February 7, 1985

GOVERNMENT ORDERS

SMALL BUSINESSES LOANS ACT

PC

André Bissonnette (Minister of State (Small Businesses))

Progressive Conservative

Hon. Andre Bissonnette moved

, for the Minister of Regional Industrial Expansion, that Bill C-23, to amend the Small Businesses Loans Act, be read the second time and referred to the Standing Committee on Regional Development.

Topic:   GOVERNMENT ORDERS
Subtopic:   SMALL BUSINESSES LOANS ACT
Sub-subtopic:   MEASURE TO AMEND
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PC

Martial Asselin (Speaker pro tempore)

Progressive Conservative

Mr. Speaker:

Is it the pleasure of the House to adopt this motion?

Topic:   GOVERNMENT ORDERS
Subtopic:   SMALL BUSINESSES LOANS ACT
Sub-subtopic:   MEASURE TO AMEND
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PC

André Bissonnette (Minister of State (Small Businesses))

Progressive Conservative

Mr. Bissonnette:

Mr. Speaker, it is a great honour for me to table in the House today, on second reading, on behalf of the new Progressive Conservative Government, Bill C-23, to amend the Small Businesses Loans Act. Hon. Members will not be surprised that one of the first steps taken by this Government at the beginning of a new year should be to table an extension to this legislation.

In 1961, the Small Businesses Loans Act was passed for the first time under the Government led by the Right Hon. John Diefenbaker. Hon. Members will therefore note that it was a Progressive Conservative Government that initiated this action to protect the interests of small businesses in Canada.

The legislation is a clear example of a policy aimed at establishing a favourable climate for the generation and growth of small businesses in Canada, a vital sector of our economy too often neglected by the previous Government.

Mr. Speaker, this Government intends to enable small business to play its role as one of the key factors of economic growth and job creation. The Government is firmly resolved to support small businesses and to do so through consultation, not confrontation, by providing assistance and support instead of raising barriers, and by restoring hope to those who had lost confidence in the future.

Canadians expect their Government to lead the way towards economic renewal. This Bill is one step, and an important one, in this national process, because it will help small businesses participate in our economic recovery.

In April 1983, Parliament provided for a two-year extension of the SBLA, the Small Businesses Loans Act, setting the lending ceiling at $1.5 billion. Unfortunately, as a result of the rapid and sustained rate of increase in the number of applications under the Act during the past year, the ceiling was reached at the beginning of January, two months before the previous extension was due. This means that unless the ceiling is raised immediately, the Government will have to stop approving loans. The lending institutions have been informed of the new approach where lending ceilings are concerned and of the Government's intention to table as soon as possible a Bill that will raise the lending ceiling for the current period as well as extend the legislation for a subsequent period.

I would therefore ask Hon. Members to show their co-operation and make an effort to have this Bill passed as soon as possible. The legislation before the House will make it possible to raise the present lending ceiling by $300 million, thus bringing it up to $1.8 billion, from $1.5 billion. Thus financial intermediaries will be able to provide loans under the Act until March 31, 1985, the date on which this lending period expires. Furthermore, the Bill provides that the lending period will be extended by five years, starting on April 1, 1985 and ending March 31, 1990.

This Government is engaged in a process aimed at creating a favourable climate for the generation of new businesses. The new lending period which is to extend over an unprecedented five years will give entrepreneurs and lenders greater stability for planning purposes, in line with the Government's new approach to providing for this country's economic renewal.

The period of time covered by the new extension clearly demonstrates this Government's commitment to help small businesses. It will also mean a considerable reduction in the departmental and parliamentary resources that would otherwise be involved if the Act were extended for several shorter periods. The lending ceiling for the next period will be set initially at $1 billion. However, it will be changed in accordance with the Appropriations Act.

[DOT] (mo)

Consequently, Parliament will still carefully review the loan ceiling throughout the estimates preparation process. Instead of trying to forecast the total loans over a five-year period, this amendment will provide the Government with more leeway in fixing the ceiling because, under the program, loan rates fluctuate along with the vagaries of the economic situation. Henceforth lenders and borrowers will no longer be uncertain about the loan ceiling.

February 7, 1985

Small Businesses Loans Act

The existing legislation provides that eligibility under this program is restricted to businesses whose annual sales are less than $1.5 million. The Bill contains an amendment aimed at raising the eligibility limit to $2 million. This amendment is our response to requests from lenders and interest groups that have taken up the cause of small businesses. The eligibility limit has remained unchanged since 1977 and the increase I am proposing today will partly offset the impact of inflation since that time. The $2 million limit will also keep the definition of small business more in line with the one used by Statistics Canada and the small business secretariat. The amendment will therefore make it easier to reconcile the statistical profile of businesses which take advantage of the Small Businesses Loans Act program with the basic data used by Statistics Canada and the small business secretariat; thus we will obtain a more accurate statistical analysis of that sector.

According to the existing legislation, a borrower may apply for loans whose overall amount must not exceed $100,000 at any time. Consideration was given to a higher limit, but since the average loan in 1984 was only $28,888, such an initiative does not seem to be justified for the time being. However, an exemption concerning that limit is provided under the Bill should a group of borrowers decide to amalgamate. If at least two businesses with outstanding loans under the Act opt for amalgamation and their aggregate loans are over the $100,000 limit, a new clause stipulates that, in such a case, the Minister will not reject any request for repayment by arguing that total loans outstanding under the Act exceed the $100,000 limit, which would be the case of a single borrower.

The amendment also provides that those amalgamated businesses will again be eligible for additional loans under the existing program as soon as the total of outstanding loans drops below $100,000, with the understanding, of course, that the annual sales of the amalgamated business are not more than $2 million and that it does not contravene the other provisions of the Act. This legislative amendment will eliminate an anomaly in the existing program.

Businesses which have received loan assistance and expanded through amalgamation are often small businesses on their way to becoming medium-sized or large companies. This Government is committed to promote the expansion of small businesses and, thanks to the proposed amendment, such growing businesses will no longer be penalized.

With a view to explaining the latest amendments featured in this Bill, Mr. Speaker, I should like to describe briefly the various loan activities since the Small Businesses Loans Act became law. Before 1978, borrowers could ask for an interest rate which was set twice a year and which was often lower than the prime rate.

In 1977, all loans totalled some $96 million, while all claims paid by the government to financial institutions because of losses incurred following defaults totalled $600,000. In 1978, the formula for determining the interest rates lenders were allowed to charge was changed from a fixed rate to that of the prime rate plus 1 per cent. Following the application of this new formula, the number of loans made available under the Small Businesses Loans Act increased tremendously, for it made it more financially interesting for banks and lenders to participate in this program. The actual loans made available increased from $96 million in 1977 to $180 million in 1978. Following this amendment, the claims paid by the government also increased tremendously. In fact, they more than doubled in one year to reach $1.4 million.

Since then, both loans and claims have been on the increase, so that some $900 million were made available in 1984 under this program. The government received that year claims totalling $43 million. Moreover, even if the program was cancelled now, we would still have to compensate lenders in the months and years ahead for losses incurred due to defaults in the past few years. The greatest flaw of the Small Businesses Loans Act, in its current form, is that the government assumes full and complete responsibility for the losses thus incurred. The government is satisfied with the way financial institutions have administered the program, but the tremendous increase in loans as well as good sense seem to dictate that lenders should assume part of the risk they are willing to take. Lenders have an edge now because they are being paid interests of 1 per cent over the prime rate on these nearly risk-free loans and participate in a program which is a precious marketing vehicle.

Originally, the program had been established as an incentive for chartered banks to offer term loans. Here is why. In 1961, chartered banks did not have the power or authority to lend money on mortgages or against the various instruments of today. Because lenders are now competitive enough in this area, they should naturally be willing to assume part of the risk. Accordingly, the bill which I introduced today provides for the sharing of losses between the government and various lenders and will apply naturally only to loans granted after April 1, 1985. It suggests a 90-10 government-lender loss-sharing ratio.

Our aim in drafting this bill was to establish an equitable and fair loss-sharing ratio which would not jeopardize the program while transferring part of the responsibility for the losses incurred to the lending institutions. Mr. Speaker, it is of utmost importance to continue offering incentives to private lenders to encourage them to offer voluntarily this program which promotes a climate which is conducive to the creation and development of new businesses in Canada.

February 7, 1985

Like the loan ceiling, the cost-sharing ratio will be amended pursuant to the Appropriation Act. This way, the Government will be in a position to readjust the ratio, subject to parliamentary approval, based on the changes in the economy and the financial needs of businesses.

The last major amendment to the Small Businesses Loans Act provides for only one fee equivalent to one per cent of the amount of the loan allowed under the Act. Let me explain. When a business borrows $50,000, the bank or lender will have to pay one per cent just once, upon granting the loan and applying to the Government for a guarantee. That fee will cover part of the cost of the program to the Government and will ensure that the program is continued in the private sector. It is quite reasonable to ask for a fee on a loan guarantee, and the Small Businesses Loans Act is one of the few such programs not requiring a fee. That one per cent fee will not be prejudicial to the small businesses which take up loans under the program. They will still be paying the same rate of interest as provided for in the Act, namely one per cent over and above the prime rate. Assuming that the loans level stays at its current figure at about $900 million a year, that fee will bring in some $9 million a year to the Government, to cover for loan losses. The overall impact on the lenders' rate of return over that period or over the term will be minimal. The volume of loans should not therefore experience a significant decrease.

The review made by the Department before the drafting of the amendment pointed to certain small administrative problems in the Act. Accordingly amendments are proposed in order to clarify the registration requirements for loans and payments in respect of applications, and to give the Minister the authority to make regulations as needed for the proper administration of the Act.

Mr. Speaker, Members from every party in this House are aware of the importance and of the significant contribution of small businesses in the Canadian economy. Further more, 95 per cent of Canadian businesses have a yearly turnover of less than $2 million and they contribute one-third of the private sector's gross national product. They also account for 25 per cent of jobs in Canada. Between 1978 and 1982, they created just about all the new net jobs in Canada. A large number of small businesses are owned and operated by Canadians. Therefore, they do create economic activity in every city, town and village and make a major contribution to regional economic development and to import replacements, to local economy diversification and to innovation. Also, we feel that the growth and vigour of small businesses are essential to the long-term viability of the overall Canadian economy. The provisions in the Bill I am introducing today make up the most complete overhaul of the Act since it came into force some 25 years ago.

The $300 million raise in the loan ceiling for the current period will ensure that loans are granted until April, when the new loan period begins. The new loan period will extend over

Small Businesses Loans Act

five years, as of April 1st. This proves this Government's commitment to the needs of small businesses. Moreover, raising the maximum qualifying turnover figures will allow a larger number of small businesses to obtain loans under the program.

The new rules dealing with joined borrowers will remove an artificial obstacle to the growth of small businesses. Moreover, a ratio for the sharing of losses and low security costs will reduce the total costs incurred by the government and will more equitably divide loan losses while maintaining that efficient and popular program in the private sector. The minor amendments will make for a more rational management of the program by spelling out more clearly the Minister's responsibilities and powers under the legislation.

Considering that the loan ceiling and the ratio of loss sharing will be established under the Appropriation Act, the government will have more discretion to alter the parameters of the program and submit them to the approval of Parliament.

The traditional commitment of the Progressive Conservative government to small business is once again clearly shown in a spirit of co-operation and consultation with all Canadians.

This new national government has made a clear choice to give Canada a renewed prosperity, Mr. Speaker. It has also initiated an economic renewal and a new prosperity for all Canadians in November last, when my colleague the Minister of Finance (Mr. Wilson) introduced some measures to simplify the income tax of small businesses and today with the bill now under consideration.

Mr. Speaker, I encourage all hon. members to support our policy aimed at bringing about the changes demanded by Canadians on September 4 last and more particularly I ask them to pass swiftly that timely and necessary legislation which will be of direct benefit to small businesses and the Canadian people.

[DOT] (U25)

Topic:   GOVERNMENT ORDERS
Subtopic:   SMALL BUSINESSES LOANS ACT
Sub-subtopic:   MEASURE TO AMEND
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LIB

Alfonso Gagliano

Liberal

Mr. Alfonso Gagliano (Saint-Leonard-Anjou):

Mr. Speaker, the Conservative Government has introduced a Bill, allegedly to extend financial support for small businesses. Yet, Mr. Speaker, the provisions of this Bill go against the very spirit of a statute which for many years has contributed to the development of small businesses in Canada.

This legislation, which was tabled without any real consultation or concern for the needs of small and medium sized businesses, is another example of the mismanagement and irresponsibility of this Government, which manages the nation's business by approximation rather than with the ability required to govern a country such as ours.

Although the Government keeps on telling us that it believes is consultation, it had no hesitation in introducing in the House

February 7, 1985

Small Businesses Loans Act

a Bill which is obviously ill-designed and which does not meet the needs of small businesses.

Consultation with whom? What does the word "consult" mean for the Conservative Government? For the Liberal Party, it has always meant that the input should come from the users who benefit from the services provided by legislation.

This Government seems to prefer working in secret, behind closed doors.

The Bill to amend the Small Businesses Loans Act is a measure which will make the Canadian economy move backward and cause many problems and headaches to small businesses while, in theory, it should be promoting the development of our industries and businesses.

Mr. Speaker, this ill-designed Bill should simply be withdrawn if the objective of the Conservatives is really to promote the growth of small businesses in Canada. The amendments which the Government wants to make to the Small Businesses Loans Act are clearly unacceptable to our Party and to the organizations representing the small business community.

Let us consider one by one these amendments stemming from a simplistic analysis of the situation of small businesses. Even though the $1.5 million ceiling for the yearly gross revenue has not been increased since 1977, this Government, in what it calls a major review of the Act, increases the ceiling only by half a million dollars in Clause 1. As for Clause 2 of the bill introduced by the Government, it goes against the spirit and the letter of the existing Small Businesses Loans Act whose purpose was to encourage lenders to grant term loans to small businesses thus allowing them to upgrade and modernize their equipment and facilities and ultimately increase their productivity. Mr. Speaker, it seems that this Government wants to discourage any new loan by creating unacceptable new requirements for lenders. We must ask ourselves whether the Conservative Government does not simply want to ruin the Small Businesses Loans Act by making it unacceptable for lenders. Such a strategy, camouflaged in provisions which any serious analyst would obviously find unacceptable, would cause serious harm to the Canadian economy.

We cannot believe that, to keep the unrealistic promises it made during the electoral campaign, any Government would dare sabotage deliberately a piece of legislation which is one of the cornerstones of Canadian economic development. However, Mr. Speaker, if this is not a manoeuvre aimed at making the law inoperative, nothing justifies the provisions contained in the various sub-clauses of Clause 2. In view of the guarantees required from lenders and the essential purpose of the legislation, the new loss-sharing ratio seems simply aimed at limiting the number of loans. While basically the Government participation under this legislation must be to stimulate the economy by encouraging the granting of loans to develop small businesses, this will create a climate in which the lenders will become suspicious of businesses. It is obvious that this Act was passed in 1961 to encourage lenders to finance businesses

which could not otherwise afford certain other programs usually offered by lenders. By using an extremely cautious formula and by taking into account the maximum losses sustained in a year, the Government can expect to recover a maximum of 0.7 per cent of the total value of loans thanks to the new loss-sharing ratio proposed in the bill.

A cost-benefit analysis of this bill would establish that potential revenue is insignificant since hundreds of millions of dollars in loans will probably be refused to small businesses by lenders who will worry about the appearance of the loss-sharing ratio. The refusal of 10 per cent of loan applications would mean a loss of investment capital for small businesses. It seems obvious that, at a time where economic growth is essential, the legislation proposed by the Conservative Government is irresponsible and dangerous for the Canadian economy. In addition, the clause requiring the banks to pay a premium of 1 per cent on the total value of each loan granted is also unacceptable.

Moreover, representatives of small- and medium-sized businesses have made it clear that this obligation will destroy the legislation and make it inoperative. Mr. Goeffrey Hales, vicepresident of the Canadian Organization of Small Businessmen stated in response to this Bill, and I quote: "If lending organizations have to pay such a premium, they will withdraw altogether from the program provided under the legislation." In the same spirit, John Bulloch, president of the Canadian Federation of Independent Business, said recently that it would be foolish to charge such a premium to banks. Whom did the Conservative Government consult before introducing such amendments to the legislation which are totally unacceptable to all partners in the business world?

We have seldom seen such a consensus against a provision in a bill. Once again, we have to ask the following question: Is the Conservative Government trying to destroy the Small Businesses Loans Act by imposing unacceptable conditions? If so, it is taking the necessary means to that end.

Is the Government really so unaware of present economic conditions in Canada that it is ready to put aside an act which has promoted the growth of our small businesses for 23 years? The Liberal Party will never allow the Conservative Party to hinder the development of our small businesses. Through its legislative program, our Party has always encouraged their growth. The Liberal Party knows that strong small- and medium-sized businesses are essential to provide sustained job creation and economic growth in Canada. We know that this sector has provided 70 per cent of jobs in Canada between 1979 and 1980 and practically all jobs created between 1979 and 1982. The Liberal Party knows that at least 90 per cent of businesses in Canada are small- or medium-sized and that they account for more than 30 per cent of the Gross National Product.

February 7, 1985

Faced with such an irresponsible piece of legislation as this Small Businesses Loans Act, it might be appropriate to remind to Conservatives of the measures which a competent Government responsive to the needs of small- and medium-sized businesses has introduced in the past years. From 1980 to the 1983 budget, the Liberal Government has taken many steps to help the small business sector:

Program to promote subcontracting with Canadian companies (August 1980): The purpose of this program is to provide greater opportunities for small Canadian businesses to bid on subcontracts for major projects awarded to the federal Government's main suppliers.

Lower tax rate for small businesses: Small businesses are taxed at a rate lower than the rate applicable to major companies.

Small businesses investment grants: This measure was announced in the June 1982 budget. Grants were made to cover 4 percentage points over a two-year period and paid to the financial institutions by the federal Government on behalf of the borrower.

To promote even further the expansion of small- and medium-sized businesses, the Liberal Government gave them priority in the budgets of April 1983 and February 1984.

In April 1983: Investment Tax Credit: The budget provided a special refundable tax credit for small businesses investment recovery. In addition, companies that made investments and issued new equity shares were authorized to transfer to the purchasers any investment tax credit earned after April 19, 1983.

Research and Development Tax Incentives: The budget provided for the replacement of the 50 per cent tax deduction for increased research and development by an additional tax credit of 10 percentage points for all research and development expenditures, up to 30 per cent for the Gaspe area and the Atlantic provinces, 35 per cent for small businesses and 20 per cent for other businesses.

Carry over of losses to past or future years: The budget allowed for an extension of the period for carrying back or forward losses other than capital losses so as to reduce taxable income for past and future years.

Recovery Export Fund: The budget established a $180 million special recovery fund and an additional $20 million to be administered by the Export Development Corporation to help small- and medium-sized businesses win larger export contracts.

Shared wage costs: According to the budget, the new NEED program and the Youth Internship program of wage subsidies were to enable businesses to hire the required staff and share the cost with the Government.

Then, Mr. Speaker, we find the following in February 1984: Simplifying taxes for small businesses: the Budget contained

Small Businesses Loans Act

proposals to simplify and shorten the tax form for businesses, to reduce the costs of applying the tax rules, to increase tax savings and to cut the small business tax legislation by two thirds.

Improving the fairness of tax administration: The Budget proposed a number of immediate initiatives to lighten the administrative burden of taxpayers and make the tax system fairer.

Employee profit-participation plan: The Budget proposed a maximum credit of 10 per cent of profits as an incentive for employee profit-participation plans.

Aid-Trade Fund: The budget proposed the creation of a fund to ensure closer coordination of development assistance and export financing policies.

While, throughout the years, we were able to propose measures to promote the development of small businesses, the Conservative Government, after all its promises, can only introduce in this House a bill which, according to small business representatives themselves, will, in effect, simply sabotage the Small Businesses Loans Act. The irresponsibility of this Government is such that it jeopardizes the development of many small businesses. Ladies and gentlemen on the other side, we suggest that you do your job, that you examine all these Liberal initiatives which were able to meet the needs of small businesses and that you come back to the House with a realistic bill which will truly meet the needs of Canadian small businesses. As we say, Mr. Speaker: "Do your homework." The Canadian people have a right to expect their representatives to show a modicum of ability. You have no alternative but to withdraw an irresponsible and harmful bill. The Liberal Party will never agree to legislation which would harm the economic development of our country.

Mr. Speaker, in the few minutes which I have left and I should like to mention the confusion created by this Government. We now have before the House a bill which, in practice, could slow down the activities and the development of small businesses because of the two provisions dealing with the 10 per cent share which the banks or lending institutions must guarantee, and the fact that these institutions must pay a fee of 1 per cent of the loan when the loan is registered.

Mr. Speaker, I read with surprise the following excerpt from the speech which the Hon. Minister of Finance (Mr. Wilson) delivered on January 28 before the Canadian Club in Toronto. I quote from page 7:

Nobody can contribute more than the small business to the recovery of the economy and the creation of new opportunities. It has created most of the new jobs in Canada over the past few years. What is more, it has the greatest potential for creating new jobs over the next few years. If we really want to entrust the private sector with the economic growth of our country, we must see to it that entrepreneurs are rewarded for their spirit of enterprise and risk-taking. We must also take every possible step to eliminate all obstacles to the development of the small business.

February 7, 1985

Small Businesses Loans Act

This means seeking ways and means to ensure small businesses have access get the capital they need, especially when starting operation.

It is not a backbencher who said that, Mr. Speaker, but the Hon. Minister of Finance (Mr. Wilson). He said that small businesses need loans and capital to pursue their development; and yet, the Minister of State responsible for Small Businesses introduced today a bill which for the most part will cause problems for small business people who statistics indicate are those who avail themselves most of this program.

Mr. Speaker, another fact remains: Since mid January, small businessmen have been unable to obtain loans because the maximum ceiling has been reached.

I ask the Hon. Minister of State (Small Businesses) (Mr. Bissonnette) to divide this bill in two, so that banking institutions may continue right away to grant loans until March 31 and we can continue to examine his proposed amendments to the Small Businesses Loans Act.

If the Hon. Minister believes in the development of small businesses, Mr. Speaker, he must divide this bill and amend it so that small businesses in Canada may plan their operation and requirements.

Topic:   GOVERNMENT ORDERS
Subtopic:   SMALL BUSINESSES LOANS ACT
Sub-subtopic:   MEASURE TO AMEND
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NDP

Iain Francis Angus

New Democratic Party

Mr. Iain Angus (Thunder Bay-Atikokan):

Mr. Speaker, it is with great pleasure that I rise today to lead off my Party's participation in the debate on the Small Businesses Loans Act. I want to say at the outset that I find it interesting that the Conservatives in government are acting no differently from the Liberals in government. They are bringing in a Bill in a rush and saying that they have to have it passed now. The Conservatives have known for quite some time, I am sure, that funds might not be available and that there was a need to top up the amount of loans available.

I want to say to the Minister responsible for this Bill that we will be supporting it reluctantly. I say that because we think it is an imperfect vehicle to support small business, but it is the only one available realistically this day nationally. We will support it and we will support the fine-tuning of the Minister.

I find it interesting that the Liberals, on the other hand, are trying to have it both ways. First, the Liberals want to have the Bill withdrawn but then maybe they want it split, I am not sure. Perhaps the Minister is not even sure what exactly the Government wants to do with this Bill.

I am quite happy to speak up in support of small business. As we all know, small business is the only sector creating real jobs in Canada today. Small business is the only sector that is creating jobs in our smaller communities. Small businesses are the only ones who are able to respond to changing economic situations in a way which protects themselves and their communities. They are the sector which tends to buy Canadian, to do its work in Canada and to share its profits in Canada. I think we have to support them. They also tend to be Canadian controlled and locally controlled so that whatever decisions they make are important to neighbouring communities. They do not, with the viciousness we have sometimes seen on the

part of large corporations, make arbitrary decisions which eliminate the jobs and livelihoods of many people in smaller communities. They deserve to be supported in a non-interventionist manner.

Governments do not have to own small businesses, but we as legislators have a responsibility to ensure that we establish a climate which allows them to survive, to grow, to create wealth and therefore to share wealth within the context of Canadian society. We have seen that happening. We have seen in the last number of years that the only growth in employment has been in the small business sector.

The Canadian Federation of Independent Business, in a submission to the Macdonald Commission, showed very clearly that the percentage increase in employment was greatest in the smallest firms. Those firms with from zero to four employees had an increase of almost 76 per cent in the period from 1975 to 1982; those with five to nine employees, 28 per cent; those with 10 to 19 employees, 19.1 per cent; those with 20 to 49 employees, 9 per cent; and those with 50 to 99 employees, about 2 per cent. However, those firms with over 100 employees saw a decline of almost 3 per cent in jobs available, and big business saw a decline of 2.5 per cent.

When we look at the future, we see that between the years 1983 and 1990 there will be very little growth in the large corporate sector and that there will be no growth in the public sector. But there will be considerable growth, projected to 1999, in small- and medium-sized enterprises in the country. We have to foster that.

The Small Businesses Loans Act which we are debating today is one such vehicle. At least it is a vehicle which is in place. With the improvements being made by the Government, these loans will be more appropriately used. May I say that the banks accept, at least in part, their responsibility for the provision of capital to the small business community.

As I said before, we should be doing all we can to direct government assistance to the private sector and orient it toward the small business community. The amendments proposed in this Bill are definite improvements. The topping up by $300 million for this fiscal year to allow the program to continue is clearly an excellent move. Perhaps I would have been happier had this Bill been presented to us in the fall instead of demolishing the Foreign Investment Review Agency, because it is something we can support and work toward. We are now in a catch up situation. We are trying to put money in place because we have run out. We reached our ceiling two or three weeks ago, according to the Minister. It is clear that we should have been doing this last fall. We on this side of the House would have been happy to insist and ensure that the money was in place when it was needed.

The extension of the new lending period from two years to five years makes much more sense. We on this side have always demanded that the Government extend its sights beyond a year or two and develop some long-range plan. While there has to be a yearly allocation of the ceiling, it makes more

February 7, 1985

sense to have the Act in place for Five years. I caution the Minister that perhaps some of the things he is doing in the Act should be tied in some way to the cost of living.

For instance, in terms of the definition of small business, the Minister admitted in the material which he distributed that the increase to $2 million will partially deal with inflation. It would make more sense to build into the Act some inflationary component so that two or three years from now, if we have an accumulation of 10 per cent or 15 per cent inflation, we do not have to come back to make an amendment. It should be a mechanism which automatically works its way along and reflects conditions in the market-place.

It will also allow for more stability in the small business sector. Applicants will know that for five years the funds will be there, assuming the Government is prepared to ensure that the ceiling is high enough. However, we question whether the legislated SI billion limit is adequate. We are clearly reaching $900 million per year now, and with the improvements in the Bill there may be further demand. I would appreciate hearing from the Minister later as to the annual indication of how much the ceiling will be so that we will know whether or not $1 billion in terms of a legislated floor is something which perhaps should be improved now rather than finding out a year or two from now that there is a problem with it.

One aspect which we on this side of the House really like is the fact that finally the banks of the country will be forced to take their responsibility for supporting small businesses. In terms of the 90-10 split, perhaps we would have used a different ratio; perhaps it would have been 80-20 or 70-30. However, I think the principle is important. Although they accept their share of the responsibility, they are demanding collateral from applicants. In effect, they are being insured twice-once by the Government and once by the applicant. I recognize that there is a need for collateral. Perhaps the Minister could address this subject at a future point, that is, the relationship between the Government insurance aspect and the kind of collateral which the banks are demanding. Sometimes I think they demand too much and put small business persons in the situation of not being able to take advantage of other aspects of the market-place because they have had to lock up everything with banks for capital expenses even though they are insured by the Government. Then they do not have any equity to acquire operating or inventory financing which they may desperately need in order to survive. I encourage the Minister to look at that to see what impact it has and whether or not an improvement could be made in committee.

The most controversial aspect of the Bill is the user fee. The Minister proposes that the banks should pay the Government a fee to help offset the cost of defaults which may occur. The Canadian Federation of Independent Business and the Canadian Organization of Small Business have both suggested very strongly that that change will give the banks an excuse not to play ball or to avoid using the Small Businesses Loans Act. While I share their concern-and I have spoken to the Minister about this-we have to ensure that they are not allowed to withhold their funding under the Small Businesses Loans Act.

Small Businesses Loans Act

However, I disagree with the suggestion by those two organizations that the small business people should be paying the fee. The last thing they need is yet another expense on top of the cost of borrowing and the cost of running a small business in this day and age. They do not need a fee of 1 per cent or 1.8 per cent up front on their total capital request to add to their economic burden.

I encourage the Minister not to accept the arguments of the two small business organizations in the context of not placing the burden on the applicant. It rightfully belongs with the banks. As I indicated before, they have to accept their responsibility as well. If we were debating amendments to the Bank Act as opposed to the Small Businesses Loans Act, we could suggest mechanisms that would require the banks to set aside a chunk of their capital, earmark it for the small business sector and make it available at realistic rates of interest and on realistic terms. That Bill is not before us so we have to work within the context of this Act.

We did a quick survey of the co-operative financial institutions of this country. Although they are not exactly excited about the prospect of having to pay this fee, they did indicate quite clearly that they would not use it as an excuse not to participate. They believe that the Small Businesses Loans Act is a good vehicle for them to support people who come to them.

I suggest that the Act should be broadened. It now restricts the availability of capital to acquisitions and, therefore, cannot use capital for operating or inventory. As my colleague from Kamloops-Shuswap (Mr. Riis) indicated in this House quite some time ago, we would be pleased to see that provision changed so that they could use the insurance aspects to gain access to operating capital.

There is something else we would prefer to see. I am in a quandary because I will have to say glowing things about the Conservative Government of Ontario in doing so. What is worse, it was the Hon. Claude Bennett who initiated this program. The Ontario Development Corporation with branches of the Eastern Development Corporation and the Northern Ontario Development Corporation provides funding to small and medium size enterprises throughout the province. One of its key programs is the provision of financial assistance at a fixed rate of interest for a fixed period of time, that is, 15 years. The rate established is the going rate of the day, but they can guarantee those small businesses that for the next 15 years they will not have to pay anything more than the market rate of the day. There is that long-term planning capability. They will know from today until 1999 or 2000 what the payments will be.

The other positive aspect of that program is that if the market rate drops below what you are paying, you have the option to pay off the loan with no penalties. That is in Tory Ontario. As part of the discussions we will be entering into with the discussion paper the Minister will be presenting later today, we should look at that option as a means of supporting the small business sector of this country. During the recession a lot of businesses went under, not because they were poor

February 7, 1985

Small Businesses Loans Act

managers or because the market disappeared, but because the banks told them they could no longer afford the new high interest rates that they were having to pay either for capital or for operating.

No one knows what the future will hold in terms of interest rates. This Government and the previous Government would not take the necessary steps to intervene directly in the interest rate sector to ensure that rates stay down. We have to provide some protection for the small business community to ensure that they remain viable and have a long-term planning capability.

Something we would want to address if one of the other Acts were before us-this is something a number of us have been encouraging the Government to do-would be the matter of taxation, how we tax the small business community on one hand and inappropriately tax the large corporations on the other. No matter how often we raise that question in the context of making sure the big corporations pay their fair share, Ministers who respond suggest that we want to tax the small business sector at a higher rate. Nothing is further from the truth.

Small businesses in this country now pay more than their fair share whereas the corporate sector, the big companies, pay much less. It is the big corporations which get the tax breaks. They have billions of dollars of deferred taxes outstanding. Not many small businesses have deferred taxes outstanding. They do not get those kinds of breaks. We should look at how we deal with that.

There was an excellent editorial in the January 30 edition of The Toronto Star which 1 want to enter into the record. It deals specifically with tax breaks for the corporate sector. The editorial is entitled "Wasteful corporate tax breaks". I quote:

According to the Income Tax Act, corporations are supposed to pay 36 per cent of their profits in federal income tax. In 1980 the corporate sector actually paid about 18 per cent. The difference-accounting for more than $8 billion in lost federal revenue in 1970 alone-was the legacy of years of corporate income tax breaks.

This $8 billion price tag represents a 400 per cent increase in federal tax breaks for the corporate sector since 1972-the year in which Canadians first heard the slogan "corporate welfare bums." This suggests that in producing corporate tax "incentives," the federal Department of Finance has itself been running one of the growth industries in Canada for the past several years.

But in strengthening our economy and promoting job creation, are corporate tax expenditures really effective? Was the $8 billion spent in 1980 a down payment for the resiliency and the technology that our economy so desperately needs? Study after study has shown that on both count, the answer is: probably not.

In a 1980 Canadian Tax Foundation study, for example, Richard Bird, Director of the Institute for Policy Analysis at the University of Toronto and one of Canada's leading authorities on tax incentives, concluded that "we know amazingly little about the efficiency and effectiveness of the investment incentives we employ so profligately. What little we do know suggests that these incentives are neither efficient nor effective in achieving most of the objectives for which they were supposedly introduced."

One of the most popular tax breaks of the 1970s-super-depletion-underscores how inefficient tax expenditures can be. With super-depletion, for every $100 companies spent searching for oil, the government paid $105. As a result, super-depletion was less notable for the energy finds it financed than for the profits that were made. If the government had so allowed, it would have been profitable under this scheme for oil companies to drill at Bloor and Yonge.

Since tax expenditures improve the "cash flow" of business, they are supposed to provide a key source of funds for expansion. But in examining the effects of cash flow on investment, a Carleton University study of 70 manufacturing firms found that where demande for the output of the firms was strong, the lack of cash flow did not impede investment; where demand was weak, additional cash flow was not channelled into plant and equipment. In other words, for these firms, tax breaks had little to do with investment.

It is ironic, but at the same time as corporate tax expenditures were proliferating in Canada, they were being significantly curtailed by the Japanese. In describing this trend, Keimei Kaizuka of the University of Tokyo pointed to his findings that "we could not find evidence demonstrating the effect of tax preferences on economic activities. We could only mention the undesirable consequences of eroding the tax base."

Why have tax expenditures become the principal fiscal instrument for economic development in Canada? Most, if not all, corporate tax expenditures are a testimony to the good intentions of the governments which introduced them. In budget after budget, one finance minister after another has used them to pursue such laudable goals as increased employment, investment, productivity, international competitiveness, modernization, research and technological progress, in addition to more balanced regional development. Perhaps the unassailability of these objectives has served as an impediment to the scrutiny which these tax expenditures deserve. Perhaps it is the administrative simplicity with which they can be introduced.

But more likely, the steady proliferation of corporate tax expenditures has to do with the "politics of appeasement"-finance ministers are supposed to keep the business community happy. The aftermath of former finance minister Allan MacEachen's November, 1981 budget bears witness to this rule. After Mac-Eachen launched his assault on tax preferences, business coalesced and Mac-Eachen was through. In an effort to make peace with the corporate sector, Mr. MacEachen's successor at Finance, Marc Lalonde, introduced in his first budget almost $1 billion in new corporate tax breaks.

The essential problem with tax expenditures is that there are just too many of them. Each tax expenditure was introduced to encourage a particular type of activity. But the effect of any tax expenditure dissipates when many activities are rewarded at the same time. In his study of tax incentives, Bird concluded that "The more incentives are given, the more are needed to achieve the differential impact presumably sought in the first place."

With $8 billion in corporate tax concessions, the time has come for a major review. Since it is business that so desperately wants to see government spending cut, it is business that should be encouraging Finance Minister Michael Wilson to re-examine the effectiveness of each of these hidden "spending" programs. Instead of pointing to social programs, the corporate sector should begin scrutinizing its own set of books.

Those are very thoughtful words, Mr. Speaker, words which we should heed and look to as a method of bringing economic fairness to this country. We must foster the business community. In part, that means taxing it fairly.

There have been suggestions of allowing legitimate new small businesses-and we must be careful because often a business simply changes its name and starts all over again-to go for one or two years with a reduced tax rate or even with no effective tax rate as a means of allowing entrepreneurs to get established. It is worth looking at.

I think there are a number of other possible ways we can deal with this situation. However, I think the important thing is that we look at this Bill to see if we can improve it further. We should look to see if we can firm up its support and put in place mechanisms that will ensure that the concerns of the small business community regarding the banks avoiding the use of this program are met. Perhaps the Minister already has some mechanisms in mind in terms of regulations. We should make sure that that support exists and that the small business

February 7, 1985

community has access, not just in the major centres but in the smaller communities throughout our hinterland, to those mechanisms. We should make sure that a delivery system is in place.

As well, following a full discussion of the options that the Minister will place before the people of Canada in his discussion paper, the Minister should make a commitment to bring the Bill back to the House within the next six months to a year if there are some indications of further changes that could be made to the Small Businesses Loans Act. If that were to happen, then we would finally have a vehicle that is all-encompassing and will ensure the continued growth and survival of the small business sector in the community.

I thank you for your patience, Mr. Speaker. I look forward to the continuation of the debate and we will see what the final product will be.

Topic:   GOVERNMENT ORDERS
Subtopic:   SMALL BUSINESSES LOANS ACT
Sub-subtopic:   MEASURE TO AMEND
Permalink
?

Some Hon. Members:

Hear, hear!

Topic:   GOVERNMENT ORDERS
Subtopic:   SMALL BUSINESSES LOANS ACT
Sub-subtopic:   MEASURE TO AMEND
Permalink
PC

Gérard (Gerry) Weiner (Parliamentary Secretary to the Secretary of State for External Affairs)

Progressive Conservative

Mr. Weiner:

Mr. Speaker, I would first like to compliment the Hon. Member for Thunder Bay-Atikokan (Mr. Angus) on his very excellent presentation. As a small businessman, having been involved in retail pharmacy for the last 20 years, it is very heartwarming to hear of the kind of support that we are getting in the community. As well, it gives me an opportunity to say how thankful I am to the Minister of State for Small Business (Mr. Bissonnette) for his efforts in helping me survive as a small businessman.

I have one or two small items to raise with the Hon. Member for Thunder Bay-Atikokan. I would like to know whether or not the user fee will act as any kind of a deterrent to the bank. My own experience with bankers has been that a small business loan is primarily offered to the bank's regular customers, the people they already know and with whom they already do business. It is a no-risk loan because, as you know, Mr. Speaker, it is not only guaranteed 100 per cent and even 90 per cent by the Government but is also secured on the other end because that is one of the requirements of the law. Prime rate plus 1 per cent is not a bad fee to be charging because that easily gives the banks a four or five point differential over what they are paying for their money.

As for whether or not this measure should apply to inventory or operations, those of us in business traditionally have a line of credit which is pegged to the inventory which is then pegged to the operation. If we are at all successful, we can certainly operate and live within those constraints. We get ourselves in a bind when we want to purchase, build or modernize premises, if we want to buy land for expansion or if we want to get involved in any capital improvements. We then find that the banks' very stringent requirements do not allow additional capitalization. The availability of a small business loan is what gives us the assurance that we can proceed.

I remember very fondly the year 1963 when I opened my first pharmacy in Dollard des Ormeaux. I practically had to mortgage my family's and my wife's family's assets to be able to raise any money with the bankers. I then saw a development that began during the time of the Hon. John Diefenbaker in

Small Businesses Loans Act

1961. At that time, small businessmen could go to the banking system almost like their big business brethren could and ask for a certain type of consideration. At the beginning that consideration was perhaps only $25,000 but today it can go up to $100,000.

We have come a long way and I will probably make a few more comments regarding that later. However, I would like to say that I am very thankful for the comments made by the Hon. Member. I have noted them very carefully. Again, I thank him for his consideration.

Topic:   GOVERNMENT ORDERS
Subtopic:   SMALL BUSINESSES LOANS ACT
Sub-subtopic:   MEASURE TO AMEND
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PC

Marcel Danis (Deputy Speaker and Chair of Committees of the Whole of the House of Commons)

Progressive Conservative

Mr. Deputy Speaker:

I now recognize the Hon. Parliamentary Secretary for debate.

Topic:   GOVERNMENT ORDERS
Subtopic:   SMALL BUSINESSES LOANS ACT
Sub-subtopic:   MEASURE TO AMEND
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PC

Gérard (Gerry) Weiner (Parliamentary Secretary to the Secretary of State for External Affairs)

Progressive Conservative

Mr. Gerry Weiner (Parliamentary Secretary to Secretary of State for External Affairs):

Mr. Speaker, it gives me great pleasure to speak today on the Small Businesses Loans Act. This Act is important to the unknown number of small businesses that need a little extra help as they expand and adapt to the needs of the market-place. No sensible person can deny the success rate attributed to this Act in the past. Over the years from 1961 to 1983, this Act has enabled 140,380 small businessmen to expand their facilities, to purchase equipment and to modernize their plants. In my own particular case, it allowed me to go from partnership in one drugstore to a small chain of six, each and every time with the assistance of the Small Businesses Loans Act.

Indeed, this happened with a success rate of 98 per cent, there being only 2,878 claims paid in that 22-year history. This only offers further proof of the reliability of small businessmen and their tenacity if one looks back at the difficult period they have come through over the last 10 years or so.

Significant changes have been made in the past, changes that highlight not only the need for this Act but the need for us to be flexible. We must adapt the conditions of the legislation, the terms which we impose on the borrower, so that they are realistic and meet the needs of today's small-businessmen. I heartily endorse the proposal to increase the gross revenue allowed from $1.5 million to $2 million, because there has not been an adjustment since 1977 and there have been considerable periods of inflation. That increase will not only permit an additional number of small businesses to apply, but it will ensure that those businesses which need that kind of volume in order to survive will be able to qualify. In addition, it will not penalize the small businesses which have been successful and exceeded the old limits. I believe that small business is and will continue to be the engine of economic growth. We must continue the process of strengthening the small business sector and the Canadian economy.

This program has a successful track record yet, in cases where a claim is made, it is most unfair to expect the Canadian people to absorb 100 per cent of the losses. Instead this legislation proposes a 90:10 Government-lender loss-sharing ratio. Lending institutions should be made to share some of the

February 7, 1985

Small Businesses Loans Act

responsibility for the loans which they have approved, since they are profiting from them.

At the same time, while we demand some accountability from the lending institutions, we are not being unreasonable because the Government will not reject a bank's claim in cases where Small Businesses Loans Act borrowers amalgamate and their combined loans exceed the $100,000 limit. Accountability is important, as it should be whenever public funds are involved. As such, it is perfectly natural and just for Government, as guardian of public moneys, to insist that a lender respect and comply with the regulations or be liable for the full claim.

Dollard riding contains one of the most heavily industrialized cities in the Province of Quebec-Ville Saint Laurent. The city has a population of 65,000. It has 3,900 businesses, 1,800 of which can be construed as small businesses in the confines of the legislation. Overall, the businesses employ 78,000 workers. In addition to that, there are many other ancillary businesses and services which have been built up and which will continue to build because of the energetic leadership of Mr. Charles Robitaille, who is the Director of Economic Development for Saint Laurent. Through his leadership, Saint Laurent has been able continually to attract new industry and businesses, which gives small business an opportunity to flourish. The regulations which this legislation contains will provide more money to business so that they can locate close to the industries. Major industries cannot exist alone in a vacuum. Sustaining them and their employees are a myriad host of service industries which account for 40 per cent of the loans.

At the same time, the riding of Dollard has a broad multicultural base. Fifty per cent of the population comes from visible minority groups from various multicultural backgrounds. The Bill of Rights has enshrined true equality in Canada, but we need only examine the upper strata of big business, both in the public sector and the private sector-be it at the municipal, provincial or federal level-to discover that ethnic representation is practically non-existent. It is obvious to people who have businesses in Canada that the ethnic community still has not taken its rightful place in our society.

However, the ethnic community does play a very important role in small business. There have been a number of instances in the last few weeks in which members of the ethnic community have come forward with applications for small businesses. One case involves a man who owns a garage which employs five people. He wants to modernize and expand that facility and in doing so he will be able to create an additional five jobs. Another case involves a man who owns a cleaning establishment. That man also wants to expand his facility and create another five jobs. That type of activity makes up the cornerstone of our community. The majority of the jobs which are created in my area are created by small-businessmen.

From these communities have come a new generation of small-businessmen. They are hard-working and dedicated to their dream of building a new and prosperous life in their chosen home, Canada. They often require financial assistance

when initiating their new enterprises. Those enterprises are creating new jobs for Canadians and this legislation offers them the assistance which is needed to purchase equipment or expand their premises.

I support this Bill. It will encourage the entrepreneurial spirit, aid some of our most progressive and innovative businessmen, and help to ensure more jobs for Canadians and a successful economy. No greater powerhouse for economic renewal than the small-businessman exists. We must remove the obstacles and permit small-businessmen to grow.

The Hon. Member for Thunder Bay-Atikokan (Mr. Angus) has already mentioned several instances upon which I would like to expand. We could look at simplifying the tax and regulatory environment. Small-businessmen are burdened with paperwork which has become an unsurmountable obstacle. Small-businessmen should insist that the Government reduce the amount of paperwork. Small business must have access to the necessary equity capital, and this legislation will provide that. As well, I hope the Government will look at the effect of unemployment insurance premiums. It is a contentious issue; however, it is a payroll tax and a deterrent to job creation.

Canadians must expect less of Government and more from the private sector. There must be a better balance in the Canadian economy between the public sector and the private sector. We must restore confidence and commitment to sustain economic renewal, and it must begin with the small-businessman.

Topic:   GOVERNMENT ORDERS
Subtopic:   SMALL BUSINESSES LOANS ACT
Sub-subtopic:   MEASURE TO AMEND
Permalink
?

Some Hon. Members:

Hear, hear!

Topic:   GOVERNMENT ORDERS
Subtopic:   SMALL BUSINESSES LOANS ACT
Sub-subtopic:   MEASURE TO AMEND
Permalink
PC

Marcel Danis (Deputy Speaker and Chair of Committees of the Whole of the House of Commons)

Progressive Conservative

Mr. Deputy Speaker:

Are there questions or comments on the speech of the Hon. Member?

Topic:   GOVERNMENT ORDERS
Subtopic:   SMALL BUSINESSES LOANS ACT
Sub-subtopic:   MEASURE TO AMEND
Permalink
NDP

Nelson Andrew Riis (N.D.P. Caucus Chair)

New Democratic Party

Mr. Riis:

Mr. Speaker, I appreciated the speech which was made by the Hon. Member for Dollard (Mr. Weiner). He said that we must separate business from government and, in essence, get government off the back of business. Could he explain the type of government which should be taken off the back of business? Could he be precise as opposed to general?

Topic:   GOVERNMENT ORDERS
Subtopic:   SMALL BUSINESSES LOANS ACT
Sub-subtopic:   MEASURE TO AMEND
Permalink
PC

Gérard (Gerry) Weiner (Parliamentary Secretary to the Secretary of State for External Affairs)

Progressive Conservative

Mr. Weiner:

Mr. Speaker, it is an interesting concern. In many instances government has become an active competitor with small business. For example, the recent takeovers in the oil and gas industry. In one case, Petrofina became an active competitor with small business. Sometimes that is done with practices and methods which are not available to small business, such as marketing and the costs which are disbursed through bureaucracy. That is one particular instance but I believe there are many others to which I could refer.

Topic:   GOVERNMENT ORDERS
Subtopic:   SMALL BUSINESSES LOANS ACT
Sub-subtopic:   MEASURE TO AMEND
Permalink
NDP

Nelson Andrew Riis (N.D.P. Caucus Chair)

New Democratic Party

Mr. Riis:

Mr. Speaker, the Hon. Member made a variety of points in his speech and often referred to the fact that more emphasis must be placed on the private sector. I think that people would generally agree with that. He mentioned the fact that there were too many government restrictions and that we should look at the unemployment insurance premiums issue. Is he suggesting that Petrofina should be eliminated? Can the Hon. Member give us two or three examples of present

February 7, 1985

government programs which in one way or another affect business and should be eliminated?

*

Topic:   GOVERNMENT ORDERS
Subtopic:   SMALL BUSINESSES LOANS ACT
Sub-subtopic:   MEASURE TO AMEND
Permalink
PC

Gérard (Gerry) Weiner (Parliamentary Secretary to the Secretary of State for External Affairs)

Progressive Conservative

Mr. Weiner:

There are a lot of Crown agencies in this country and there are a lot of businesses which the Government is now running and administering. Parts of those businesses were previously in the hands of private entrepreneurs. I know that we have now reached the point where the whole situation should be discussed and looked at carefully. I do not want to simplify it. I will just say that it should be the object of a more careful examination, just to make sure that those areas where private and small-businessmen have flourished and have given adequate and proper service remain their exclusive domain. I believe care should be taken before those areas are removed from them.

In terms of the small-businessman, I was also referring to the amount of red tape with which we are involved. The forms and paperwork are really on top of us. I know that the Minister of National Revenue (Mr. Beatty) has already taken some steps to put small businesses in a position where, even if there is going to be an audit, it can be construed that they are innocent until proven guilty.

I can tell the Hon. Member that a few years ago when our family business had an audit, a team of people came in in September and stayed with us until Christmas. They were with us from 9 a.m. to 4 p.m. daily except for the hour and a half or two hours when they went to lunch. During the four-month exercise they found absolutely nothing. I am not saying that the Income Tax Department was wrong to request the information, but I think it was abusive. With the type of requests it made and information it wanted it just sat on top of the situation. I think we have to find ways of putting across the idea that small business is innocent until proven guilty with respect to tax situations. Small businesses are ready to give us all the information we require but I think we have to be less oppressive in the way we handle their tax matters.

Topic:   GOVERNMENT ORDERS
Subtopic:   SMALL BUSINESSES LOANS ACT
Sub-subtopic:   MEASURE TO AMEND
Permalink
NDP

David Orlikow

New Democratic Party

Mr. Orlikow:

My colleague, the Hon. Member for Thunder Bay-Atikokan (Mr. Angus), has already indicated that we support the major principles of this Bill. I would like to ask the Hon. Member a question with regard to what seems to me to be the main problem of small business.

In recent years, because of the recession and because of the high interest rates charged by the banks, when small-businessmen want to borrow money either for operating expenses or for expansion the banks have dealt in a very tough way with them. If we look at the large number of bankruptcies in recent years, we find that it is the small-businessman who has been forced into that situation. I compare that with the very generous treatment given to large businesses, some of which have borrowed hundreds of millions of dollars from our banks and have not been able to pay either the interest on their loans or the principal. We have over $8 billion in non-performing loans, mostly to the large corporations. I wonder if the Hon. Member would tell us whether the Government is giving some consideration to this problem, not in the sense of passing legislation but

Small Businesses Loans Act

in discussing with the banks the idea that they should be much fairer and easier on the small-business person and treat him in the same way as they treat the large corporations?

Topic:   GOVERNMENT ORDERS
Subtopic:   SMALL BUSINESSES LOANS ACT
Sub-subtopic:   MEASURE TO AMEND
Permalink
PC

Gérard (Gerry) Weiner (Parliamentary Secretary to the Secretary of State for External Affairs)

Progressive Conservative

Mr. Weiner:

Mr. Speaker, I thank the Hon. Member for the question because it is certainly an issue which is very real and alive in my thoughts. The feeling I have is that there is a different kind of pressure and regulation exerted on the small-businessman. We are almost on our knees with our hats in our hands in discussions with our bankers. We do not have the same familiarity with the boardrooms and the first-hand contact which has been developed because, as the Hon. Member knows, very often loans are made on the tip of a hat or a nod. We can have a document as thick as our hand but if we don't get the right nod, we don't get the right approval.

I recognize the kind of pressure which is put on the small-businessman because he has no other option. He has no other method of financing his operation. On the other hand, the big-businessman has other means of raising capital and cannot be blackmailed in the same way. I am concerned with that attitude. I do not know how to answer it.

As recently as last Tuesday morning, I had the pleasure of visiting the head office of one of our banks. It was a very friendly meeting. I have been less than actively involved in a business since September because the electors of Dollard have given me another job and, happily, the Government has also asked me to be the Parliamentary Secretary to the Secretary of State for External Affairs (Mr. Clark). However, my brother still runs the family business. The meeting at the bank was frank and open but I felt that the bank was exerting a pressure which was not as applicable to big business. It still went along with most of our suggestions. We asked for a little more time to provide the documentation, and so on, which big business would have at its fingertips. It is a real problem and I don't know how we are ever going to solve it.

With respect to the usury kind of interest rates, I can remember the day when, if we wanted to buy equipment, the bank would not finance it so we would do it through the company which was selling the equipment. Of course, we ended up paying at least double the interest rate, which meant that at the end of a three-year or five-year period we probably paid three times the price of the equipment.

What is done now with the Small Businesses Loans Act is that small business can buy the equipment at a rate which is even better than the regular rate that it is paying the bank because normally the small-businessman is paying prime lending rate plus two. He does not get the prime rate plus one-quarter as does the big guy. So we are making it easy and giving the businessman a rate at prime plus one with a five-year to ten-year pay-back. That makes it very easy for him to expand or modernize his business. It makes him better able to handle the market-place and to become more successful in what he is doing.

Topic:   GOVERNMENT ORDERS
Subtopic:   SMALL BUSINESSES LOANS ACT
Sub-subtopic:   MEASURE TO AMEND
Permalink
NDP

Margaret Anne Mitchell

New Democratic Party

Ms. Mitchell:

Mr. Speaker, I notice the Hon. Member and other Hon. Members of this House are referring to business people as "businessmen" very consistently. I would like to ask

February 7, 1985

Small Businesses Loans Act

the Hon. Member if he has any comments on the fact that not only are more women going into small businesses, but, indeed, they have a very good success rate. Yet they often find that there is much more discrimination, if you like, or difficulty in getting loans or financing from the banks. I wonder if the Hon. Member would care to comment on those points?

Topic:   GOVERNMENT ORDERS
Subtopic:   SMALL BUSINESSES LOANS ACT
Sub-subtopic:   MEASURE TO AMEND
Permalink

February 7, 1985