INST Committee Meeting

37th PARLIAMENT, 1st SESSION

Standing Committee on Industry, Science and Technology

EVIDENCE

CONTENTS

Wednesday, June 12, 2002

¹

1530

The Chair (Mr. Walt Lastewka (St. Catharines, Lib.))

Mr. Robert Dunlop (Director General, Small Business Policy Branch, Department of Industry)

¹

1535

The Chair

The Chair

Mr. Robert Dunlop

¹

1540

¹

1545

¹

1550

The Chair

Mr. Rajotte

Mr. Robert Dunlop

Mr. Rajotte

Mr. Robert Dunlop

Mr. Rajotte

The Chair

¹

1555

Mr. Rajotte

Mr. Peter Webber (Manager, Small Business Financing Policy, Department of Industry)

Mr. Robert Dunlop

Mr. Rajotte

Mr. Robert Dunlop

Mr. James Rajotte

Mr. Robert Dunlop

Mr. James Rajotte

º

1600

Mr. Peter Webber

Mr. Robert Dunlop

The Chair

Mr. Larry Bagnell (Yukon, Lib.)

Mr. Robert Dunlop

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1605

Mr. Larry Bagnell

Mr. Robert Dunlop

Mr. Larry Bagnell

Mr. Robert Dunlop

Mr. Larry Bagnell

Mr. Robert Dunlop

Mr. Larry Bagnell

Mr. Robert Dunlop

Mr. Larry Bagnell

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1610

Mr. Robert Dunlop

Mr. Larry Bagnell

Mr. Robert Dunlop

Mr. Peter Webber

The Chair

Mr. Stéphane Bergeron (Verchères—Les-Patriotes, BQ)

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1615

Mr. Robert Dunlop

Mr. Stéphane Bergeron

Mr. Robert Dunlop

Mr. Stéphane Bergeron

Mr. Robert Dunlop

Mr. Stéphane Bergeron

Mr. Robert Dunlop

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1620

Mr. Stéphane Bergeron

Mr. Robert Dunlop

Mr. Stéphane Bergeron

Mr. Robert Dunlop

Mr. Stéphane Bergeron

Mr. Robert Dunlop

Mr. Stéphane Bergeron

Mr. Robert Dunlop

Mr. Stéphane Bergeron

Mr. Robert Dunlop

The Chair

Mr. Brent St. Denis (Algoma—Manitoulin, Lib.)

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1625

Mr. Robert Dunlop

Mr. Brent St. Denis

Mr. Robert Dunlop

Mr. Brent St. Denis

Mr. Robert Dunlop

Mr. Peter Webber

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1630

Mr. Brent St. Denis

Mr. Peter Webber

Mr. Brent St. Denis

Mr. Robert Dunlop

Mr. Peter Webber

The Chair

Mr. Brian Fitzpatrick (Prince Albert, Canadian Alliance)

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1635

Mr. Robert Dunlop

Mr. Brian Fitzpatrick

Mr. Robert Dunlop

Mr. Brian Fitzpatrick

Mr. Robert Dunlop

Mr. Brian Fitzpatrick

Mr. Robert Dunlop

Mr. Brian Fitzpatrick

Mr. Robert Dunlop

Mr. Brian Fitzpatrick

Mr. Robert Dunlop

Mr. Peter Webber

Mr. Brian Fitzpatrick

Mr. Robert Dunlop

The Chair

Mr. Serge Marcil (Beauharnois—Salaberry, Lib.)

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1640

Mr. Robert Dunlop

Mr. Serge Marcil

º

1645

Mr. Robert Dunlop

Mr. Serge Marcil

Mr. Robert Dunlop

Mr. Peter Webber

Mr. Robert Dunlop

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1650

Mr. Serge Marcil

The Chair

Mr. Serge Marcil

Mr. Robert Dunlop

Mr. Serge Marcil

The Chair

Ms. Cheryl Gallant (Renfrew—Nipissing—Pembroke, Canadian Alliance)

Mr. Robert Dunlop

Ms. Cheryl Gallant

Mr. Robert Dunlop

Mr. Peter Webber

Ms. Cheryl Gallant

The Chair

Ms. Cheryl Gallant

Mr. Robert Dunlop

Mr. Robert Dunlop

Ms. Cheryl Gallant

Mr. Robert Dunlop

º

1655

Mr. Peter Webber

Mr. Robert Dunlop

Ms. Cheryl Gallant

Mr. Robert Dunlop

Ms. Cheryl Gallant

Mr. Robert Dunlop

Ms. Cheryl Gallant

Mr. Robert Dunlop

Ms. Cheryl Gallant

Mr. Robert Dunlop

Ms. Cheryl Gallant

Mr. Peter Webber

Ms. Cheryl Gallant

Mr. Peter Webber

The Chair

Mr. Robert Dunlop

Ms. Cheryl Gallant

Mr. Robert Dunlop

Ms. Cheryl Gallant

The Chair

Mr. Andy Savoy (Tobique—Mactaquac, Lib.)

Mr. Robert Dunlop

Mr. Peter Webber

»

1700

Mr. Andy Savoy

Mr. Robert Dunlop

Mr. Andy Savoy

Mr. Robert Dunlop

Mr. Andy Savoy

Mr. Peter Webber

Mr. Andy Savoy

Mr. Peter Webber

Mr. Andy Savoy

Mr. Robert Dunlop

Mr. Andy Savoy

Mr. Robert Dunlop

Mr. Andy Savoy

Mr. Peter Webber

Mr. Andy Savoy

Mr. Peter Webber

Mr. Andy Savoy

Mr. Robert Dunlop

»

1705

Mr. Andy Savoy

The Chair

Mr. Brian Fitzpatrick

Mr. Robert Dunlop

Mr. Brian Fitzpatrick

Mr. Robert Dunlop

»

1710

Mr. Brian Fitzpatrick

Mr. Robert Dunlop

Mr. Brian Fitzpatrick

Mr. Robert Dunlop

Mr. Brian Fitzpatrick

Mr. Robert Dunlop

Mr. Brian Fitzpatrick

Mr. Robert Dunlop

Mr. Brian Fitzpatrick

Mr. Robert Dunlop

Mr. Brian Fitzpatrick

Mr. Peter Webber

Mr. Robert Dunlop

Mr. Brian Fitzpatrick

Mr. Robert Dunlop

Mr. Brian Fitzpatrick

Mr. Robert Dunlop

Mr. Brian Fitzpatrick

The Chair

Mr. Larry Bagnell

Mr. Peter Webber

»

1715

Mr. Larry Bagnell

Mr. Peter Webber

Mr. Larry Bagnell

Mr. Robert Dunlop

Mr. Larry Bagnell

Mr. Robert Dunlop

Mr. Larry Bagnell

Mr. Robert Dunlop

Mr. Larry Bagnell

Mr. Robert Dunlop

»

1720

Mr. Larry Bagnell

Mr. Robert Dunlop

Mr. Larry Bagnell

Mr. Robert Dunlop

Mr. Larry Bagnell

Mr. Robert Dunlop

Mr. Larry Bagnell

Mr. Robert Dunlop

The Chair

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CANADA

Standing Committee on Industry, Science and Technology

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NUMBER 091

l

1st SESSION

l

37th PARLIAMENT

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EVIDENCE

Wednesday, June 12, 2002

[Recorded by Electronic Apparatus]

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[English]

    The Chair (Mr. Walt Lastewka (St. Catharines, Lib.)): Our order of the day, pursuant to Standing Order 108(2), is consideration of small and medium-sized enterprise financing data, an Industry Canada report.

    Today we're fortunate to have, from the Department of Industry, Robert Dunlop, director general of the small-business policy branch, and Peter Webber, manager of small-business financing policy, plus a number of support people just in case the questions get tough.

    I'll turn the meeting over to Mr. Dunlop to begin. Welcome to the committee once again.

    Mr. Robert Dunlop (Director General, Small Business Policy Branch, Department of Industry): Thank you very much, Mr. Chairman and members of the committee. It's a great honour for my colleagues and me to appear before you today.

    Over the years this standing committee has had a great deal of interest and influence in the area of small-business financing, so it's a pleasure to be able to present you with the first installment of our work on this project.

    This work has its roots in several reports of this committee, especially in 1994 and 1995, leading to the Mackay commission's report and the government's response to it. A mandate was given to Statistics Canada, the Department of Finance, and Industry Canada to work together to improve both the quality and quantity of data available on small-business financing. We were also mandated to report regularly to this committee. So this isn't a one-time report; it's an ongoing responsibility. Our goal is to improve the information base upon which policy is made and thereby improve access to financing for Canadian small business.

    My colleagues and I came before this committee early in the project to seek your views on priorities and issues of particular concern. We then undertook consultations with the small-business sector, small-business associations, providers of financial services, and university researchers. One observer of small-business financing noted that the sum of anecdote is not data. What we hope to address is the need for real data in this area.

    The summary report that we'll be presenting today, and I believe you all have a copy of it, is a synthesis of the work that has been done over the past two years. All of our results are now published on the websites.

    The principal inputs to this are the “Survey of Suppliers of Small Business Financing 2000”; the “Survey on Financing of Small and Medium Enterprises 2000”; and “Financing Small and Medium Enterprises: Satisfaction, Access, Knowledge and Needs, 1998-2000”. The first two surveys were done by our colleagues at Statistics Canada. And I should note that we have our colleagues from Statistics Canada here ready to answer any technical questions, Cynthia Baumgarten and Terry Evers. The final report I mentioned was done by the Research Institute for SMEs at the Université du Québec à Trois-Rivières.

    The first results are a snapshot of the financial situation of small business in 2000, and we hope this will give you a sense of the kind of information we'll be able to provide to you regularly in the future.

    We won't be able to resolve all outstanding issues today--far from it. Real answers will take more than single data points. The coverage of our work is designed to increase over time. But it is an important start. I am conscious of another saying: that the main source of questions is answers. Over the next few years we expect to be providing you with many questions and answers.

    I'd now like to take you through the highlights of the principal results. We'll do this very quickly and then I'll look forward to your questions.

    You've been provided with our synthesis report. There is also a deck, which I'll be speaking from. The graphics I will refer to are in the deck. So if we could move to the deck, I'll start on page five, looking at the debt market in Canada.

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    The Chair: Does everybody have the deck? There's the report, and then there's the deck. We're on page 5, on institutional market shares. Is it the same in the French and English copies?

    Mr. Robert Dunlop: Yes.

    The Chair: Thank you.

    Mr. Bergeron, are you okay now?

[Translation]

    Mr. Stéphane Bergeron (Verchères—Les-Patriotes, BQ): Yes.

[English]

    The Chair: Okay. Please proceed.

    Mr. Robert Dunlop: I'll speak to the deck, but some of the things I say won't be there, so you can follow by reading along as well. It will be less boring that way.

    In 2000, debt accounted for 91% of all business financing in Canada. The total debt outstanding equalled $376 billion, distributed over 1.5 million loans to Canadian businesses. I would note that some businesses had more than one loan. Regardless of the authorization size of the loan, domestic banks provided 50% to 60% of the total.

    The Canadian Bankers Association defines a small or medium-sized enterprise as a business client with an authorization rate of less than $1 million. Total debt outstanding for authorizations of less than $1 million equalled $81 billion, distributed in 1.4 million loans to small businesses. Credit unions and caisses populaires provided about 6% of the total debt market, but were increasingly prominent where smaller loans are concerned. As you can see from the charts, they provided about 20% of financing of debts less than $1 million.

    In terms of numbers of loans, 60% of the number of loans made to business clients were for amounts of less than $50,000. As you can see from the chart, credit unions and caisses populaires provided nearly 40% of the debt in this market.

    We'll move to page 7, looking at the debt market in more detail. In the year 2000, fewer than one-quarter of small and medium-sized businesses made a request for new or additional debt. This result corroborates other recent studies, which report a decreasing demand for debt. The Canadian Federation of Independent Business reports in its 2001 study that there has been a steady downward trend from 1987 to 2000 in requests for debt financing, which does not appear related to the business cycle. According to the recent StatsCan survey of SMEs, as the survey that StatsCan has done is repeated over time, we will be able to track the changing demand for debt and to determine which alternate sources of financing are being used, if any.

    The major banks received the bulk of requests for debt from small businesses. In fact, 66% of debt requests in 2000 were made to the major banks. Another 20% of requests were received by credit unions or caisses populaires. From a regional perspective, credit unions and caisses populaires received nearly half the requests in the prairie provinces and nearly 40% of requests in Quebec.

    If we look at page 8, we have approval rates. As you can see from the chart, approval rates vary somewhat across lending institutions, and we think part of that is related to the specialties in which these institutions work. You'll also notice a somewhat lower than average approval rate for crown corporations. We think this is a reflection of their mandate to serve higher-risk clientele.

    If we look at page 9, looking at these data from a regional perspective, there is a certain variation in request and approval rates for debt across the regions, but this needs to be understood in the context of the industrial structure and the presence of financial institutions in the various regions. For example, if you look at the request rate in Manitoba, Saskatchewan, and Nunavut, we've found that this is related to the higher than average use of debt by the agricultural sector. As we'll see in a moment, this is a sector that has a higher demand for debt as well as a much higher approval rate. In fact, if we take agriculture out of this equation, we find that there's very little variation between regions in terms of request rates or approval rates.

    Another issue that I know is of interest to the committee is on page 10, looking at the data from a rural-urban split. Of urban-based SMEs, 21% made a request for debt, as compared to 31% of those located in rural areas.

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    Differences in the financing practices of rural-based and urban-based firms probably reflects again the impact of agricultural and primary sectors in rural areas. These are two sectors that most often request debt financing. Urban-based small businesses tend to apply more for short-term debt, such as lines of credit and increases in lines of credit, while rural-based SMEs tend to request demand and term loans.

    Rural and urban SMEs appear to use different types of assets for collateral. We found that 54% of rural-based SMEs pledged business assets as collateral, compared with 34% of urban-based firms.

[Translation]

    Now let's move on to Industry Sectors.

    Firms in the agricultural sector were most likely to make a request for debt, while those in the professional services or KBI sectors were least likely to do so in 2000.

    As well, businesses in the agriculture or primary sectors had very high approval rates for their requests for debt, while businesses in the wholesale/retail trade, and KBI sectors had the lowest approval rates.

    Agricultural firms usually have land or equipment to use as collateral, while firms in the services sector may not have any business assets. More than 55% of agricultural businesses that requested debt in 2000 used business assets as collateral, as compared with 41% for all SMEs.

    Given that most KBIs have few assets to pledge and are often considered high-risk borrowers, it is perhaps surprising to have as high an approval rate as they do, albeit the lowest rate of all sectors.

    Now let's look at Influence of Firm Size.

    There are clear differences in request and approval rates across different sizes of businesses. Larger businesses were more likely to request debt financing.

    This is consistent with findings in the 2001 survey by the Canadian Federation of Independent Business. Higher approval rates for larger businesses are likely due to their established track record and collateral and revenue flows.

    I would also like to say a few words on the Leasing Market.

    Nine percent of SMEs made a request for lease in 2000.

    A result which did not surprise us was that 98% of SMEs who reported making a request for a lease said they were approved. More study and data are needed to explain this apparently high rate.

    Now let's look at Regional Venture Capital Activity, which, I believe, is another issue of great interest to the committee.

    In 2001, the amount of VC dollars invested fell by 27% to $4.9 billion, from levels reached during the record-breaking year of 2000.

    Despite last year's decline, total VC investment remains well above that in 1999. This chart shows a clear upward trend over the last five years.

    The Canadian VC industry did not experience as strong a decline in 2001 over the previous year as did the United States where a 65% decline occurred. We find that when examining the regional distribution of VC investments, there can be noticeable year-over-year fluctuation as a result of a small number of investments. The trend appears to be generally increasing in all regions of Canada.

    In 2001, 818 companies received VC funding, compared to 1,132 in 2000.

    I would also like to talk about the Venture Capital Market.

    Technology-oriented companies received 93% of total investments, and increased concentration over the 87% in 2000. The sector of choice among VC firms is overwhelmingly the Information Technology sector.

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Within the Information Technology sector, the dominating industry, which received an impressive one-quarter of total VC investments in 2001, was communication/networking firms.

    Biotechnology and other life science companies increased their share of investment to 22% in 2001, up from 18% the previous year. The providers of VC in Canada range from Labour Sponsored Funds to private Private Independent Funds. Over the last three years, foreign groups investing in Canada have been becoming more active. In 2001, foreign investors accounted for one-third of the total annual investment, up from 24% in 2000 and 19% in 1999.

    Now let's move on to Demographic Factors.

    Over the last decade, there has been a concern about special sub-categories of SMEs. As part of our work, we have also analyzed the financing experience of business owners who are women, youth, Aboriginal people, from visible minority groups and by language.

[English]

    On page 20, we'll look at women entrepreneurs. As you can see from the chart, about 45% of SMEs in Canada are wholly or partially owned by women, and 15% are majority owned by women. We've also provided a breakdown by sector. Findings indicate that women entrepreneurs operate smaller firms compared to men, and are more highly concentrated in the wholesale, retail, and professional services sectors. Just over half of all women-owned SMEs are sole proprietorships.

    We'll now go to page 21 and more information on financing. As you can see, the two factors, size and sector, have a profound impact on the financing conditions and experience of women entrepreneurs. In 2000, women SME owners made fewer requests for debt and leasing than their male counterparts. Only 17% of majority women-owned firms made requests for debt in 2000. The industries in which women-owned SMEs are more frequently found, wholesale, retail, and professional services, were found to have among the lowest request rates for debt, at 23% and 13% respectively.

    While some variation arose in 2000 in request rates, the gender of the business owner did not have a significant impact on debt approval rates. The exception was 50% male-female partnerships, which had a higher approval rate, at 87%. This is likely influenced by the joint ownership of family farms.

    On page 22 we look at the age of the business owner. Businesses owned by young entrepreneurs tend to be smaller, with the vast majority, 86%, in the seed start-up or slow-growth stage of development. They were more heavily concentrated in new knowledge-based industries, representing 12% of ownership in that category. At 37% for debt, 14% for leasing, and 3% for equity, youth-owned SMEs had higher request rates for all forms of financing. At the same time, young entrepreneurs also faced low approval rates for debt, at 78% compared to 82% for SMEs overall.

    On our visible minority entrepreneurs, while the findings discussed here begin the work of building an understanding of visible-minority-owned SMEs, the relatively small sample size of this subgroup of entrepreneurs makes it difficult to draw strong conclusions. So these numbers aren't as robust as some of the other numbers we've provided to you. But the findings indicate that visible-minority-owned SMEs are larger on average, more concentrated in either knowledge-based or wholesale-retail sectors, and marginally more liable to be exporters.

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     In financing their firms, there was very little variation between visible-minority and other owners. Request and approval rates were virtually the same. However, visible-minority owners were much more likely to approach chartered banks for their debt--90%, compared to 66% for other SME owners. This probably reflects the fact that chartered banks are prominent in the regions where visible-minority-owned businesses are concentrated.

    The relatively small population base was also a limitation for our analysis of aboriginal-owned SMEs. Just 1.4% of Canadian SMEs were owned by aboriginal people. A more targeted data collection and analysis will be required for this market segment, although we have provided the results of a recent study by Aboriginal Business Canada in our summary report.

    Moving to page 24, on language profiles, very little empirical evidence has been collected until now on the financing needs and conditions facing language groups in Canada. Entrepreneurship follows a distribution similar to the overall distribution of mother tongues in Canada: English 59%, French 27%, and other non-official-language-speaking entrepreneurs, 14%. Substantial differences were found among language groups, in terms of financing providers approached, instruments, and approval rates: 80% of English-speaking owners used chartered banks for their daily financial needs, whereas 51% of French-speaking business owners reported using credit unions or caisses populaires. There were similar findings for the visible-minority entrepreneurs. The vast majority of non-official-language groups--or 90%--dealt with chartered banks for their financing needs.

    To move to page 25, it sets out the work that's been completed and a sense of what's to come.

    In closing, Mr. Chairman, I would just like to offer a brief comment on the ongoing efforts of the SME financing data initiative. The findings presented here today were the preliminary results of three national surveys. Analysis is continuing on the findings, with additional data expected to be released in coming months. This is a dynamic market. Through the data initiative, we are beginning the process of collecting trend data. We will keep this committee informed regularly. Complementary research into niche areas of SME financing will be continuing during the coming year. One planned study looks at informal risk capital markets in Canada, including examining angel activity, and its impact on the growth and development of small business.

    With that, I welcome any comments by committee members on the information provided today, and your views on the future direction of the initiative's research.

    The Chair: Thank you very much, Mr. Dunlop.

    We'll now open it up to questions. Mr. Rajotte.

    Mr. James Rajotte (Edmonton Southwest, Canadian Alliance): Thanks you very much, Mr. Chairman.

    Thank you very much, gentlemen, for your presentation here today. There's certainly a lot of information to digest.

    I just want to clarify one thing. First of all, you refer to institutional market shares on page 5, and to the SME debt market on page 7. You have it split up. In terms of the SME debt market, one of your questions was where SMEs had requested data in 2000. Then you have a section for crown corporations, and government institutions. Am I correct in assuming the BDC would be included in that portion?

    Mr. Robert Dunlop: Yes, it is.

    Mr. James Rajotte: Okay.

    Just flipping back to the institutional market shares, what category would BDC fit in?

    Mr. Robert Dunlop: It's in the category of finance companies, on page 5.

    Mr. James Rajotte: Okay.

    The Chair: Mr. Rajotte, could you refer to the pages as you're going through, so that the rest of the team can follow?

    Mr. James Rajotte: Okay.

    The Chair: Thank you.

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    Mr. James Rajotte: On page 5, what's the explanation for categorizing the BDC in two different sections?

    Mr. Peter Webber (Manager, Small Business Financing Policy, Department of Industry): If I may, the reason is primarily methodological. It's because of the small number of crown corporations. The confidentiality requirements of the Statistics Act make it impossible for them to be reported separately. This is why they were included with a small group of other finance companies, for the purposes of reporting here.

    Mr. Robert Dunlop: The difference is that page 5 includes the survey of companies providing finance, so that you can identify individual companies. Page 7 includes the survey of small businesses.

    Mr. James Rajotte: Okay.

    Mr. Robert Dunlop: In this way, you don't face the confidentiality issue of identifying individual institutions.

    Mr. James Rajotte: I don't know if my question is outside the purview of the survey information you're presenting here, but the BDC--and even the banks--will argue that they operate more and more in a very complementary type of arrangement. Now, is it fair to ask you two gentlemen if you are finding in the survey results that the major financial institutions--the chartered banks and BDC--are operating in a very complementary role?

    Mr. Robert Dunlop: We presented a lot of information in our presentation, but it's only a tiny tip of the iceberg of all of the information that's been collected. So I'll refer to some data that's not in the presentation, if I may, to answer that.

    Mr. James Rajotte: Sure.

    Mr. Robert Dunlop: One of the pieces of information that we started collecting is loss rates by different types of institutions. I think this demonstrates the different kinds of activities that different institutions are engaging in. Among the major domestic banks, they have an overall loss rate of 0.3% on their business loans. In their smaller loans, it's 0.7%.

    But if we look at credit unions and caisses populaires, in their smaller loans they have a loss rate of 2.6% for loans of under $50,000, and 1.5% for loans of under $250,000. If I recall correctly, the equivalent figure for the BDC is about 4%, which of course they compensate for by charging higher interest rates. So they're dealing with a higher-risk clientele and charging higher interest rates.

    In the survey done by the CFIB, they also found that credit unions charge higher interest rates than banks do generally. We'll be producing information on interest rates charged by those institutions as well, but we don't have that data ready.

    There seems to be a relation between risk and price. The major chartered banks are at the low-risk and low-price end, caisses populaire and credit unions are higher, and the BDC higher still.

    Mr. James Rajotte: Would it be your view then that all three types of lending institutions are still necessary because they serve at least a different angle of the spectrum, that because they are serving higher-risk loans, BDC is neceassary? Some people argue that credit unions, if they expanded their mandates, could fulfill the role of the BDC. Is that your view? Or do you think the three types of lending institutions are still necessary?

    Mr. Robert Dunlop: At the moment they seem to operate in.... Each has a separate space that's defined in the market. But if it were to change.... I appeared before this committee on the BDC mandate review. If the behaviour and market strategies of the credit unions and caisses populaires were to change, I think we would have to look at the BDC mandate again, because it should be responding to what's happening in the market, not setting what's happening in the market.

    Mr. James Rajotte: I wanted to talk about the venture capital activity, page 15, particularly the drop between 2000 and 2001. I'm trying to determine the cause and effect, because you pointed out that it was particularly with the IT sector that the venture capital is concentrated. Was it the drop in IT activity that caused the drop in the venture capital, or was the venture capital dropping before we really had the decline in activity in the IT sector?

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    Mr. Peter Webber: Perhaps I may comment on that one.

    The IT sector has seen, as you can observe in the public markets, a rapid decrease in company valuations. This has caused there to be less investment by venture capitalists, who see the potential return, at least their immediate return, being reduced over time. The result is that they are less interested in making investments in the IT sector.

    It has to be said that the IT sector has only seen a fairly marginal decline in terms of actual number of investments, but in terms of the dollars invested, there's been more focus on early-stage financing in that sector than there had been previously. Typically, earlier-stage financing is also smaller. So there is beginning to be a smaller amount of money attracted by that sector, although they still represent approximately the same proportion of the deals done. Of course I'm dealing with two things here: the dollars invested and the number of deals. They're independent of each other.

    Mr. Robert Dunlop: One interesting difference between Canada and the United States was the huge increase in venture capital investment related to dot-coms in the United States in the year 2000, whereas Canada never had that boom in dot-com investment. That has dried up entirely in the United States, and that's a large reason for the 65% drop. In Canada, as I said, the drop has been much smaller.

    Again, as Peter said, it just reflects general market conditions. If the stock market is down, your chances of exiting at a profitable rate are lower, and therefore all these investment opportunities become somewhat less attractive. We in Canada have an advantage, in that venture capital is spread out among a number of sectors, from biotechnology to different elements of information technology, so we've weathered this pretty well so far.

    The Chair: Thank you very much.

    Mr. Bagnell, please.

    Mr. Larry Bagnell (Yukon, Lib.): Thank you.

    I'd like to thank my colleagues for coming. I was a director in Industry Canada, and it's great to see you again.

    Unfortunately, there's something in here, a problem I thought I had solved while I was there. I didn't, obviously, and it makes me furious. I don't mean to shoot the messenger, and I'm not sure if it's Industry Canada or StatsCan that does the statistics collection, but we've been telling them for years to fix this. Having Nunavut put in with Manitoba and Saskatchewan, Yukon in with B.C., or Alberta in with NWT makes absolutely no sense. Why not put P.E.I. and Saskatchewan together? They're both small jurisdictions, even for statistically significant samples.

    The problem is, it becomes useless as a tool. Let's say you have P.E.I. and Saskatchewan together, and the Saskatchewan government in conjunction with the federal government and the association of Saskatchewan municipalities wants to know what they can do with respect to financing. If you skew their figures by including Prince Edward Island in a situation where that province is totally different, it is better not to do it at all.

    It would be a lot better, for instance, if you needed numbers on statically significant samples, to put the three northern territories together. But why ruin the figures for Alberta, B.C., Manitoba, and Saskatchewan by putting in a jurisdiction that has nothing to do with them for a small number of loans? This is only the first chart. It shows up, obviously, throughout the deck, and I'm sure through other government studies too. Maybe you could comment on that first thing.

    Mr. Robert Dunlop: Sure, Mr. Bagnell.

    Actually, we had a federal-provincial meeting during our consultations, and we had representatives of the territories as well. We received this message from territorial government representatives loud and clear, as you would expect. I think you know the answer as well.

    The difficulty is that each of the territories has about 0.2% of the population, and we just can't get a statistically significant sample by using the techniques StatsCan does of randomized sampling, one that would produce clear results. We have the same difficulty in Atlantic Canada as well, where obviously they want answers for Prince Edward Island and Nova Scotia, not for Atlantic Canada overall.

    We've tried to do this where other survey techniques are used and where Statistics Canada is not doing the survey. For example, with the Université du Quebec à Trois-Rivières we've been able to provide a greater distinction.

    We have a real difficulty with the territories. If there are any ideas you have about how we can change things, we can certainly follow that up with you and our colleagues in StatsCan.

º  (1605)  

    Mr. Larry Bagnell: If they do it on a random basis with say one in a hundred businesses, then it works for Ontario, where there are lots of businesses. But there are not enough businesses in the Yukon or NWT, so why don't they increase the percentage for the random sample from that particular jurisdiction, whether it's P.E.I. or Nunavut?

    Mr. Robert Dunlop: That's an opportunity we can look at. I know that when my colleague from Nunavut was at our meeting, she said that her surveys of business were very easy. She said there are 500 of them, we call them, and we get 100% coverage. Maybe that's something we can look at.

    Mr. Larry Bagnell: I really think you have to make the effort. There are 400 members just in the Whitehorse Chamber of Commerce, so I'm sure that in the north there are a statistically significant number of businesses for you to get some figures. Even if you do the whole north and put a caveat below it, I think somehow.... As I said, you've perverted the figures for Alberta, B.C., Manitoba, and Saskatchewan by throwing in irrelevant samples, and we don't have anything we can use to determine policy for the north.

    My second question is related to the north, but you may not be able to answer because it's not disaggregated that way. Of course, my interest is that historically it used to be hard to get financing, especially in the rural part of the north. I notice that a lot of these stats don't have comparisons over the years, but maybe there are some in these other documents you're talking about. Has there been an improvement in the ability of people in the rural north to obtain loans? They used to argue, back when I worked at Industry Canada, that it was virtually impossible to get financing if you were outside one of the capital cities north of 60, and I'm wondering if that's improved.

    Mr. Robert Dunlop: As we are presenting the first report, we don't have any data to make a comparison with about whether things are getting better, worse, or different. There were some similar types of work done in the past, but they're just not comparable. The Canadian Bankers Association used to present this committee with the results of the Thompson Lightstone study, but Statistics Canada's approach is different enough that we're not able to identify that.

    So we can't really say how things are changing. That's the kind of information we'll provide in the future.

    Mr. Larry Bagnell: Well, okay, you couldn't find them from this particular exercise, but obviously the chartered banks, for example, and the Federal Business Development Bank would have figures over the years, would they not? Do you have some access to their loan figures?

    Mr. Robert Dunlop: Not disaggregated, for example, right down to things like rural north. That would be too disaggregated, I think, for us to get.

    Mr. Larry Bagnell: My last question is related to the regional development agencies and possibly Community Futures, which is associated with them. We had them in as witnesses recently. They all seemed to have stellar loan records.

    I'm just curious, I'm not sure where it fits in your statistics, but do you have any comments on the regional development agencies in general and on their loan records?

    Mr. Robert Dunlop: That shows up primarily in the figures--and this is something we'll change in future surveys--under risk capital, because government interventions from the regional development agencies are usually accounted for as equity, and we want to isolate that in the future.

    Frankly, when you look at the numbers we are dealing with--loans of under $250,000 are $81 billion a year--the budgets of CFDCs and regional development agencies are very, very small and just barely show up in the data. They're really targeted at specific kinds of businesses and don't show up in the overall as much as you would think.

    Mr. Larry Bagnell: I guess, in that we are the federal government, we'd have a bigger interest in seeing how those loans given out by the federal government fit into the picture, in keeping them separate in a way so that we can work on improving policy or whatever, and just think about it for the future. I think we have a vested interest in seeing how they sort out, how they're doing, and what we can do as we go on to revise those programs.

º  (1610)  

    Mr. Robert Dunlop: Absolutely. I just think the best way to follow that isn't to try to do a survey of all Canadian businesses, and then find that a small percentage of businesses use the program and have to try to draw conclusions from that small sample. The better way to get at it is to go through the agencies themselves and look at their results, because they can look at the sample of all of their activity.

    What we find is the other way around. That's when you end up with a very small group, and then it's not statistically significant.

    Mr. Larry Bagnell: But if there were a coordinated effort where they were--following up on what you said--asked to collect the information in the same way you have here, but for their total sample, then we'd have a comparable figure.

    Mr. Robert Dunlop: Actually, Peter, why don't you follow up on that? We are working with them on exactly that.

    Mr. Peter Webber: This report reflects the first step in a five-year implementation plan, and in the next year we are going to be specifically asking all of the federal and many of the provincial government agencies that provide direct financing to SMEs to report to us. It's a rather complicated question, because many programs are designed in different ways and come at the issue of financing from different angles. So finding the right way of sampling them to get comparable data that's comprehensible is a challenge that we're working through right now, but it is a priority for us for this program.

    The Chair: Thank you, Mr. Bagnell.

    Mr. Bergeron.

[Translation]

    Mr. Stéphane Bergeron (Verchères—Les-Patriotes, BQ): Thank you, Mr. Chairman.

    Gentlemen, thank you for your presentation. We are pleased to see you back here with the committee.

    This information is of considerable interest to us in the context of what we're currently doing about the financing of small and medium-size enterprises. It is always interesting to have a picture of reality when we want to examine a problem.

    The context may not have lent itself to this, but it might perhaps have been interesting to analyze these figures in conjunction with the report you came to present a few days ago on the Business Development Bank of Canada. I say that because I note with some concern that the percentage of SMEs operating in the knowledge industry which made requests for debt is one of the lowest on the list. Mr. Chairman, I'm referring to the figures on page 11. We also see that that sector has one of the lowest debt financing approval rates.

    Knowledge-based industries are among those requesting the least. To add to the distorsion, they are also those who received the least. We want to make Canada switch to the new knowledge-based economy, but we see that there may be a problem with respect to financing.

    We know that the Business Development Bank of Canada has a mandate mainly to promote the development of small and medium-size enterprises. It is said that it must complement the existing financial institutions. Are we to understand that the Bank must offset any weaknesses there may be in terms of national strategies, in promoting innovation, for example, and the shift to the new economy? In other words, could the Business Development Bank of Canada finance, alone, small and medium-size enterprises in the knowledge sector which have been somewhat abandoned by the traditional institutions?

º  (1615)  

    Mr. Robert Dunlop: We didn't have such detailed figures when we reviewed BDBC's mandate. However, BDBC's mandate is to work with the knowledge sector on a priority basis. That's part of its mandate.

    If I remember correctly, the knowledge-based industries represent four or five percent of the total number of companies in Canada. BDBC currently allocates 10% of its loan portfolio to the knowledge industry. The government has given BDBC the mandate to be the bank of knowledge businesses, and this is reflected in its portfolio.

    With regard to venture capital, 100% of BDBC's risk capital operations are in the knowledge. This is based on the information that we have. The statistics we currently have confirm the situation that prevailed when that mandate was given to BDBC. Those statistics confirm our previous concerns.

    Mr. Stéphane Bergeron: Your answer indicates that you acknowledge, with me, that it would have been interesting for us to have at least those figures before coming to the Bank's activity report.

    You say that four or five percent of SMEs are in the area of the knowledge economy. They make only 13% of financing requests and only 70% of those requests are accepted. So we see from the outset that there is a major distortion. If I understand correctly, not many SMEs in this field obtain financing.

    Mr. Robert Dunlop: No, the first figure indicates that 13% or rather 16% of all companies in the knowledge sector made requests. So that's not 16% of the total number of companies, but 16% of the companies in the knowledge sector.

    Mr. Stéphane Bergeron: That's correct.

    Mr. Robert Dunlop: Yes. There are a lot of reasons why...

    Mr. Stéphane Bergeron: That's exactly what I'm telling you. If only 4% or 5% of businesses or SMEs are in the knowledge sector, and, of that four or five percent, only 16% make requests and only 70% of those obtained financing, that means that, ultimately, there are not many businesses getting financing in the knowledge economy.

    Mr. Robert Dunlop: No, but 84% of businesses did not try to obtain financing. When we asked them why they had not sought financing in the previous year, many of them answered that they did not need it. So 16% of businesses needed it and were looking for it. You're right to say that the figures decline after that and that companies in the knowledge sector are rejected more often than those in other sectors. That's a problem which the figures reveal to us.

º  (1620)  

    Mr. Stéphane Bergeron: With regard to that problem, Mr. Dunlop, I'll ask you the following question once again. In view of the complementary mission of the Business Development Bank of Canada, would the Bank be authorized to finance on its own a project that had been refused by the private sector?

    Mr. Robert Dunlop: Yes. BDBC's mandate previously permitted it to review a file only if it had been rejected by the private sector. In 1995, that part of its mandate was eliminated. Now, if a company is rejected by a private financing institution, it can still turn to BDBC, but it is not necessary for it to have been rejected by a private institution.

    Mr. Stéphane Bergeron: All right. So BDBC has this mandate and can do it.

    Mr. Robert Dunlop: Absolutely.

    Mr. Stéphane Bergeron: The way BDBC's mandate could be interpreted as being complementary to that of the private sector could lead some to say that, when there is no private financing, BDBC cannot provide financing, but it can do so, isn't that correct?

    Mr. Robert Dunlop: It can do so, yes.

    Mr. Stéphane Bergeron: Excellent. Now you began your presentation by telling us that what the definition of small and medium-size enterprises would be based on the statistics. This is a problem we have come up against and still come up against today, that is to say how to define what a small or medium-size enterprise is. Since the definitions vary from one financial institution to another, we rely on sales, number of employees, assets and a certain number of other things. What, in your opinion, is the definition that should be used? And has there been any reason to standardize the definition of a small or medium-size enterprise across Canada?

    Mr. Robert Dunlop: That's an excellent question. This is a major problem for us as well because, as you have noted, so many definitions are used that it is difficult to compare figures. We would like the definition to be based on the number of employees. We are working toward this. If it were possible to come to a common definition by the end of the five-year period, that would be tremendous. For the moment, since we must use the results of the systems already in place, we have to use a few different definitions.

    Mr. Stéphane Bergeron: You say you want to come to a common definition by the end of the year. Will that be done through negotiations between the industry and the department, or does the department intend to decree its own definition of a small and medium-size enterprise? I'm asking an entirely hypothetical question. Would the department expect this committee to make a suggestion on what might constitute the definition of a small and medium-size enterprise?

    Since I see my time is running out, Mr. Chairman, I would like to ask another supplementary question. The ceiling on loans that may be authorized for small and medium-size enterprises has also been reported to us as a problem. Today, that ceiling no longer corresponds to the reality of small and medium-size enterprises and should be raised. What do you think of the suggestion that the ceiling on loans that can be authorized for small and medium-size enterprises should be raised? I would also like you to answer the question I asked concerning what the department has in mind regarding the definition.

    Mr. Robert Dunlop: As I said, we're trying to negotiate with the other parties, but we could come back and present the various options to you. All the approaches have positive and negative aspects. I recall that when the representatives of Caisses Desjardins were here a few months ago, they said that, in their minds, the number of employees was not important. So, in their view, it's not worth the trouble to look at statistics based on the number of employees, which reflects the changes in the behaviour of businesses. In future, the number of employees will be less and less important.

    In fact, we're trying to form a consensus based on negotiations. We can also look at the question of the present ceiling because the figures are high on both sides. It may be necessary to change the ceiling. That's another question that we can put to the banks and other financial institutions.

[English]

    The Chair: Thank you very much, Mr. Bergeron.

    Mr. St. Denis.

    Mr. Brent St. Denis (Algoma—Manitoulin, Lib.): Thank you, Mr. Chair.

    Thank you, gentlemen, for being here.

    If you refer to page 6 of your deck, you see the percentage of venture capital.... Actually it's surprisingly close. All the numbers are surprisingly close, actually, when you compare the very small businesses--under 20 employees--to the bigger groups of zero to 500. I was surprised at how close all the numbers were.

    Take specifically the second bottom number, venture capital. Many years ago the government of the day, in cooperation with the provinces, created labour-sponsored venture funds, which I think is a good notion with a lot of potential. But we're a long way, I think, from seeing those labour-sponsored venture funds really reach the grass roots of this country--and in particular, areas such as I represent in northern Ontario, the rural areas.

    I'm just wondering whether in any of your data you've tracked the ability or the inclination of the labour-sponsored venture funds--which, just for the record, exist because they're able to attract capital from individual citizens because of the tax breaks the individual taxpayer can qualify for provincially and federally.... They only exist because of provincial and federal programs. They have amassed across the country billions--and in the case of the Ontario funds, I believe, a couple of billions--of dollars. It surprises me they don't even qualify as a line item, because they haven't become a player; at least, they're not on the radar screen. I'm wondering if you have any comments about their ability.... Or is there something wrong with the system? Why aren't they showing up on the radar screen?

    I think it's an important item that we should look at in the next year or so, Mr. Chair, just to see how they're doing, really.

º  (1625)  

    Mr. Robert Dunlop: One of the messages we wanted to try to bring to you today was just how venture capital and risk capital fit into the overall picture. That's why I gave the numbers of companies.

    With loans from banks and caisses populaires and the like, we're talking about 1.5 million loans and transactions. With venture capital, we're talking about a thousand. It's a tiny percentage of companies, but these are companies that have the potential to grow at 100% to 200% a year. They're a very small subset that has very particular needs. A restaurant or a traditional business doesn't need venture capital. It generally needs bank debt and equity from the owner. Outside investors aren't willing to invest, because they don't see the potential for rapid growth that you would see in technology, or biotechnology, or something like that.

    You know, while it's a very important area for the committee, it's a very small section of small-business financing overall, with a very particular interest.

    Mr. Brent St. Denis: You mention, and I'm sure you're right, that by its nature it will always be in the small numbers in relation to the total community of borrowers or those needing debt.

    Mr. Robert Dunlop: That's our sense, based on the kinds of companies and the kinds of companies that investors are willing to make this kind of investment in.

    About the labour-sponsored venture capital corporations generally, there's a perception in Canada, because years ago when the venture capital industry was just getting rolling, they played a very large part in the market. In the figures we've given you today, you can see that, in terms of investments, the LSVCCs are down to 13% of the total venture capital investment made in Canada. They have a larger proportion of the assets, but in terms of investments, the kind of evolution that we wanted to see in the venture capital market is happening, with the larger role being played by the private sector.

    Mr. Brent St. Denis: Are you able to say or suggest why that might be, why they, with lots of capital, still haven't taken their proper place in that percentage of venture capital investment?

    Mr. Robert Dunlop: Although this percentage is falling rapidly, I think it's because other sectors are going more quickly.

    I'm a little bit outside of my area. The folks from the Department of Finance follow this more carefully than we do. But part of the story as well is that because of the way labour-sponsored venture capital corporations are set up, they have to keep large cash reserves, because it's small investors putting $5,000 or $10,000 in at RRSP time. They have to have the cash reserves to redeem that, whereas if you are raising funds from an insurance company, they know full well that their money is tied up for seven years, so they can invest a larger proportion of their balance than the LSVCCs.

    Peter, did you want to add something to that?

    Mr. Peter Webber: Yes. With respect to that, although the LSVCCs represent this year about 13%, three years ago they represented about 50% of investments made.

º  (1630)  

    Mr. Brent St. Denis: Is that 15% or 50%?

    Mr. Peter Webber: That's 50%.

    The reason for that is primarily the increase in foreign investors investing in Canadian venture-capital-ready firms and the re-entry into the market of institutional investors such as pension funds, and the growth of private independent funds. These are organized by investment bankers and the like. So with the growth of those firms, they're taking a bigger market share. But the fact is, they are growing the size of the market as well, as far as LSVCCs are concerned.

    With respect to a point that Mr. Dunlop made earlier, in terms of the scale of venture capital, it's interesting to note that where we had about 1,000 firms last year, there were about 6,000 firms invested in the United States last year, which was also a record year for the United States. They have about ten times as many firms as we do, so they have roughly 10 million firms overall. We're roughly in the same ballpark.

    Mr. Brent St. Denis: In the same ballpark.

    Mr. Peter Webber: Exactly.

    Mr. Brent St. Denis: Do I have time for a short question?

    The Chair: One short question.

     Mr. Brent St. Denis: The credit unions are fairly active in many rural regions of the country, including my area, but a lot of them aren't as heavily involved in commercial lending as we would see with the bigger banks.

    Do you see that trend changing? Do you see a trend toward more involvement by credit unions and cooperatives in commercial lending? Where do you see the place of credit unions going as the years advance?

    Mr. Robert Dunlop: This is one of those areas where the sum of anecdote is not data.

    Anecdotally, we've heard that credit unions and caisses populaires are a growing part of the market. We now have the benchmark from which we can measure whether that's the case. Certainly it seems to us that the commercial banks had a larger share of this activity in the past, but it wasn't measured. There were different measures, and there were some indications that was the case, but we expect to be able to show you exactly what's happening in the future.

    Mr. Peter Webber: As just one other point on that, the credit unions have been growing quite rapidly in western Canada, while at the same time the chartered banks have been exiting that space. In fact it's the only part of the country where there has been sort of a shift more toward credit unions than in the rest of the country. I think it's a 16% decline on the part of banks in western Canada.

    The Chair: Thank you, Mr. St. Denis.

    Mr. Fitzpatrick.

    Mr. Brian Fitzpatrick (Prince Albert, Canadian Alliance): I have a short comment about a matter Mr. St. Denis brought up. I know you said it's only a small slice of the thing, but it just occurred to me that if you went through the companies on the Standard & Poor's 500 at one time they were all baby and small companies, and high-growth companies. Ultimately, they're the backbone of the North American economy and 20 years ago a lot of them didn't even exist. So it's not an area to underestimate or to say is unimportant. So not having a whole lot of activity in the area maybe isn't a good sign for our economy.

    There are two areas I wanted to touch on because I really didn't see them in the report. One is the subject of informal investors, and that I think involves a whole host of people: friends, families, people who are investing for the good of their community and so on. It's been my experience with those sorts of situations that one huge problem with those strategies is for those folks to be able to exit that area. And, quite honestly, government is the problem in exiting, especially the tax rules. They do exotic complicated things to try to exit where if it were a more direct approach it would make it easier for everybody in sight. I'm not exactly sure that these people should be punished with high taxes anyway; they should be rewarded.

    Is there anything in your report that analyses that kind of problem?

º  (1635)  

    Mr. Robert Dunlop: Yes. I'll answer the first part first.

    In no way did I mean to suggest that companies receiving venture capital are not important. I think they fall into the area that you would call low probability, high impact. In other words, there are very few of them in terms of numbers of companies, but the impact they have on the economy is huge. As you know, companies like Mitel and the big high-tech companies that employ tens of thousands of people today were small companies getting venture capital not many years ago. But we shouldn't expect to be seeing hundreds of thousands of companies getting venture capital investment. That was the only point I was trying to make. This will always be a small minority but a very important minority.

    Mr. Brian Fitzpatrick: I want to follow up on that point, because I have the big fat book here too, and on page 39 it says “Risk Capital Sources”. To me, that almost connotes that the sort of investment venture capital people make is.... I note in there that government and crown corporations represent 44% of the investment in risk capital in this country. Am I reading this correctly?

    Mr. Robert Dunlop: No, actually, and this was something that will change in future reports, because I think we posed the question badly in the survey.

    What this table shows is where small businesses that were looking for risk capital applied for it. Because the accounting treatment of a government grant is similar to equity, we lumped them together, but it doesn't make sense. So in the future we're going to separate government programs from risk capital.

    Mr. Brian Fitzpatrick: So what is the percentage of investment by the public sector, the crowns and so on, in this area? What percentage do they represent?

    Mr. Robert Dunlop: The only figure I have is for venture capital, and it's the BDC; they're about 4% of the venture capital market in Canada.

    Mr. Brian Fitzpatrick: So when I hear something like Industry Canada or somebody has made an investment in some company and the loan is conditionally repayable, whatever that means, the contribution--they don't even call it a loan--is this considered part of your venture capital statistics, or is that outside the parameters of it?

    Mr. Robert Dunlop: No, that's outside.

    Mr. Brian Fitzpatrick: Shouldn't it be considered in that, because it's really that type of investment, isn't it?

    Mr. Robert Dunlop: It's of a similar type. I think we have good statistics on that, because we have to publish the reports of individual programs and their activity. Certainly we could put those together for you. But the statistics we get from Mary Macdonald and Associates look at the activities of venture capital investors and report those to us. So we could put those together, but that's a different kind of work.

    Am I being clear?

    Mr. Brian Fitzpatrick: No, actually when I read the preamble to a lot of their materials they get into innovation, entrepreneurialship, and encouraging SMEs and so on, and they seem to say that's their mandate. I wonder why their role is not represented in this sort of summary so we can really see what's going on here.

    Mr. Robert Dunlop: We could certainly put those together for you, and maybe provide the committee with a summary of those figures.

    The Chair: That would be good.

    Mr. Peter Webber: The answer to your question is very similar to the one I gave to Mr. St. Denis. It is part of the plan for going forward, but we haven't come up with the right methodology for providing a comprehensive answer. It's certainly on our list of things to do.

    Mr. Brian Fitzpatrick: I want to really emphasize it, because there's Community Futures, regional development, Industry Canada, the Business Development Bank, rural development, and blah, blah, that are supposedly involved in this. There's a whole host of these things, and they all say they're encouraging small and medium-sized businesses, entrepreneurship, and innovation.

    I think the money they're spending on everything else should be in this total report, so we can compare them in the whole package of things here.

    Mr. Robert Dunlop: We'll be glad to do it.

    The Chair: Thank you, Mr. Fitzpatrick.

    Mr. Marcil.

[Translation]

    Mr. Serge Marcil (Beauharnois—Salaberry, Lib.): Mr. Dunlop, here we have a large number of statistics that leave a lot of room for interpretation; we could add nearly 20 pages to explain certain data that appear in the document. But what concerns me the most is, as Messrs. St. Denis and Webber mentioned earlier, the fact that western Canadian banks have apparently reduced their loans by 16%, whereas the cooperative movement has increased its loans.

    I'm going to draw a certain analogy with Quebec. According to BDBC's reports, 40% of that institution's loans are made in Quebec. I remember telling my minister on this subject that this situation was not a credit to us because it suggested that Quebec SMEs had trouble gaining access to loans from chartered banks and the cooperative movement. As for Western Canada, if bank loans have declined 16%, the cooperatives have as a result captured a larger market share. However, based on what I understood, interest rates are somewhat higher at a cooperative than at a bank.

    Interest rates at BDBC are always a bit higher. Does that mean that it is becoming increasingly difficult for an SME to have access to business loans from chartered banks? We also see that the chartered banks are increasingly withdrawing from the regions. We have fewer and fewer banks. I'm thinking of the Bank of Montreal, which has closed I don't know how many branches. It's not just because of computerization. An enormous number of banks have been closed in the regions, and its the Mouvement Desjardins which is increasingly taking up the slack.

    I would like to know whether the chartered banks, which always offer slightly lower interest rates than the cooperatives, are increasingly withdrawing. Is it true that businesses have more trouble doing business with banks and that the banks are withdrawing more from the regions?

º  (1640)  

    Mr. Robert Dunlop: We don't have the figures to answer your questions, but those are good questions, which we could study in depth. It is really hard to identify players' motivations in an extremely dynamic market.

    If there is a change in the market, it is difficult to determine whether it is due to the withdrawal of one party or the growth of another. The banks are still making a lot of loans, and, in many regions, loans are even increasing, but other sectors are growing more quickly than the chartered banks.

    When Peter mentioned a 16% decline, that was in the number of branches in the West; he was not talking about loans. That's a question to which we have no answer; it's really hard to determine.

    In Canada, we see that the financing markets are really different from one part of the country to another. In Ontario and the Atlantic Provinces, the chartered banks have the largest market share. In Quebec, there are the Caisses Desjardins, and, as regards BDBC, it is incorrect to say that 40% of its operations take place in that province; they are currently on the downswing. In Ontario and in the West, however, they are growing. The regional markets are really different, and that's probably positive, because that affords the opportunity to market new products. If it's really effective in British Columbia, it will be a good example for the other provinces of Canada.

    Mr. Serge Marcil: Normally, an institution that offers a lower interest rate should gain market share. Small and medium-size enterprises tend to want to take out loans at interest rates one percentage point lower. These financial institutions should seize a larger share of the market.

    I'm trying to see the difference between chartered banks, cooperatives and BDBC, whose activities are complementary. Did you notice in your analyses that the chartered banks tend more to lend to existing businesses, which already have a balance sheet and have been in existence for a few years, than to new businesses?

º  (1645)  

    Mr. Robert Dunlop: That's the key question. The surveys done by the Canadian Federation of Independent Business revealed that most members were satisfied with the financial services they used. That's a bit surprising in view of the Federation's usual position, but the few individual markets where there are problems involve start-up companies. Our colleagues at the Université du Québec à Trois-Rivières have observed the same phenomenon.

    In Canada, the financing question is a question of access. If your situation is good and a chartered bank thinks your business is promising, your situation is probably one of the most privileged in the world. On the other hand, the chartered banks do not usually make loans at rates higher than prime plus two. It's the caisse de dépôt and the BDBC that take higher risks. So it's not just a question of interest rates, but also one of the risk levels accepted by the banks. You define the market on the basis of these two factors.

    Mr. Serge Marcil: BDBC was criticized for not having enough capital for start-up companies. So it's always hard for a start-up company. Perhaps that's why they tend, since the chartered banks turned them down, to go more toward the cooperatives, where interest rates are always a bit higher. One rarely sees loans from the cooperatives greater than $1 million; that's more what you see at the chartered banks.

    My father told me that, when someone owed a bank $100,000, he had a problem, but that, when he owed a bank $1 million, it was the bank that had a problem. Perhaps that's why the banks tend more to maintain a relationship of trust with established businesses than with new businesses.

    Mr. Dunlop, in your position as Director General of Small Business Policy, is the problem that start-up businesses have in gaining access to venture capital... In fact, when you lend to a start-up business, by definition, you're always lending venture capital. Is this a question for you and do you consider the possibility of developing an approach for Industry Canada in this regard?

    Mr. Robert Dunlop: Absolutely, that's our main concern. It's not well known, but the most important program at Industry Canada is the program under the Canada Small Business Financing Act. That program, as the committee knows, provides banks and other financial institutions with partial guarantees on small business loans.

    Peter, what's the figure for start-up companies?

    Mr. Peter Webber: It's approximately 60 percent.

    Mr. Robert Dunlop: Approximately 60% of program users are start-up companies. Normally under the program, $1 billion in loans are allocated over approximately 25,000 loans; that changes from one year to the next. It's the department's main program. I think it's a good program in that the objective is not to subsidize a company, but to induce banks to do business with it. Ninety-four percent of loans are repaid, and the bank then has relations with the company so that the company can continue to operate as a normal company. This is our main intervention with start-up SMEs.

º  (1650)  

    Mr. Serge Marcil: That means that this program...

[English]

    The Chair: Mr. Marcil, I hope you have a very short question with a very short answer. Go ahead.

[Translation]

    Mr. Serge Marcil: This is my last question; it's very brief.

    So this is a program that will protect a percentage of the loan which the bank or financial institution makes to a small business. What is the percentage of the loan protected? Is it 60 percent? Is it 65 percent?

    Mr. Robert Dunlop: We cover 85% of losses.

    Mr. Serge Marcil: All right. Thank you.

[English]

    The Chair: Ms. Gallant, I'll pass it over to you.

    Ms. Cheryl Gallant (Renfrew—Nipissing—Pembroke, Canadian Alliance): What did you use as a source of businesses when you were conducting your survey? Did you go through the phone book?

    Mr. Robert Dunlop: No, we used the Statistics Canada business register.

    Ms. Cheryl Gallant: So the businesses actually had to be registered and incorporated.

    Mr. Robert Dunlop: No. They weren't all incorporated.

    Peter, can you answer that?

    Mr. Peter Webber: All businesses in Canada with more than $30,000 in revenue, whether they're incorporated or not, are included in Statistics Canada's business register. The sample was drawn from that business register, so it only dealt with established companies with more than $30,000 in revenue.

    Ms. Cheryl Gallant: So it wouldn't necessarily include businesses that were just starting up.

    The complaint I get--and not just in our riding, but everywhere I've been--is that it is extremely difficult for women to get start-up capital. In looking at your suppliers of debt by demographics, I see that with crown corporations that supply debt financing, the male-to-female ratio of acceptance is two to one, yet the requests for debt financing from females are not half of what males are requesting.

    The Chair: Ms. Gallant, when referring to the chart, we ask that you give us the page number so it's easy for everybody to find. You are referring to a certain chart.

    Ms. Cheryl Gallant: Yes, it is the chart on demographics, page 21 in the smaller book. Looking at the pie chart there, I direct you to the yellow wedge, suppliers of debt financing for majority female-owned SMEs in 2000. Crown corporations is 4% and suppliers of debt financing for majority male-owned SMEs is 8%.

    Mr. Robert Dunlop: That's correct.

    Ms. Cheryl Gallant: To what do you attribute that?

    Mr. Robert Dunlop: That is a good question. This is one of the questions that the data are turning up.

    We haven't included it here, but the application rates from women to crown corporations are also much lower. The outcomes are almost a reflection of the application rate, so this might be an issue of communication of availability, because women are not applying to these programs as much as men are, according to the survey results we've produced here.

    Ms. Cheryl Gallant: When I look at the bar graph to the left, “Request for Debt”, it shows that, indeed, they are not requesting as much or as often.

    Mr. Robert Dunlop: That's correct.

    Ms. Cheryl Gallant: But it's not by that great a difference.

    Mr. Robert Dunlop: No, but in the detailed statistics in the book that we've given you, we've also indicated where people are applying.

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    Mr. Peter Webber: It's at page 70 in the booklet.

    Mr. Robert Dunlop: If you look at that, you can see where men and women apply for debt. As you can see here--

    Ms. Cheryl Gallant: So they are not applying to crown corporations as often as--

    Mr. Robert Dunlop: No. You can see that actually the numbers are exact. Figure 33 in the book shows that 4% of women's applications.... In the majority of women-owned firms, 4% of their applications for debt are to crown corporations, and for men, 8% of their applications for debt are crown corporations. What we showed in the handout is exactly the same outcome in terms of how much money is raised as well.

    The message we get from this is that for some reason government programs aren't as well known and aren't being used by women as much, but once they make an application, the outcomes are the same.

    Ms. Cheryl Gallant: Okay, so that's the key. It is getting the information to them.

    Mr. Robert Dunlop: That seems to be the case. Exactly.

    Ms. Cheryl Gallant: Has there ever been a study of the reliability of repayment based on gender? For example, when the loans are taken out, is the likelihood of a female repaying the loan under the terms as likely as a male repaying a loan? Is there a problem with repayment? That's what I'm getting down to.

    Mr. Robert Dunlop: I've not seen a study like that done before. I'm not aware of one. I can check the literature to see if we have anything, but I have not seen anything like that.

    Ms. Cheryl Gallant: I have one last question. I want to make sure I understand this graph correctly, the table on page 90 of the larger book. It is table 28, “Key Profile in Financing Statistics of SMEs by Percentage”. Is what you're saying, for example, in the first column, greater than 50% owned by women? So any business with an ownership that has more than 50% ownership, and of those overall businesses, 14.9% of those businesses are of that composition.

    Mr. Robert Dunlop: That's correct.

    Ms. Cheryl Gallant: Is there some reason you didn't use 100%? They have gone from zero to less than 50%, over 50% but not 100%. I'm just curious--

    Mr. Peter Webber: It's included.

    Ms. Cheryl Gallant: It's included, but not necessarily the 100%.

    Mr. Peter Webber: Anything over 50% would be included, so 100% is included.

    The Chair: Do I understand it's 51% to 100%? Where a partnership may be 50-50, is that what...?

    Mr. Robert Dunlop: Yes.

    Ms. Cheryl Gallant: Then just in closing off, the home-based businesses then that might not generate more than $30,000 in revenues or have to pay GST, they are in no way included.

    Mr. Robert Dunlop: They are not included here, no.

    Ms. Cheryl Gallant: All right. Thank you.

    The Chair: Thank you very much.

    Mr. Savoy.

    Mr. Andy Savoy (Tobique—Mactaquac, Lib.): Thank you, gentlemen, for coming today. It's been a very interesting and informative presentation. I'm an engineer, so I love facts and figures and graphs and feel right at home in this milieu.

    I have a couple of questions on your page 10, looking at the rural versus urban split. We have a snapshot of suppliers of debt financing and debt instrument requests in 2000, but we don't have a trend in this. I've heard, on the ground, that there's a trend of chartered banks going away from certain industries in rural areas, agriculture predominantly. I wonder if you have any trends in this regard. Would it be from 1995 to 2000? Trends in rural areas--do you have any trends in that area, or does this simply provide a snapshot?

    Mr. Robert Dunlop: One of the weaknesses is that this is our first report, and the first survey that StatsCan has done, so we don't have the trend data. We've been hearing anecdotes like that as well. One of our main objectives is to be able to document them, so that future surveys will be able to put this kind of information together. At the moment, it's a snapshot.

    Mr. Peter Webber: If I may just add to that, you mentioned that agriculture was having difficulty. It looks as though agriculture is requesting debt more frequently than any other sector, and its requests for debt are being accepted more often than any other sector's. But of course we don't know what the trend is. You'll see these numbers on page 11.

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    Mr. Andy Savoy: Yes, I see the numbers on the request and approval rates. But as you said, it's a snapshot. The concerns I've been hearing in the last year or so are more recent, so I guess they will come out.

    On page 12 you've identified firms with zero employees. I assume these are either shell companies, start-ups, or....

    Mr. Robert Dunlop: No, they are normally firms in which the owner isn't on the payroll. So there is a company, but the owner isn't taking a salary.

    Mr. Andy Savoy: Okay, it would be a holding company, or a shell company--

    Mr. Robert Dunlop: Well, not necessarily. It could be a sole proprietorship. They're just not organized to take a salary. They take a dividend instead.

    Mr. Andy Savoy: In looking at the approval rates for firms with zero employees versus those with one to four employees, it's interesting to see a dip. We see a trend, basically, from 82% to 94%. Then there is a dip at 79% for companies with one to four employees. Do you have any explanation for this? Am I missing something on this? Is there an explanation or something we should be concerned about, when companies that have started up and are in the process of growth seem to get slightly lower approval ratings?

    Mr. Peter Webber: I think it probably reflects the kinds of financing the self-employed--who are included in this category--tend to seek. It also reflects the kinds of collateral they're asked to come up with. The self-employed tend to seek more credit cards and lines of credit secured by personal assets than firms with one to four employees. It seems as though there is a little bit more of a constraint on these sources of financing for the latter, because they're probably looking for larger amounts of money in requesting debt. A lot of this interesting detailed information is probably going to be revealed over time.

    Mr. Andy Savoy: So it could be an anomaly because of the snapshot?

    Mr. Peter Webber: It could well be an anomaly because of the snapshot.

    Mr. Andy Savoy: In looking at pages 20 and 21, I have an observation to make regarding the gender issue. On page 21, I see that the request rates for debt financing by majority-female-owned companies is substanially lower than for majority-male-owned companies or male-female partnerships. Would it be fair to assume that because they have a higher participation rate in professional services in the wholesale or retail sectors, their capital requirements would be less than somebody in the manufacturing, primary, or agricultural sectors? Is that a fair assumption?

    Mr. Robert Dunlop: I think that's a fair assumption.

    Mr. Andy Savoy: So that's something that impacted the lower requests for female...?

    Mr. Robert Dunlop: That's part of the story.

    Mr. Andy Savoy: I just wanted to clarify this.

    On page 16, you talked about foreign venture capital doubling or almost doubling from 1999 to 2001. I haven't had a chance to look through the more detailed description, but I assume that it experienced the same peak in 2000 as the other venture capital investments.

    Mr. Peter Webber: Well, actually, it's a very interesting trend that we've seen. It has been going up, and it's continuing to go up in absolute and percentage terms. If we were to look at the first quarter of this year, venture capital investment by foreign-based venture capital firms is almost 50% of venture capital investment in Canada. So the trend appears to be continuing. It doesn't seem to have reached a peak.

    Mr. Andy Savoy: So we are doing a better job at selling our VC opportunities abroad? Is that a fair assumption, that the trend is in that direction?

    Mr. Peter Webber: Yes.

    Mr. Andy Savoy: Okay.

    In terms of sectors for foreign VC dollars, does it basically parallel what we see for VC investment by sector of all venture capital? Do you understand what I mean?

    Mr. Robert Dunlop: Actually, I think venture capital is really difficult to talk about in statistical terms, because we're dealing with so few transactions. A lot of the foreign activity you see is in information technology in Ottawa, and it's that specific. So it's not necessarily a national trend.

    I'm also very nervous about the word “trend” in this area, because I remember the rule of thumb four years ago was that venture capital is all local, no one invests venture capital abroad. Now we see it's a third of the market. That was the rule of thumb in the industry.

    So what's going to happen next, who knows? As I say, at the moment, a lot of it is being driven by activity in Ottawa. You see the announcements in the local paper of firms from Silicon Valley and Boston setting up here and making very large investments in Ottawa-based companies. And it's happening in some other places.

    Also, we should be careful. When we say foreign, we mean American. There's almost no other money involved here. The story we hear anecdotally from the industry is that the opportunities have dried up in the States, and they see really good opportunities here, especially in information technologies and communications.

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    Mr. Andy Savoy: Okay, thank you very much, Mr. Chair.

    The Chair: Thank you, Mr. Savoy.

    I'll now go to Mr. Fitzpatrick, please.

    Mr. Brian Fitzpatrick: I could be wrong on this, but I'd bet I'm right that the biggest pool of capital in this country would be RRSPs. I don't see anything in the report that would indicate that small and medium-sized businesses are able to access that. Mr. Dunlop, have you any explanation why it's almost statistically insignificant or it can't it be reported here?

    Mr. Robert Dunlop: Well, you've put your finger on one of the things we're really anxious to try to study in more detail--investments by friends and family in business. We have in some of the background reports we've published on our website some groundbreaking work by Allan Riding at Carleton University and Ellen Farrell at St. Mary's on just how important this market is as a source of financing.

    Now, it's very difficult to get at because we can't survey the general population to find out how many people are making investments in each others' businesses, but some of the indications we're getting about the importance of this are that in the surveys we did do, 15% of business owners indicated they've made an investment in the past year in another business.

    Allan Riding from Carleton University has done some extrapolations based on this that would indicate that love money could be larger than institutional venture capital.

    Mr. Brian Fitzpatrick: The people I've talked to in the industry, like the accountants and people who would deal directly with small businesses, keep telling me that the problem with accessing RRSPs is purely and simply government. The rules make it next to impossible for small and medium-sized businesses to access that. There doesn't seem to be any rhyme or reason other than some sort of assumption that small and medium-sized businesses should not be able to get the benefit of RRSP investment.

    That's an area I'm just pointing out as a policy concern that we should be able to fix in this area of government being attuned to the needs of small and medium-sized businesses.

    Another area I wanted to pursue, sir, is if we grow into a medium-sized business and it's at the stage where it could become a publicly traded company, there's the initial public offering. I'm wondering on that front whether your survey or analysis got into some of the problems we have in this country. A problem that comes to mind is that if you're going to try to go public in this country, you have ten provinces with security issues and a whole host of federal agencies to deal with before you can get the green light to go ahead and attract investors. Have you done any work on this sort of problem?

    Mr. Robert Dunlop: Yes, we have. If you look at the detailed report, there is a section there on initial public offerings and some of the issues around that. We haven't done this in as much detail yet as for some of the other areas, but it's an area that's very interesting to us.

    Sometimes data is difficult. One of the issues that's come up in studies done by the Conference Board and some others is that somewhat paradoxically, the experience of companies going public in Canada is that the cost of going public in Canada is lower than going public in the United States, which with all the regulatory issues that we hear about--

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    Mr. Brian Fitzpatrick: That's being registered on an exchange, right?

    Mr. Robert Dunlop: That's correct.

    Mr. Brian Fitzpatrick: But if you then go to each different province and try to sell to the public in those ones, the cost goes up because you have to go through each province and deal with their own bureaucracy to get the green light.

    Mr. Robert Dunlop: My understanding of the study is that even when you've done your regulatory approvals and you have your all-in costs of going public, it's marginally less expensive in Canada than in the United States.

    Mr. Brian Fitzpatrick: That's interesting, because I've heard American firms that wanted to do business in Canada raise the argument that the reason they're not doing it is that it's a lot more expensive to set up shop here. Vanguard mutual funds is one I know that made the decision to stay out of here because it's too costly.

    Mr. Robert Dunlop: In the same study, the finding is that it's very expensive to do it in both places simultaneously and then fulfill the ongoing regulatory requirements of the United States and of Canada. If you just have a choice of going public on NASDAQ or going public in Toronto and you just look at doing one or the other, the studies we cite in the report by the Conference Board and Professor Vijay Jog found that's not the case. But if you do both, it's very expensive.

    Of course, Vanguard is a multi-billion-dollar company that's all over the world, whereas we're talking about the small high-tech company that's going to raise $10 million or $15 million in an IPO. So the situations might be different there.

    Mr. Brian Fitzpatrick: Right. I read that. I'm not exactly sure it did take into account the provincial securities requirements and so on.

    Mr. Robert Dunlop: We can confirm that for you.

    Mr. Brian Fitzpatrick: It would be good if you could.

    On your guaranteed government loans, I didn't see anything in your report to give us any sort of an idea of the bank loans and credit union loans that are made to small and medium-sized business. What percentage of those loans are guaranteed by the taxpayers of Canada?

    Mr. Robert Dunlop: The statistics don't line up exactly, but our estimate is that of the market for loans of less than $250,000, the CSBFA covers about 20%.

    Mr. Brian Fitzpatrick: Is that rising or going down or stable?

    Mr. Peter Webber: It's been stable for the last four or five years.

    Mr. Robert Dunlop: I would say that also the CSBFA covers its costs with fees. So it's not a subsidy program per se.

    Mr. Brian Fitzpatrick: Do you know how much that 20% would be, just in gross dollar amounts?

    Mr. Robert Dunlop: Last year, I think it was in the range of $850 million.

    Mr. Brian Fitzpatrick: And that wouldn't include farm credit loans and those sorts of things.

    Mr. Robert Dunlop: No. There's the Farm Improvement and Marketing Cooperatives Loans Act, which covers a similar kind of activity on the agricultural side.

    Mr. Brian Fitzpatrick: That's all I have.

    The Chair: Thank you, Mr. Fitzpatrick.

    Our last questioner will be Mr. Bagnell.

    Mr. Larry Bagnell: Thank you.

    This is a great exercise, in that the chartered banks seem to have the majority of the financing in Canada. On a number of the questions that have come up that you may or may not have studied, I think the chartered banks have a lot of information, especially on their loans, which might be quite useful, especially if it's titled small and medium-sized enterprise financing in Canada, because they do a good percentage of it. It might make a good appendix, especially if they would be willing to provide--and I'm sure they would--some base statistics on a similar format between chartered banks. It would be an exercise you'd have to undergo, but I know they have it because they've presented to us before. If you have similar stuff on some of these questions we've been asking, which I know they have the answers to, that you haven't studied, that might be a useful appendix. I know you don't want to mix it up with the Stats Canada stuff.

    Are there any stats that refer to the financial structure of the company applying, such as how much debt it's already in when it's applying for debt? Did I miss that?

    Mr. Peter Webber: That issue is an important one. We dealt with that through the demand side survey. The demand side survey was divided into two parts. The second part of the demand side survey was a questionnaire that was filled in by the companies that participated in the first part on the telephone. We're in the process of finalizing those data, so we will be able to answer that question in the future, but we don't have those data in this report.

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    Mr. Larry Bagnell: I know that these studies here are on small companies. Do you also have information on financing for big companies in Canada?

    Mr. Peter Webber: The report includes a global figure for all business financing. I think Robert said in his opening remarks that it was $376 billion in 2000. That includes large business.

    Mr. Larry Bagnell: Does large business have a greater or lesser need for financing than small business?

    Mr. Robert Dunlop: They have a higher request rate and a higher approval rate, but need is a harder concept to define. They use more products. I think what you're after is--

    Mr. Larry Bagnell: The usage.

    Mr. Robert Dunlop: Yes, and would a loan to a small company have a bigger impact on employment and economic activity than to a large one?

    Mr. Larry Bagnell: That's a good question. I didn't think of that one. If I run out of questions, I'll ask that.

    Some hon. members: Oh, oh!

    Mr. Robert Dunlop: And I couldn't answer it.

    Mr. Larry Bagnell: A few years ago the Canadian Chamber of Commerce had a program, which was sort of like venture capital, where they tried to put the people with money together with the people who wanted money, and they seemed to have trouble finding people who needed the money. Are you generally satisfied that there are enough sources of financing in Canada?

    Mr. Robert Dunlop: It really depends on what level you're talking about.

    You're talking about angel financing. I'd recommend to those people who are interested the work that Allan Riding has done for us, which is now on our website. He has done groundbreaking work on how the angel market works in Ottawa and across the country.

    The difficulty in that market is that it's very fragmented. You have individual entrepreneurs looking for relatively small amounts of money and wealthy individuals with business experience who would like to make investments, and getting those two together is very difficult, because there's no centralized market. The angels wouldn't participate in that anyway, because the last thing they want to do is go to a restaurant and have a bunch of people with business plans showing up. So there's a real difficulty there.

    As you get higher up into bank loans, leases, and other forms of capital, then I think we're in the realm where you can do economic studies to determine whether there is in fact a shortage. You've seen that the application rates and approval rates are quite high, but we can't answer the specific question as to whether they're right. At this point we're just telling you what they are. It will be for others to decide what is optimal.

    Mr. Larry Bagnell: Does the department have any studies on the innovative micro-loan programs? I think they have a very high repayment rate, probably because they do a peer assessment before they give out the loan. I'm wondering if that has ever been experimented with in some other federal government initiatives, such as the FBDB, with larger-sized loans, because it seems to be so successful in ending in repayment on these tiny loans.

    Mr. Robert Dunlop: On the very tiny loans, I think you have an issue of moral hazard. I'm going on memory, so if I'm wrong, we'll follow up with the committee. I can't remember if this is the result of studies or just our sense. If government were involved, we would be concerned about keeping those high repayment rates. One of the reasons the repayment rates are high is that people know it is the money of other people around that circle that is involved, and therefore there's a high moral commitment to make repayment. If it were a government program, whether you'd have the same moral commitment of the borrowers is another question. I can't remember if this is a conclusion based on experience or a supposition.

    Most of the real micro-lending in the country is done by private foundations and organizations. Actually, we have the most comprehensive database on the availability of micro-credit across the country on our website. So if you're looking for micro-credit, you can find it. With the exception of the CFDCs, most of these are fully private. But even for the CFDCs, we're trying to make that community ownership, as opposed to being seen as a government program.

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    Mr. Larry Bagnell: Would there be any areas where it was somewhat risky for some reason but people could put their money in and the government would also have their money in? Then you would have some local commitment to funds. Let's say that a local entrepreneur wants to support a risky business or a business in a risky area but they don't want to share all the risk by themselves. They could be put together, and then you could create a committee or peer group.

    Mr. Robert Dunlop: In a way, the CFDCs are of that genre. Initial capital is provided to the CFDC, and then if the CFDC is to continue and grow, it has to have repayment and earnings on its interest.

    That's more or less it, but there's no program where an entrepreneur puts up this much money and the federal government matches it. There's no program like that that I'm aware of.

    Mr. Larry Bagnell: You might think of one.

    The last question is, do you think the level of the Canadian dollar has any effect one way or another on levels of financing available?

    Mr. Robert Dunlop: I don't think so.

    One of the great hopes was that with the changes to the Bank Act we'd have greater participation of foreign financial institutions in Canada. I'll cite the CFIB survey of its members. They aren't seeing it yet. We're not seeing it. They're playing some niche roles and they do show up in some elements, but they're not there. I think that would have a bigger impact on the attractiveness of Canada as a market for other institutions.

    I don't think the dollar would have an impact on a decision by a Canadian chartered bank or other financial institution about investing in Canadian small business or not. That would be a good question to the banks themselves.

    Mr. Larry Bagnell: Are the CFIB and the Canadian Chamber of Commerce generally happy with financing availability in Canada?

    Mr. Robert Dunlop: I'll quote the CFIB survey on banking. What they say directly is “Overall, the majority of business owners are satisfied with the service they receive from theirfinancial institution.” Then they go on to identify specific subgroups where there are difficulties. Those are primarily start-ups, young businesses, and companies in rapid growth. I think the financial institutions would say that those are high-risk enterprises.

    Mr. Larry Bagnell: My last question is--

    The Chair: That's your third last.

    Some hon. members: Oh, oh!

    Mr. Larry Bagnell: My third last question is are businesses still bothered by the collection of statistics? It's very important, this collection of statistics. Is there anything being done to either reduce that or make it more profitable for them to submit these stats, which get these great reports out?

    Mr. Robert Dunlop: In our consultations we involved key business groups. Actually, as a result of that we pared way back the size of the questionnaires we were going to send out. We've involved them in that way. Statistics Canada has its own internal processes to do that.

    No, they're not compensated for this. We hope, especially on the small-business side, that they can see that there are real benefits to them in having this kind of information available. It's really exciting stuff in some ways, because we do a lot of activities, Peter more than I, with colleagues from other countries. Very few other places, if any, have anything as comprehensive as what we're going to have here.

    This is useful, and certainly the business groups see this. You'll be able to make policy on the basis of much better information than has ever been the case in the past.

    The Chair: Thank you, Mr. Bagnell.

    Mr. Dunlop and Mr. Webber, I'd like to thank you, your department, and StatsCan for helping us understand your study to the nth degree. There has been some very good questioning all the way through on all sides, and that helps us a lot.

    Mr. Peter Webber: And there were good answers.

    The Chair: And good answers.

    It will allow us to establish a benchmark in going forward from here. That's what we're looking forward to being able to do, and in addition it will prepare us when we have the banks here reporting to the industry committee.

    I'd like to leave you with a thought, and that is just to remind you that the committee wants to get into the question of productivity. There's going to be a lot of discussion on small business and productivity, what the problems are with respect to productivity for small businesses and how they can move up to a higher level.

    Since it's well known that the productivity of small business in Canada is much lower than in the U.S.--it has been said repeatedly--we want to go right down to the show-us level, understand the why's, and find out what we have to do to help our small businesses. I'd just like to pass that on to you as we ask for assistance going forward.

    Thank you both again and the department for being with us today. It's a job well done and really appreciated by the group. Thank you.

    This meeting's adjourned.