Mr. Speaker, I am pleased to have an opportunity to speak at third reading of Bill C-21. This is an important piece of legislation because it extends the Small Business Loans Act program and its funding for one year.
As members will know, a comprehensive review of the small business loans program is being done. The legislation before us today allows the program to continue while this review takes place.
Let me begin by emphasizing for those who have failed to understand that Bill C-21 is not a spending measure because the small business loans program is not a spending program. It is a loan guarantee program.
The legislation extends the funding for the SBLA program by raising the aggregate lending ceiling under the SBLA by $1 billion, from $14 billion to $15 billion. The $15 billion figure contained in Bill C-21 does not mean that the government will be spending $15 billion. It means that the government will be standing behind loans to the small business community that have a total value of $15 billion.
Members across the way have objected to this increase in the loans ceiling. I caution them that should we fail to pass Bill C-21 we will place a severe handicap on the SBLA program, which serves Canada's small and medium size businesses well and provides much needed access to financing.
In considering the desirability of this increase in the lending limit, we should recall the way the program authority works under the SBLA. The act provides a total or aggregate authority for all SBLA loans made by participating financial institutions during a specified lending period. Repayments of loans have no effect on the ceiling. Neither do the defaults nor claims paid.
The present lending period covers the years 1993 to 1998. The total loans made to date now stand at more the $12.7 billion. They are expected to reach $13 billion by March 31, 1998. However current authority to register loans is capped at the $14 billion mark for this lending period. If the House of Commons extends the current lending period to March 31, 1999, as is proposed by Bill C-21, we can expect further demands on loans.
Based on our experience during 1997 and 1998 we expect financial institutions would make an additional $1.7 billion of loans under the act in the coming year. This would increase total lending under the SBLA to $14.7 billion and exceed the SBLA's present authority of $14 billion. Therefore, for lending to continue under the program during the entire extended lending period, an increase in the aggregate lending ceiling is required.
Given that loans are registered on an average three months after being made, at the time the $14 billion ceiling is reached several hundred loans may already have been made to small businesses that the SBLA would not be able to register without the increased lending ceiling. This would certainly lead lenders and borrowers to re-examine these loans.
Without the additional $1 billion of lending authority, a great many small businesses would not be able to count on the SBLA to support their loans. This may cause major disruptions to entrepreneurs and businesses across Canada. That is why Bill C-21 proposes to raise the lending ceiling to $15 billion.
Assuming we see the same rate of lending as last year, this would leave a modest cushion of $300 million between the estimated need and the total cap. This excess is quite small when we take the range of possible fluctuations into account.
I would like to address another key issue that has been debated at length. That is the issue of incrementality.
The question has been raised as to whether these loans are well targeted or would they have been made by the financial institutions even without the SBLA program. There is no doubt that some loans have been guaranteed which might have been made otherwise.
The SBLA provides an insurance program against default, not a spending program. Under it, private sector lending institutions assess businesses and make loans. The federal government then stands behind the defaulted loans by paying 85% of losses on SBLA registered loans.
Like many other insurance programs, the SBLA pools risk across thousands of users. This of course diminishes risk; however it does not eliminate it for SBLA lenders. The applicants to which the banks made loans under the SBLA are otherwise creditworthy but tend to be start up companies or firms with low capitalized assets.
As with insurance of any kind, there are likely to be some loans that actually do not need insurance. For the most part these are loans that are less likely to default and therefore they do not cost the taxpayer. In fact a certain percentage of non-incremental loans actually help make the program affordable and sustainable.
It is extremely relevant to point out that since the government took office we have taken steps to move the program toward cost recovery. Since 1995, firms that benefit from the SBLA must pay fees that are designed to recover the cost of loans claims. Therefore any business that uses the program even if it does not need the SBLA loss insurance is in effect sharing the risk of lending to small businesses which need the program.
Industry Canada will be tracking this issue closely to measure the effect of user fees on the incrementality of the program. In the meantime our comprehensive review will certainly be examining the matter in detail. The comments made by members opposite in this House I am sure will be brought up in the Standing Committee on Industry.
That brings me to a final point. This government has been proactive in working to constantly update and improve the small business loans program.
In addition to the move toward cost recovery, Industry Canada has taken significant administrative steps to improve the efficiency and productivity of the program, such as cutting claims audit times by two-thirds and thereby mitigating costs to taxpayers.
We intend to continue this work under the comprehensive review. The valuable ideas and suggestions of all members of the Standing Committee on Industry will be carefully considering the total review.
In summary I remind hon. members that the statistics indicate the program is working well. It is a good program with broad support among the business community.
In 1995-96 more than 30,000 firms used the SBLA to improve their businesses. They created an estimated 73,000 jobs according to the loan applicants themselves, the people who should know best.
I would also reiterate that Bill C-21 does not make further spending requests. The amended lending ceiling and the one year extension are necessary to continue the valuable loan guarantee program while the comprehensive review takes place.
As I have mentioned over and over, this comprehensive review will be done in an orderly fashion. Hopefully we can get it to the standing committee early this fall.
I do not believe that this House wants to leave our small business community in the lurch by cutting off this very useful and necessary means of access to financing.
For these reasons and for the benefit of Canada's small business community, I would ask all members to support this bill so that we can pass it in the House and forward it on to the Senate. Then we can get on to the comprehensive review as we have discussed over and over in this House.