Mr. Speaker, I am pleased to participate in the debate on Bill C-21, an act that will extend the lending period of the Small Business Loans Act for another year, until March 1999. It will also increase the aggregate funding ceiling under the program by $1 billion, from $14 billion to $15 billion. I can say with some conviction that any program that helps small business raise capital is something this House should support.
Again I am amazed by the rhetoric of members of the Reform Party. I do not know where they have been. In my riding I have talked to small business people and they have told me about the difficulty they have in attracting capital. This program would give needed capital to small business.
Reform members say that small business will look at the balance sheet of Canada and say that the Government of Canada owes all this money, has all this debt, and therefore they will not invest in Canada. Where have they been? We are talking about small businesses with one to twenty employees. Do they really believe those people will sit down to look at the balance sheet of the Government of Canada and say there is all this debt and therefore I am not going to start a business in Canada? Where are they?
Maybe that is what big business would do. Maybe medium size business would do that. But it is certainly not the drivers of economic growth in Canada, the businesses with one to twenty employees, the businesses which are creating all the jobs in Canada which would do that. Do those members really think that small businesses sit down to analyse the balance sheet of the Government of Canada? I am not saying that we do not have to deal with the national debt, but they are getting caught up in their own rhetoric.
Recently we have seen data which indicate that small businesses are driving the jobs in this country.
A couple of years ago members of the Reform Party said that we had to deal with the deficit. Our government dealt with the deficit. They were saying that we must decrease taxes. Now they are saying forget about decreasing taxes, eliminate government debt. If we ask them how they can argue both sides, they say we want it all.
We have to make choices and our government is making choices. We are dealing with the debt. I would like to see income tax reduction in Canada. We are dealing with that in a targeted way. We will be in a position in the not too distant future to give Canadians some general tax relief.
I have talked to business people in my riding as well as the banks. The finance critic for the Reform Party said that the auditor general has criticized this program because 40% of the loans would have been made anyway. The whole idea behind the small business loans program is to provide incremental funding.
I am a chartered accountant and I have the greatest respect for the work the auditor general is trying to do. He criticized other programs such as TAGS. I am wondering, with the greatest respect, what methodology the auditor general used to establish that so many of these loans would have been made anyway. Does he have a crystal ball? Can he look into the future and say that these loans would have been made anyway?
I would like to know his methodology. It is unfortunate that the finance critic for the Reform Party is not here. I am sure he has studied that methodology in some depth and understands clearly how the auditor general can make that assertion.
How can he make the assertion that these loans would have been made anyway? I challenge that. I have talked to small business people who very much like this program. It is a way for them to get capital which otherwise they would not be able to obtain.
I have talked to bankers. The member opposite intimated that the banks like the program because it means more profits. The day Reformers start attacking profits is another day. I wish they would make up their minds.
The bankers say this is an incredibly good program. It helps them to package financing. It helps them to help small businesses when often they would not be able to do that.
I have been critical of the banks. I was at the Bank of Montreal last week and I met with small business loans officers. I said how are you rewarded? Are you rewarded based on how many new loans you give to small business or are you penalized for how many bad loans you make? I would have to say, in fairness, they do have some criteria for new business. They are rewarded or judged on the volume of new business they are able to generate. But they are also judged on how many bad loans they make. I submit that we still have in our Canadian banking system the culture that we do not want to make too many bad loans. That culture is changing.
We have seen the banks get into the high technology sector. They know they are not as qualified or as experienced with the high technology sector as they could be so they are trying to gear programs to the high technology sector where they do not have the fixed assets or the collateralizing of loans that was possible in years past. They are talking more about loaning on a good solid business plan and managerial abilities. They are making progress but we have a long way to go.
Last year in the finance committee I supported a new entrant, the Wells Fargo bank. It works on a very simple model called risk and return. When there is a higher risk it will charge more interest. It makes sense. Why have the Canadian banks here not embraced it? I do not know. A certain threshold is met at a Canadian bank it says sorry, if you do not meet that hurdle rate we are not dealing with you. We are letting Wells Fargo in because it says that if it is a riskier loan it is going to charge more interest. What can be more realistic or more reasonable?
It also says that it is going to loan on a good business plan. It realizes that the world is changing. We have more technology. We have businesses that need capital but they do not have the equipment, the land or the buildings to offer as collateral. They have a very good idea and a sound business plan and it loans on that. Therefore we are letting it in.
I believe we need more of this kind of competition in the Canadian banking system because some of these banks that have come in from the United States are very aggressive with small business. When I talk to constituents in my riding sometimes they say they have been to a Canadian charter bank, the Bank of Montreal, TD bank, the Bank of Nova Scotia, CIBC or whatever, and they will not look at them.
I ask them if they have been to the Business Development Bank of Canada, a federal bank which is meant to be a lender of last resort. It will take a slightly bigger risk. My constituents say they have been there and it will not look at them either. I then ask them if they have been to the venture capitalist. They might be in that situation because our Canadian banks are struggling. We are sending some signals that they should be more supportive of small business. They are doing things but they have to do a lot more. They have to stretch a lot harder.
They say “yes, we have been there but it wanted 35% of my business. It is my idea. I put all the work into it. I developed the business plan. I want to make it work and it is saying it can loan me some money but it wants 35% of the action”.
My constituents are telling me they are not prepared to do that. I tell them frankly that with the way things are now, until we have more competition such as U.S. and foreign banks, they are going to be stuck. We are working on it but they had better think about giving up 35% equity maybe with a buyback later on. They are telling me that they are just at their wit's end.
I went back to a number of those small business people and told them there is a bank coming into Canada called the Wells Fargo bank, by way of example, and there are going to be more. I tell them this bank will sit down with them. It will be slightly riskier and it will not be prime plus 3% or 4%. It is going to be prime plus 7% or 8%. I ask them if they think that is a good idea and they tell me it is an incredible idea. I ask them if their business can carry it and they tell me that they will rejig the numbers but they think it will work. They know they will then still own their business.
That is when I came back here to Ottawa to get in on the finance committee discussions. I told them we were going to let banks in like the Wells Fargo bank. I think we can do more with the Wells Fargo bank because it has to support start-up businesses as well right from scratch. It cannot cherry pick. It has to be with start-up businesses right from day one. With the more competitive environment in Canada, which we are creating through some of the moves that we are making, and with more aggressive lending to small business we will all be better off, including small business which will be creating more jobs.
I therefore urge members of the House to support this bill which will provide an important source of capital to small business.