Mr. Speaker, as was noted in the Speech from the Throne that opened this session of Parliament, the stimulation of job creation has, is and will continue to be a major objective of the Government of Canada.
Over the past four years the government has made progress and put in place the foundations for economic strength and increased confidence. The government has regained the ability to address the priorities of Canadians while living within its means. The budget will be balanced no later than, we hope, this fiscal year and the debt to GDP ratio has been put on a permanent downward spiral. Interest rates are affordable and inflation is also at a very low level.
The government intends to continue to pursue its successful course and take further action to encourage new investment to create new jobs and to generate the nation's wealth necessary to assure Canadians of a stable and secure future. This is the context which the government has brought forward Bill C-21, an act to amend the Small Business Loans Act.
Mr. Speaker, I should mention that I will be sharing my time with the member for Mississauga West and it looks like I will be sharing it with question period as well.
We all know the importance of the role that small and medium size enterprises play in the Canadian economy and the degree to which they are responsible for the creation of new jobs. The bill before us is designed to help ensure that the small business sector can continue to be a vital and dynamic part of the Canadian economy.
Bill C-21 will increase the authorized lending ceiling of the small business loans program by $1 billion from $14 billion to $15 billion. It will extend the current lending period to March 31, 1999. There are no additional program changes contained in this bill.
By passing this bill we will also be permitting the review process for the small business loans program to go forward. This is very much in the best interests of Canadians because the SBLA program is an excellent one. It is an issue that fulfils a real need in Canada's business support framework.
As we deliberate on this bill before us, I think it is important to consider the fact that almost every country in the developed world has some form of loan guarantee program for small and medium size businesses. Why? Because these programs are set up primarily for small young firms, companies that by and large have not yet had the time to develop a sufficient capital base and therefore the banks are not generally keen on lending them money. Yet it is these very firms which create so many of Canada's jobs.
The SBLA allows the federal government to stand behind loans made to small and medium size businesses by providing an 85% guarantee against the individual loan losses. It is important to note that the government role in this program is as a backup only.
Private sector lenders are entirely responsible for making loans under the SBLA program and for evaluating the businesses which apply. The decision to offer an SBLA loan to an eligible small business is taken exclusively by the private sector lender. Lenders are expected to follow normal commercial lending practices in authorizing SBLA loans. All loans are registered with the SBLA administration office of Industry Canada.
When a lender submits a claim for loss reimbursement, federal administrators audit the claim to ensure that the lender has complied with all the requirements of the SBLA and SBL regulations.
Let me emphasize that the program is not a subsidization of business. In 1995 Parliament made changes to the act that moved it toward cost recovery. Since these changes increase the price of SBLA loans, it is likely that more of the intended beneficiaries will access it.
Lenders remit a one time 2% registration fee to the government which the lenders may charge back to the borrowers. In addition the lenders pay a 1.25% administration fee on their SBLA portfolio which may be passed on to borrowers through interest rates only.
This fee structure is essentially a user pay system designed to cover any lender's loan losses under the program. Thus the SBLA program has been reformed to end subsidies and become self-sustaining. Critics are dead wrong when they try to characterize it as a handout. The program has been set up to help small firms and entrepreneurs get over some of the most difficult hurdles that confront them particularly in their early years.
The average loan made under the program during fiscal year 1996-97 was for $65,000. Most of the firms have fewer than five employees. The companies that are getting the loans are the ones that are now creating the jobs in Canada's economy. They are the young creative companies, not the established big corporations which have been shedding their employees in the 1990s.
Without this program some of our best and most innovative small companies would be denied financing, not because they are not viable but because they are new and young and are seen as presenting a high risk. In other words they represent precisely the sort of people and firms that we should be encouraging in order to provide the jobs needed by Canadians and particularly Canadian youth. This is especially true in light of the latest employment statistics which indicate that the SME sector created 81% of Canada's job growth in 1996-97.
I mentioned that Bill C-21 will keep the SBLA program going until March 31, 1999. The government is continuing to update and improve the program by carrying out a comprehensive stakeholder review. The extension under consideration will give us time to complete this review and further improve the Small Business Loans Act as we have improved it in the past.
The goal is to make changes to the SBLA to ensure that the government can continue to address marketplace gaps on a fiscally sustainable basis while minimizing overlap and duplication with private sector financial institutions.
In carrying out its comprehensive review, the government will certainly give full and complete consideration to the recommendations and suggestions the auditor general has made in his review of the SBLA, particularly with regard to a more detailed and updated evaluation framework and the need to eliminate any loopholes that may permit project splitting. The auditor general's report pinpointed some program weaknesses and suggested a number of remedies. Industry Canada has already implemented many of his suggestions and is in the process of implementing more.
The government is determined to create a climate in which Canadian small businesses can thrive. One of our key challenges in this regard is to ensure that the banks and the financial institutions become more flexible and open with regard to the needs and opportunities of small businesses, particularly with regard to lending practices. By passing this bill the House will be helping to do just that. During fiscal year 1996-97 more than 30,000 firms benefited from the SBLA program.