Mr. Speaker, I am particularly pleased to talk about the Small Business Loans Act and the impact of the changes.
When a member from the Reform Party asked the previous speaker in the question and comment period about a suggested reform, it was implied that we somehow made the atmosphere more competitive for lending institutions instead of dealing with people in small businesses who need assistance. I guess I should not be surprised that someone from the Reform Party would see that the goal would somehow be to help banks and lending institutions instead of helping people access the money they need to expand their businesses.
Clearly that is one of the fundamental differences between this side of the House and that side. We understand the reason the Small Business Loans Act has been such a success over the past 37 years. It has made available a reserve of capital to people who otherwise would not have access to it.
How does it work? The bank gets a bank guarantee for 90% of the loan. The loan is also targeted specifically to an asset that would be added to the business. It could be leasehold improvements. It could be a die-cast machine. It could be a transportation trailer, something that can actually have affixed a value which could be recovered if the small business were not successful and winds up owing the money.
The vast majority—well over 90% or closer to 95%—of small business loans are paid back, but there will always be as in any economy from time to time the odd problem. As a result we have a situation where some value will be added to the product financed by the lending institution. In essence that is what this bill does.
The member opposite also asks “What are the changes? What is new?” I invite him to take a look at them because I think they are quite significant.
First, one of the changes in this act will allow for the program to continue with a five year review instead of eliminating the ability to lend. That has been one of the problems in the past. There is a little black hole, a spot, a period of time, when it needs to come before parliament to get restarted or kick-started. This will allow for a five year mandatory review, but the lending authority side of the legislation will continue.
Second, and I find this particularly interesting, is that we are looking at a capital leasing pilot project. In some ways this does exactly what the member opposite in the Reform Party was asking. It expands the marketplace to allow leasing companies now to access a loan guarantee from the federal government.
It is an option for businesses in many cases that need to acquire very expensive equipment in the transportation or manufacturing sector. Perhaps they are at their maximum in terms of a line of credit or something of that nature with the bank, or they do not have the personal assets or the corporate assets to back up the loan, so they go to a leasing company. This part has not yet been designed, but it seems to be a positive change that would allow leasing companies across Canada to access loan guarantees and would encourage them to make loans to small business.
The third reform in the bill is a voluntary sector pilot project, which is extremely exciting. People in the voluntary sector who do such good work in the community may from time to time need to acquire something of a fairly substantial capital nature. This will allow them on a cost recovery basis to access money through the Small Business Loans Act.
Those are three of the changes the act will put in place that are very positive. It is not designed to favour big banks or lending institutions but rather to offer them some security when they are in a situation where they otherwise might not make the loan.
The Small Business Loans Act requires that the applicant fill out a very extensive business plan. It requires that the applicant does the homework. That is a positive thing, aside from the fact that it may give the government, the taxpayers and the lending institution more confidence in understanding how the loan will be repaid. To fill out a detailed business plan small business entrepreneurs have to understand their businesses, their problems and their strengths. It is very positive that the application is as detailed as it is.
The city of Mississauga in my riding of Mississauga West is known as a city of small businesses. Many of the businesses will benefit from the changes in the bill. Many of them have benefited over the last 37 years from the Small Business Loans Act which has been put forward by everyone who has held government in the country over the last 37 years.
In 1998 the business directory in Mississauga listed just under 10,000 business. Out of those 33% had between one and four employees and another 25% had between five and nine employees. Almost 60% of the businesses in Mississauga have fewer than 10 employees. When we add in the other 10 to 20 employees it is 18%. Almost 80% of the businesses in my city run businesses with fewer than 20 employees. In an area like mine some understanding of the significance of small business is critical.
I was privileged in 1988-89 to be appointed as the small business advocate by then Premier David Peterson in the province of Ontario. We did some analyses. Every year the small business advocate would file a report with the Ontario legislature on the state of small business. We found that the top three problems concerning small business in those days—and from my prospective in Mississauga they continue to be the top three problems—were access to properly qualified and trained staff and the ability to keep them once they have been trained, the taxation burden, and access to capital.
The Small Business Loans Act improves access to capital for small businesses. It lays out the ground rules so they understand what is involved and gives some confidence to the financial sector that these loans can be made without total fear they will not be paid back.
On the issue of taxation, it is my view that small business, not unlike every other sector of our society, feels that we are indeed taxed too high. The finance minister made announcements on tax reductions in the last budget and there will be more announcements coming on tax reduction. I would suggest to all members, when I hear all the hue and cry about employment insurance premiums, et cetera, that the small business people in this country want to have a fiscally responsible and prudent government. They want to see us tackle the debt.
I have round tables four times a year in my community with business people and the number one issue I hear about from those business people is that we have to get a handle on the debt. The debt alone is a serious problem. These business people want us to have a proper, responsible financial plan and the small business loan legislation is part and parcel of it. It is one of the legs in the stool that will continue to make our economy as great as it is.