On page 1, we'll start off with some key facts about small business Clearly they're the largest segment of the Canadian business population. About 98% of all business establishments in Canada fall into the SME category, and you can see that 74% of them have fewer than 10 employees, and 57% have only one to four employees, a category of firm that we call micro enterprise. In totality, those firms account for about half of the private sector workforce, or 5.1 million people employed in Canada right now.
In the kinds of studies that Denis undertakes for me—and please put all the tough questions to him on this one—over 80% of net job creation between 1993 and 2003 was accounted for by small business enterprises. Large firms actually shed jobs over those years. It can change, depending on the year, but the long-term trends that we're seeing are a lot more heavy lifting, a lot more job creation by small business, with some restructuring in respect of larger enterprise.
Clearly they're a major economic engine, with firms with fewer than 50 employees accounting for 26% of gross domestic product. They help with constant renewal of the economy. So it's kind of an image where economists—I'm not one—will talk about Keynesian views, where the economy is essentially stable and government intervenes to even out the bumps, or Schumpetarian, where firms enter and exit all the time, and there's massive job destruction going on. I think that's what we're seeing in this small business sector. So 140,000 new firms are being created in Canada every year, and that exceeds the exits by about 8,000, but you have a lot of firms that are just heading out of business for a variety of reasons. It's a very dynamic vision of the economy that is driven by small business creation and exits.
On the next page, it's found in all sectors, but particularly in the service sector, where you see a lot of entry/exit concentrated in retail trade, accommodation, food manufacturing, and construction sectors.
On the next page we see that small businesses reflect the diversity of the Canadian population. We see that in terms of gender, about two-thirds of business enterprise is owned and operated by men, 17% is owned by women, and 19% are partnerships. We've certainly seen a lot of trends for women's entrepreneurship being up over the last decade or so.
On minority status, the stats are there for you; about 10% of all enterprise is lead by a visible minority, 2% aboriginal, and so forth. You can see that.
It's heavily concentrated in terms of age in the 30 to 64 category, and very much an issue—and I'm sure you would have heard this from the CFIB—is the number of businesses led by persons of a certain age, who are now looking to exit their enterprise and need to have a plan to do that. Just like we've seen with a lot of demographics, a lot of the labour force is getting older. That's very true of small business owners as well. So we need to think about policies and measure that will help them do that.
Managerial experience: 71% have more than 10 years of experience in those businesses. That can be counted upon for a great value-add in their enterprise.
Some 72% are urban, 28% rural, and 9% are exporting outside of Canada. Those are the numbers, but when we look at the volume of exporting, we see a lot more activity by small businesses, and of course they can be very involved in supply chains as well.
On the next slide on page 4, I call your attention to the fact that high-growth firms drive economic growth. This is a special area of focus for our branch. We tend to distinguish between traditional firms like the ma and pa shops, the micro firms that are essentially in existence to achieve income for their owners, managers, and employees, and then the other firms that really focus on growth, and growing the enterprise, whether through applications of new technologies, exporting, or what have you. So these are really important firms in the economy. And that's reflected in the fact...there are pretty good studies we've undertaken in the branch, and they're 100% samples of all firms in Canada, marrying up StatsCan employment registered data with the business incorporation data.
We're able to go back and track quite comprehensively and find that of the 7% of firms that existed in 1993, if we track those over to 2003, they've accounted for 50% of net job creation over those 10 years, and 60% of that creation was accounted for by small business. They're found in all sectors. This isn't just a high-tech story. We see it in a combination of services, retail merchandising, amusement, recreational services, right across an awful lot of sectors. We have very talented business people establishing businesses, getting them going, doing the heavy lifting in their communities, and creating tons and tons of jobs for Canadians.
We think those kinds of firms face very difficult and different challenges than traditional firms. In respect of financing, for example, they'll be more in need of risk capital versus debt-based or traditional loans from banks. They need specialized and firm-specific skills to be able to grow an enterprise at a very rapid rate. They tend to be more involved in supply chains and exporting and the development of new products and processes.
I'd like to speak now to the current economic downturn and the small business challenges. It clearly has had a significant impact on small business. At the same time, about two-thirds of business owners in a recent poll said they're concerned about the economy, but they're also displaying confidence that the situation could improve over the next six months or so. We see various strategies that they've been undertaking to cut costs, including not taking a salary themselves, which has emerged as a significant one, and doing a lot to avoid laying off staff and get to the other side of the current crisis.
On the other hand, CFIB data is showing that growth expectations are declining on the part of the members they survey. As of March 2009, 20% of surveyed businesses had plans to expand, while 14% expected to cut back. Those numbers are a deterioration from the previous poll. I'll let you read those numbers yourselves.
Credit concerns are clearly the top-of-mind issue on the part of many small businesses, and a lot of the business associations had flagged that.
Next we provide just some general data, but evidence suggests that credit for SMEs has tightened and the banks in Canada are continuing to report tighter conditions in whatever they're saying to the Bank of Canada in the bank's lending surveys. Moreover, the SMEs themselves are saying, through the CFIB business barometer, that they have deteriorated access to bank financing. A lot of that is because the cost of capital to the banks has increased quite significantly. Anyone who has purchased long-term bonds from the banks lately can see that.
Secondly, we've had major sectors, major parts of the financial services sector, that have essentially ceased to function. Whether that's in respect of the leasing companies or others that traditionally were providing innovative kinds of financing, they're no longer there. Some of that has gone over to the banks, but not all, that's for sure. So I think we're seeing some of that in the reporting by SMEs. They rely on debt financing as their main source of capital. In fact, 25% of the total value of all outstanding business loans in Canada are accounted for by SMEs. In any given year, 20% of them will seek financing, and 80% of those loan applications will be approved.
So not everybody gets credit approved, and it's clear that not all business propositions are creditworthy. But at the same time, we feel that there are structural barriers in the marketplace, including where there are simply not cost structures on the part of financial institutions where they can provide a profitable loan to small businesses. You can have many businesses that are start-ups and don't have the business history or the collateral to be able to obtain a loan from the bank.
Thirdly, a lot of them are more in that high-growth area, where we get a lot of small businesses with untested business ideas and it's not clear that they're going to generate much cashflow in their business plans ahead. So that's another candidate for growth capital.
Innovative firms are particularly challenged. We find that 30% of growth firms seek debt financing in any year, and only 54% of those are approved. So again, there's this kind of difference between a traditional and a growth firm in terms of their success in obtaining financing. As I've said, these are the candidates for equity financing, and about 5% of those SMEs in any year will ask for venture capital or other types of equity financing.
This type of financing represents almost half of the total financing going to those innovative firms. Right now, I think it's fair to say that the B.C. industry is in crisis. Its activity is at the lowest level since the mid-1990s. It fell 36% last year, and part of the problem is that the returns from venture capital in Canada have been exceedingly poor. They have not been able to attract capital into the space from pension plans and other institutional investors. That has sort of dried up and is kind of an issue that is of current concern at the Department of Industry.
We've said that financing is a concern on their part. So, too, is having a competitive marketplace, which means a competitive tax regime and a supportive regulatory environment with minimal paper burden. The whole idea of support for innovation that I have referenced, the challenges and needs, are also in the area of exporting human capital and what we call the culture of entrepreneurship.
The next page demonstrates that the tax regime is becoming more competitive for small business. The small business tax rate has been reduced to 11% from 12%, effective January 1, 2008, and moreover the threshold at which businesses qualify for the reduced small business tax rate has been increased in recent years, the most recent being under Budget 2008, to $500,000.
In the department, in my branch in particular, we have something called the Canada small business financing program. It provides loans of up to $350,000, and $500,000 for real estate transactions, to small businesses with revenues under $5 million per annum. Those maximum loan rates were increased under Budget 2009, as was the cap on lenders in terms of the amount that we can reimburse them for loan losses under the program. We do about $1 billion of financing under the CSBFP in any year right now, or about 9,000 loans per annum to small businesses.
We're also responsible in our branch for the Business Development Bank of Canada. It's reporting actually to Parliament through the Minister of Industry, and we serve as a bit of a go-between in that respect. We take a great interest in the corporate plans and strategies of the bank in trying to ensure that they line up with our understanding of small business financing needs. I think it pertinent that a capital injection of $250 million was made in January 2009; the $100 million is pending for a working capital guarantee product that the government had announced.
The 2009 Budget Implementation Act increased the capital limit of the BDC from $1.5 billion to $3 billion. So there's an opportunity to put additional capital into the BDC to lever incremental lending to small businesses. Moreover, there was the announcement of the Canadian Secured Credit Facility, which is simply an initiative that will be taken through the BDC to address securitization problems in respect of auto leasing and other firms.
Of other measures supporting small business and youth entrepreneurship that have been taken recently, one is the Canada Business Network, and the department receives $15 million per annum ongoing--it's in our A-base now--for the network. This is essentially a one-stop service. I understand the committee had some interest in this, for government information service. It's not transactional; you can't kind of go on and get a corporate permit or anything like that, but it does bring together all pertinent business information from federal, provincial, and municipal levels of government. We provide the service; we provide that information on the Internet through a national toll-free telephone service and at 13 in-person service centres in each province and territory in Canada.
I'd also like to talk about a program we have called BizPal. It's essentially an online wizard for accessing permits and licences, again from federal, provincial, and municipal governments. The idea there is that if you're in a particular municipality, we'll map out all the permits and licences you need. And you can get that in a matter of minutes, versus having to go through the trouble and the runaround of applying to different levels of government and different departments and agencies within those levels of government to get the permits you need to start, establish, or grow your business.
I also want to flag the one-time grant of $10 million that was made to the Canadian Youth Business Foundation. This is a small group that's based in Toronto that provides first-time financing of up to $15,000 for youth entrepreneurs, and they combine that with a mentor. It's something we've supported quite enthusiastically in the department, given the contribution made toward building an entrepreneurial culture.
It's very clear from a lot of the studies we've undertaken that Canada has a tremendous entrepreneurial culture and that our business start-up rates are among the most impressive in the world. We lack an ability to grow enterprise, but just the outreach and support given to young entrepreneurs in this country who are creating tremendous value, including the youth from university research and some of the companies they are creating....
It's a desire on our part to put in place all the support and encouragement we can give to these absolutely outstanding young entrepreneurs. If you have ever met them, including those supported by the CYBF, you'll know what I mean.
In terms of innovative small businesses, Budget 2009 expanded support under IRAP, which assists with technology transfer challenges to small and medium-sized enterprise. Moreover, it helped them hire over 1,000 graduates in the new internship program.
Finally, I will just reference the scientific research and experimental development tax incentive program, which is arguably, so we hear from many businesses, one of the single most important things the government can do to help with their research and development and drive toward innovation.
Those are some of the things we are focusing on at the Department of Industry right now.
[Translation]
Thank you all for being here this morning.
Ms. saint pierre, you mentioned that today we are holding our last meeting on the federal procurement process, but we are still awaiting the report. We have just been told that it will soon be released. However, we were told that we would receive it in March, and it is already the end of April. We need to have it as soon as possible, in order to carry out our work effectively.
I have just been given a partial answer to the question I wanted to put to Ms. saint pierre.
[English]
So I will actually go to another question I had. I also want to thank Mr. Connell very much for the breadth of the presentation.
I have all sorts of questions about venture capital, about the goal of Industry Canada with SMEs.
I wasn't sure, Ms. Miller, if you were going to be presenting or not, but I do want to ask you a question, and perhaps the two of you from Public Works can answer.
We have been hearing over the course of a number of the committee meetings about SMEs, of course, because of the whole question of procurement. I will say for the record that certainly we in opposition--but my sense is that most--were very supportive of the role of small and medium enterprises. We're very concerned here on this end that we're continuing to hear frustration from small and medium enterprises specifically, and from associations about the challenges in accessing federal procurement.
I understand from Mr. Connell that that's not your job at Industry Canada. If we have time, I'd love your comments on why that isn't actually part of your job, because you're expending a lot of effort helping small businesses in other ways, and obviously federal procurement is a tremendous opportunity for many small and medium enterprises.
One of the recurring themes that we've been hearing is that your office, OSME, does not have enough of a mandate, that it is a persuasive office more than anything else, that it does not have any hard ability to ensure that certain things happen in terms of government procurement.
We had an excellent presentation by a fellow from the equivalent office, the federal procurement office, in the United States. He had some really excellent ideas about their office and the much stronger-sounding mandate within their equivalent of OSME, which is also spread out through other departments as opposed to being located in just one place. I'd love it if you could comment on that.
Again, Mr. Connell, if we have a bit of time, I'd like your comments on why Industry Canada isn't in fact involved in helping get access to the federal procurement process.
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Good morning. Thank you again for inviting me to address a subject that is of tremendous interest to me.
[English]
I listened with interest to the presentation to you on Tuesday of my colleague Joseph Jordan, newly appointed to the US SBA, so I'm actually very pleased to have this question put to me.
Obviously, there are some substantial differences between the US SBA and OSME, not the least of which is that they're an agency and we are a sector within a federal department. They have an act that governs their mandate. We essentially have a mandate from the Federal Accountability Act action plan. They have $700 million; we have $7 million. They have 1,000 field staff; I have 25. They're aiming for 23% of the procurement envelope as a stand-aside, and we're at 49% of Public Works contracts with Canadian companies located in Canada.
Those would be the starting points for the discussion of differences, but I'm much more interested in discussing the similarities. What really struck me on Tuesday, listening to him, is that if you had erased US SBA and put in Government of Canada...he was extremely articulate about the ways in which SMEs can be helped and the many ways in which a government can do it, and actually the ways in which the Government of Canada does do it.
While it is true that OSME does not have the full mandate that US SBA has, the various pieces of the US SBA mandate are covered by various departments in the Government of Canada. For example, as you heard from my colleague, John Connell, this morning, Industry Canada and BDC do the loan piece, so that's not within the mandate of OSME.
If you parsed out the elements that other departments do, you would be left with the nugget or kernel of the five elements that Mr. Jordan outlined for you, which are very similar to OSME. While OSME's mandate is on a much smaller scale, it's very similar to what the US SBA does.
I thought I'd run through a few of the examples. For example, the US SBA and OSME both work with agencies and other government departments. With OSME, we focus mainly on Public Works because we do have a common service provider for procurement, which is Public Works, and we focus on the policies and procedures so that small business interests will be taken into account in commodity management, etc. We strive to improve the links between the supply and the demand side of procurement to influence change within government procurement, such as ongoing work we're doing with the Treasury Board Secretariat and Industry Canada. We work very closely with other partners in the government.
Like the US SBA, OSME educates and trains SMEs to encourage and assist them to participate in federal government procurement through multiple seminars and outreach programs. We facilitate discussions between SMEs and other government departments. Our regional round tables with like-minded organizations are very successful. Similarly, we do use technology to streamline our relationship. For example, like the US SBA, we have a variety of systems that enable suppliers and small businesses to access.... In Canada it would be small and medium businesses. I keep using “small business” because Joe Jordan referred to small business. That's how they define it in the United States, though you may have noted that all of his examples would have been more than our small and medium businesses. I think the language is pretty comparable. What they do and what we do is focus on the sector of the economy that isn't large multinationals, essentially. It's a definition they've chosen as a result of trade agreements.
Anyway, we use technology to enable supplier access to federal government procurement.
I have a couple of thoughts. The first is that as director general of small business responsibilities, it is a horizontal file. It's one of the most difficult in government to advance because you tend to look up the line to your particular ministerial priorities and ensure that what levers you're having as a department are working very well. You're on the hook to deliver on that, especially. So that's one thing. In my own area, for example, that is ensuring that the supply of financing through the BDC, through Canada small business financing, is working very well. Then we advocate influence horizontally out from that.
There are a lot of departments, a lot of agencies, that affect small business outcomes. So small business policy tends to be horizontal, including procurement policy, if you will, depending on the way you draw the line or your network. There's also tax policy--collaborating with the Department of Finance--and international trade policy and agriculture. Most departments will affect small businesses, so it's a matter of choosing where the highest incremental opportunity is to shape small business.
So we have two sets of files. One is where we have direct responsibility and the other is what I call push and prod. When a memorandum in the cabinet goes through and we have an opportunity to comment on it and influence outcomes in the interest of small business, then we will try to do that.
On procurement per se, we have had a relationship with Shereen, just kind of trying to understand the file, trying to be as helpful as we can.
On the portal, I would emphasize the Canada Business website that we do have. This goes back to 1993-94 when it was established. We have agreements with all provincial governments with respect to the website, the telephone service, and the walk-in service. We really do try to get as much information as we can within that particular program, and to make it seamless and easy for businesses to access.
Is it perfect yet? No. Is it transactional? No. Can we do better? Certainly, we can, and that is something that we are committed to do. It's an ongoing process of collaborating with our colleagues across the country, of ensuring that the content in that particular website is up-to-date. As I said, it's just a constant...you know, a link-over to procurement. I'd be happy to take you through the Canada Business website sometime.