these two objectives incompatible? This is an issue we will come back to later as it is a crucial one, especially in this knowledge and information age.
The auditor general does indeed ask very important questions. The most important one is no doubt: is this particular program effective? There are currently small and medium size businesses that have loans they are happy with. However, the study conducted by the Canadian Federation of Independent Businesses shows how unsatisfactory this program is in meeting its intended purposes. I repeat, the purpose is the establishment, development, modernization and improvement of businesses.
If these loans only allow them to struggle along, to get going only to come crashing down, what is the point. Because it should be pointed out that banks cannot demand personal securities on loans guaranteed under the act, but they do in other areas and, as a result, the loan as a whole becomes tied to the business owner's home, with all his belongings, his RRSPs and so on.
We do not realize enough how important small business owners are to economic growth and job creation, often at their own expense, displaying a virtue seldom heard of these days, namely self-sacrifice. For years, many small business owners can only pay themselves a small salary, well below that of senior public servants, or even steel workers and workers in other sectors. These owners pay themselves a smaller salary. They risk losing everything they own. They work long hours. If they calculated their hourly wage—and I am not trying to make a bad joke—it would often be equivalent to that of MPs, at least those who work hard, which is the vast majority of them.
The men and women who own small businesses deserve—the word “deserve” has a moral connotation—or, rather, have the right to get help, because they make the difference between real growth and a stagnant economy. We have a duty to help them, to the extent that this depends on policies. Major companies are also important, of course, as well as new innovative businesses, and I will get back to them after discussing a poll from the Canadian Federation of Independent Business.
Here are some of the major findings: 29% of small business owners said that credit availability was a serious problem for them. The situation had improved somewhat, but only for businesses with 20 employees or more.
It is important to note that fewer and fewer businesses apply for loans. They do not bother doing so because they are convinced that their application would be rejected. Mrs. Swift said that economic growth is jeopardized when businesses do not have access to an adequate line of credit. The fallout hurts everyone. The lack of money and the inability to get credit hurt everyone, because this means slower growth, fewer jobs and less wealth. Eleven per cent of loan applications were rejected, which is 2% more than in 1987.
Mrs. Swift pointed out that the main reason for these rejections is the turnover among bank executives. This is a very concrete issue and perhaps the department could make appropriate regulations, or at least establish some guidelines or policies. It is easier for businesses to get loans when bank officials have been in place for more than three years.
The smallest businesses, those with five employees and under, are seeing interest rates that are increasingly higher than for other businesses. They have a great deal of difficulty obtaining credit. Yet these businesses, like self-employed workers, are the ones now creating the most new jobs. Not giving them easier access to credit is like shooting ourselves in the foot.
She points out that, in order to improve access to credit for the smallest businesses, workers' funds like the one in Quebec have been created, but that, elsewhere in Canada, these funds have often not been around as long and do not always meet small businesses' capitalization requirements. Therefore, she says:
“The small business sector represents the future of the economy and its financial well-being should be a priority”.
I think these criticisms say a lot about the need for a complete review of the Small Business Loans Act. But there is another criticism as well and it is one of my own, or rather I base it on a Privy Council document made available to the Standing Committee on Industry.
The Privy Council is concerned about Canada's low productivity. The result of this low productivity is that, even though there is economic growth, it is not being accompanied by wage and income increases, by a real increase in wealth, and might only be due to the fact that Canada used the dollar's devaluation to bump up its exports. That is one hypothesis.
This hypothesis leads to another, which the Privy Council took as a warning. This one has to do with the fact that small and medium-size businesses, which are more numerous in Canada than in the United States, often have a lower rate of productivity. What does that tell us? It does not tell us to forget about small and medium-size businesses, but to be very sure that they have the capacity to innovate. Care must be taken to give small businesses access to innovation, to keep them informed, but also to ensure they have the capacity, and by capacity I mean purchasing capacity, training capacity, operating fund capacity, and in general an environment that is pro-development.
Yet when these small businesses have every possible difficulty in obtaining sufficient credit in time, and at competitive rates, it is understandable that there is a degree of stagnation in the economy, even if they are playing a role.
When the minister re-examines the act, we are most certainly going to be involved from A to Z, so that things can be better for small businesses, better than the hard life they have now, particularly the women entrepreneurs, who are forced to put everything they own into their businesses and then meet conditions that force them into bankruptcy, as they become keenly aware that they do not have the same opportunities as the major corporations do.
I am thinking of my colleagues' concerns for what this would cost the government. Let me tell you, those major corporations, those who can easily get around paying taxes, have access to the stock exchange and can get funding very readily. The people behind them are not forced to risk everything they own, all their personal assets.
Small business owners are nothing like the CEOs of major companies, who can buy thousands of stocks at $1 and sell them again the same day for $17, as I have seen one Quebec entrepreneur do this past weekend. That is just small potatoes compared to some.
The conditions imposed on small and medium size businesses, and those imposed on major corporations are so different that the whole situation must be reviewed. Otherwise, employment, development and growth will remain a dream.
Let us not forget the role played by banks in bankruptcies. A few years ago, when I was working in a workers' co-operative, I was able to see firsthand small and medium size businesses going bankrupt. It was common knowledge that when a small or medium size business was experiencing difficulties, the entrepreneur would often first pay a visit to his or her bank manager. We used to say that this was the last thing to do, because the bank manager would deal the final blow to the entrepreneur.
This measure is not provided for, but we will have to take a look at it. Banks do their job, and it is up to us to do our job and to be critical. Bank officials told the committee that small and medium size businesses were perfectly happy with the services provided to them, and that there was no problem.
This assessment was based on an annual survey. However, the businesses that may have gone bankrupt because of problems with their credit are no longer there to criticize the banks. I asked bank officials why they did not conduct a longitudinal survey and have certain questions answered by the same businesses year after year. This would provide a more accurate picture.
Their most recent survey also showed a high proportion of rejects for start-up loans. We were told that these were young businesses, that they were not fully prepared. The fact is that, to start a business, one must be very tenacious. It is normal to be tenacious and to be prepared. Still, the requirements imposed on entrepreneurs are much greater than any kind of assistance we are prepared to give them, and I am not referring to loans.
I am happy to say that, in Quebec, the expertise developed in every region is being offered to established and fledgling businesses alike, across the province; we are trying to develop a spirit of co-operation and to make management tools available to businesses. They are informed of every kind of loan available to them, especially through the SBLA. They get management advice.
I think something important has been initiated and must be pursued. But because the Small Business Loans Act is limited to assets, it is difficult for small businesses that have access only to the SBLA program, and for Quebec businesses that need complementary programs, to develop.
In spite of all this we will support this bill for a very simple reason. It is a start. The minister should have thought about it before. The minister knew the auditor general was reviewing the SMEs. If we did not support the bill, it would not be the minister we would be punishing, but the SMEs, which have already had it up to here.
We should push for a new bill to be introduced in the House. It would really be helpful in this information age and knowledge-based economy and would take into account all the constraints facing SMEs. We must not, however, cut off whatever little help they are getting now.
I say this particularly because we can keep an eye on how the department is being managed. Nothing can prevent us from tracking down what it is doing through the House of Commons and the Standing Committee on Industry.
I would invite my colleagues from the Reform Party, some of whose criticisms I agree with, to speak more often about what is being done to help SMEs. SMEs must have access to loans. But it must be more than just credit for assets. Nor can it be limited to businesses in the information and knowledge sector.
I believe it would be important for the government, in its upcoming budget, to set the credit for workers' funds at $5,000 per person and for all of us in this House to do as we did in committee and urge workers' funds to invest in very small businesses.
We were told in committee that the age and size differences among the various funds make it difficult for them to lend too much of their money to SMEs. We were also told that in Quebec, at least, things were moving very fast. The solidarity fund is well established. We also have SOLIDE, small business banks located across the province that make money available to small businesses needing small loans, and the same is happening in Ontario and western Canada.