Mr. Speaker, I appreciate having the opportunity today to talk about the Small Business Loans Act. Obviously as a government and as a party we believe the small business sector plays an important part in the economy.
The last time statistics were compiled, in 1993, showed that 911,700 businesses in this country had fewer than 100 employees, which is actually 99 per cent of the businesses that operate in Canada. So we can see the importance of the small business sector. In fact that number represents a 30 per cent increase in the number of small businesses in Canada over the previous 11 years. Not only is small business an important part of our economy, but it is an increasingly important part of our economy.
These small businesses with fewer than 100 employees-some are micro-businesses, with between one and three employees-account for 44 per cent of the jobs in Canada. More important, small business accounts for the vast majority of the new jobs being created in this country today. As a government, we recognize that.
We as a government understand that we need to assist the small business sector, that we need to create a climate, an environment within which the small business sector can operate successfully, so it is able to be profitable. By being profitable they are able to create employment, which is the bottom line. We want to ensure employment is created. Our government has done that in a number of ways. It has done it in terms of our fiscal policy. It has done it because we have addressed Canada's fiscal deficit and we have worked as a government to bring some economic order to this House.
By the end of this fiscal year we will have come close to reducing the annual deficit by half. In the last budget the Minister of Finance had a plan that would see our expenditures reduced by 19 per cent. The public service is being reduced by 14 per cent. We are bringing economic revitalization to this country and we are bringing some sanity to our economic house, but we are doing it in a way that recognizes that behind every expenditure line on the government's expenses there are real people, real Canadians. We are determined to do this economic exercise in a fair and equitable way for every Canadian.
The second area we have worked in to create a favourable climate for the small business men and women of this country is on
the regulatory regime under which they have to operate. There is no question that if we overburden the small business men and women with regulation after regulation they spend more time doing that than they do taking care of their business, creating wealth and jobs.
Already this government has eliminated 250 regulations that have served their purpose and are no longer applicable, and we have amended another 300 plus. We are very cognizant of the need to refine our regulatory regime and we are working every day to make sure we are protecting the interests of Canadians where those interests need to be protected by regulation while at the same time making sure we do not do it in a manner that overburdens the small business sector.
We come to the third component of our strategy for small business, which is the issue of access to capital. The Small Business Loans Act and the bill we have in front of us, Bill C-99, deal very much with the whole issue of access to capital.
I, along with some colleagues here in the House, sit on the industry committee of the House of Commons. That committee has worked now for close to two years on this very issue of access to capital. We have worked with the private sector in this country, with the Canadian chartered banks and with others to try to ensure that they take measures that will ensure that there is increased capital to the small business sector. To some extent, we have met with some small successes.
The banks looked at much of what we said and agreed that there needed to be a code of conduct that clearly outlined the relationship between the small business sector and the financial institutions. In effect, that code is now in place in all of the banks. It defines things like if a person is turned down for a loan they have to be told why. They have to be given the reason. They have to be told alternatives. It talks about when a loan is called and the amount of time that has to be given in order to do that. It is helping to take some of the surprises away. I was glad to see that was the recommendation of the industry committee and that the chartered banks followed that.
A second thing they have done is put in place an alternative dispute resolution system, the ADR. Basically it is a mediation process. It gives small business men and women who have a relationship with a bank and who are not happy with what is happening with that relationship the ability to appeal what is going on to an independent panel. This is a positive step. It was long overdue. I was pleased to see that it was with the initiation again of this House through the industry committee that the banks are in fact doing that.
We still have many challenges. One of the things that we know as parliamentarians is that in order to evaluate whether or not there is sufficient lending to the small business sector, whether there is indeed proper access to capital, we need to know exactly what is being lent and how much that is either increasing or decreasing. One of the things we have worked on in the last four to six months with the chartered banks is in fact that they will provide statistics on how much they are lending. And that is not just a gross amount of how much they are lending, but broken down by region, by industry, and by a number of other factors, so that we as parliamentarians and representatives of the Canadian public, and in this particular case the small business community, can in fact tell whether or not small business is experiencing a credit crunch.
One of the greatest difficulties we had in examining this issue in the last two years is we did not really have access to good statistics. We had a lot of anecdotal evidence, and when we called the banks they often said that was the exception rather than the rule. By insisting that we get these statistics, by insisting that this information be provided to us, we will have an opportunity to see not the exception to the rule but in fact what the rule is and whether in fact there is more capital out there available to the small business sector.
Complementing the private sector and their lending to small business, the government also has a role to play. The bill we are talking about today, Bill C-99, is one of several components of the government's interaction with the small business community in terms of access to capital. We have the Business Development Bank, formerly the Federal Business Development Bank of Canada, which lends to small business, we have the business development corporation that used to be part of the human resources development department and now is part of the industry department, which is lending to small business in rural areas, and we have something that is a very important project, something called the Small Business Loans Act.
I am probably one of the few if perhaps not the only member of this House who has actually used that program as a lender-not as a borrower but as a lender. I can say unequivocally that in the 20 years during which I operated in a private financial institution, this program helped provide capital to the small business men and women of Canada. Indeed, there were incremental loans that happened as a result of the existence of this program. It was not simply a duplication. It was not simply providing loans that would have otherwise been made. It actually allowed for loans to be made under this guarantee program that otherwise would not have been able to take place.
It is an important program. It can really help people in very meaningful ways. For instance, if you are a long-distance trucker and you want to buy your rig-they sometimes cost well over $100,000-this program will help finance that. It will finance that type of equipment up to $250,000. It will allow somebody to get into business who might not otherwise have been able to.
If you are a retailer, one of the things you have to do when opening a retail shop is the leasehold improvements in the business. This program allows for financing of leasehold improvements. That is a tough thing to get financed in the private sector. Through the Small Business Loans Act, a lot of people who otherwise might not have been able to get the credit to do that, who otherwise might not have been able to open their shops, are able to. It is because of this program and the good this program is doing.
If you are a manufacturer, ofen you have to go out there and buy the equipment. It might be a stamp machine, a conveyer belt, some sort of equipment. Again, this program can help that business do it.
This is not, as one of the members of the Bloc mentioned before, a duplication of an existing program in Quebec, the Paillé program. It is not a duplication of that. That program provides credit up to $50,000. This program provides it up to $250,000. That program is for start-ups. The small business loan is for start-ups as well, but it also allows us to finance existing business expansion. That is an important source of new wealth creation, an important source of new job creation. Not only are we helping start-ups, but we are also helping existing businesses find capital for their expansions.
In addition, the Small Business Loans Act has a longer amortization than the Quebec program. They have a relatively short amortization of three years, whereas under the Small Business Loans Act you can amortize up to ten years. For the small business person who is starting off with a new business or with an expansion, it is important to have that longer amortization so that their payments, at least in the beginning, can be relatively low and their cashflow can be reserved for expansion and to keep the company going in what usually are the most difficult years, either at the start-up or after they have just had an expansion.
I want to talk a little about the cost of this program. I believe government has a role in creating an environment for small business. I believe government has a role in certain circumstances to assist directly, such as in the Small Business Loans Act. I also think it is important that we do this in a way that is revenue neutral, that recovers costs and is not going to place a large burden on the Canadian taxpayer.
We have seen this work. The Federal Business Development Bank, now the Business Development Bank of Canada, has for many years worked on a mandate of cost recovery. It has to structure its programs, its guarantees, its collateral, its fees, and its interest rates so that it recovers cost. It works, and it is proven that it works.
This SBLA program now is moving along the same basis. It is going to be a cost-recovery program. There is always going to be a certain amount of loss that is going to be created with any loan program. If you lend money, you are going to have a certain amount of loss. The objective as a prudent lender is to make sure there is a provision for that loss and there is the revenue to carry that.
I know that one of the members opposite talked about the great liability that was going to be incurred by the government through this program. In a five-year timeframe this program is going from $4 billion to $12 billion. That is $8 billion more capital for the small business men and women of this country. That is important to remember. It is happening over five years.
The potential liability is 10 per cent of $12 billion. To suggest that is the true liability of the government, that that is what is at risk, is like going to a chartered bank and saying that the risk is the total loan portfolio. Of course we do not say that. We do not suggest to any lender that the risk is the whole loan portfolio.
What lenders do, what we are doing as a government and what the Department of Industry and the Minister of Industry are doing is figuring out through prudent assumptions that the loan loss history is likely to be based on historical data and on economic performance. It is the same thing the banks do. They make a loan loss provision and as a government we ensure that the revenue stream is sufficiently large enough to cover potential losses.
In reality it is not a burden on taxpayers. It is a cost recovery program that ensures capital is provided to the small business sector.
I will comment on a couple of things that were said about how we will go about recovering the costs. The program has always had a 2 per cent fee that is paid up front. It can either be paid in cash or it can be amortized over the length of the loan.
In doing that examination and trying to ensure that it is a cost recovery program, it was determined that additional revenues would be required. Therefore a new fee was put on, an administration fee of 1.5 per cent.
One of the members of the Reform Party was complaining that the administration fee was being passed through not as a direct fee but rather through the interest rate. A small business person will prefer that it happens that way because the fee will be paid on a declining balance, as opposed to the full amount at the time it was borrowed. In reality the fee will be less, because it is on a declining balance calculated through the interest rate, than if the 1.5 per cent was paid up front.
The minister acted prudently and in a way where business people can have some control over their fee based on the speed at which they pay back the advance. That was a good way of doing it. The minister structured it so that the banks pay the administration fee. Then they have the option to collect it from their clients. I hope the
chartered banks, as part of their commitment to helping the small business sector, would absorb a part or all of that fee.
When the plan was originally amended back in 1993 the maximum rate was 1.75 per cent, but the banks charged prime for the most part. They were anxious for the business. They went out there and they got it. Even though there was a maximum rate they did not charge it. They charged prime.
Now that we have added another 1.25 per cent or 1.5 per cent to allow for the fee and put the maximum rate up to 3 per cent, I do not understand why all of a sudden it was not good enough to charge prime or prime plus a half or prime plus one. They seem to be jacking up the rates to the maximum. I do not think that is what they should be doing. They have to take care of their profits. They have to take care of their shareholders. However I believe they have a responsibility to the small business community, and one way they can show that is by absorbing a portion of the fee.
The way they have structured the fee is appropriate. It allows for small business people to save some money through their declining balance.
In summary, it is a good piece of legislation. It is an act that has been in place for many years. It has helped a lot of small businessmen and women. There are many businesses today. All we have to do is walk down Main Street in my hometown of Gravenhurst or any other community in my riding, and I dare say in any community in any member's riding, to see businesses operating today that would not be operating if this loan program did not exist. It does its job. It creates and helps small businesses. It creates and helps employment.
Not only does it do that. With these amendments it will do it in a way that will not cost the taxpayers of Canada anything because it will be a cost recovery program. I applaud the Minister of Industry for the bill. I applaud the Minister of Industry for the changes. I know they will be good for Canada.
