Mr. Speaker, I am pleased to rise today to speak to the two amendments proposed for the Small Business Loans Act. The first one is the extension of the current SBLA lending period for one additional year, from April 1, 1998 to March 31, 1999. The second one is the increase in the aggregate lending ceiling by $1 billion, from $14 billion to $15 billion, and the unused authority to lend will expire at the end of the extended lending period.
At the outset I want to say that the people of Waterloo—Wellington and many small business people in my riding applaud this legislation. It is very important for them and they certainly want to see it proceed and go forward.
As we discuss the merits of extending the Small Business Loans Act, I would like to review some of the misconceptions which have been stated regarding the program. It is sometimes argued that the SBLA represents a subsidy to small business. However in 1995 the government took steps to move the program to financial self-sufficiency so that it will be paid for by those who borrow through it.
Current shortfalls are the result of actions taken in 1993. Their effects are now being felt on a time delayed basis since loans can have terms of five or even ten years.
I am pleased to see that the government has already taken the actions needed to rectify the causes of the present shortfalls. Indeed it has already acted on many of the suggestions made by the auditor general in his recent December 1997 report, and further changes are in the works. As a member of the public accounts committee I applaud the efforts of the government to ensure that the problems outlined by the auditor general are rectified and taken into account. That is very important.
Passage of Bill C-21 will enable the completion of the present extensive review of the SBLA program so that we can consider what further improvements can be made to this very worthwhile program.
It is important to note that Industry Canada has already taken significant administrative steps to improve the efficiency and productivity of the program, such as cutting claim audit times, thereby mitigating the cost to taxpayers.
Another false claim sometimes made by critics is that the banks do not risk their own money under the program. This simply is not true. Like other insurance programs, the SBLA pools risk across thousands of users. This of course diminishes risk, however, it does not eliminate it for the SBLA lenders.
The applicants to which the banks make loans under the SBLA are otherwise credit worthy but tend to be start-up companies or firms with low capitalized assets. Indeed the whole point of the program is to get cash to companies which might not qualify for conventional financing. It is very important to note that this is in support of small businesses. They rely on it and they most certainly need it.
Further, it needs to be pointed out with respect to loans made after March 31, 1995 loan losses are shared on the basis of 85% government and 15% lender. The program will pay a bank only 85% of the lender's loss after having liquidated all secured assets.
Second, the total claims which a lender makes cannot be more than roughly 10% of the value of the total SBLA portfolio. In other words, the lender's funds are at risk and the lender will lose money with every claim. This underscores that it is not an incentive to make poor credit decisions.
It also needs to be noted that 94% of the loans have been repaid over the course and the history of the SBLA program. Again this suggests that lenders have been exercising good judgment throughout.
The statistics indicate that the system is working well. In 1996-97 more than 30,000 firms used the SBLA to improve their businesses and created an estimated 73,000 jobs. That is most impressive.
Another false argument circulating with regard to the SBLA concerns small business access to unconventional financing. Some have suggested that small and medium size businesses do not need the SBLA, that they simply can resort to venture capitalists. That is wrong. It is more complicated than that. Venture capitalists are simply not a realistic option for many firms which seek these very important but small loans. At present a mere 2% of all businesses obtain financing from such investors, whereas 54% of all outside capital for business comes from debt financing.
Even if venture capitalists were to double their activity it would still mean that only about 1,200 firms would be able to find financing.
Therefore the SBLA fills a niche in the market for precisely those firms which venture capitalists ignore. Without the SBLA most of the 30,000 firms which were financed during fiscal year 1996-97 would have been unlikely to have found the cash they required. This would have meant lost jobs, which is unacceptable. It simply is not right. It is not what Canadians want and it is not what is good for small business.
The government is well aware that banks should be flexible and open to the needs of small businesses, particularly with respect to lending practices. The industry committee of the House of Commons has heard recently that it is important to have more transparency in the lending process.
For example, banks should move away from evaluating loan applications on the basis of points and formulas and should move more toward a comprehensive and flexible approach.
Second, banks should recognize that intellectual and knowledge based assets are as valuable as hard assets and traditional forms of collateral.
Third, banks should increase the number of smaller loans for youth and micro businesses.
At the urging of the government and the industry committee the banking industry has begun to respond. First, banks have introduced a code of conduct. All the major banks have put in place some form of alternative dispute resolution and have appointed an ombudsman to handle complaints. Second, an industry ombudsman has been appointed to allow for an independent review of small business complaints when internal dispute resolution procedures have been exhausted. Third, the banks have developed special benchmarks with which to assess access to business credit which they report quarterly to the House industry committee.
The government is also moving ahead rapidly to put in place the elements necessary for sustainable growth and job creation in the knowledge economy, particularly with regard to small business. Industry Canada's priority has been to focus on helping Canadian business fulfil its potential to innovate, to grow and to create jobs, and this we have done.
It is important to note that Industry Canada invests in targeted R and D in high tech sectors where its support can obtain the maximum effect and leverage benefits. The National Research Council has many technology transfer programs for industry. The regional economic development agencies offer special help in export support for small businesses.
The government is moving ahead to update many pieces of framework legislation that have a profound effect not only on small business but also on the way in which Canada fosters innovation and the growth of its knowledge based industries. The government is modernizing and renewing the Competition Act, the Co-operatives Act, the Telecommunications Act, the Canada Business Corporations Act and the privacy protection act, especially as it relates to electronic commerce.
These initiatives are helping to create a positive environment for Canada's private sector and the small business community. Many of the government's new policies and programs are already paying off in terms of surging economic growth. The need to access capital remains a critical issue for small business growth in addition to the importance of a positive business environment. The Small Business Loans Act can help provide that access in a way that no other instrument can or does at the time.
Therefore I ask my fellow members of the House of Commons to pass this legislation on which they are about to vote for the benefit of Canada's small business community. It is what Canada needs. It is what the small business community needs.