The Business Development Bank of Canada (BDC) is a Crown corporation dedicated to providing financial and consulting solutions that meet the needs of small businesses. It was created in 1995 by an Act of Parliament that streamlined and modernized the structure and mandate of its predecessor, the Federal Business Development Bank (FBDB). The purpose of the BDC remained essentially the same as that of the FBDB: to support Canadian entrepreneurship by providing financial and management services. The principal changes in the new Act involved transforming the role of the BDC so that the Bank would be a complementary source of small and medium-sized enterprise (SME) financing, and giving the Bank the power to provide financial and management services jointly with other institutions.
Section 36 of the Business Development Bank of Canada Act states that five years after it comes into force, and every 10 years afterward, the designated Minister the Minister of Industry must have a review of the provisions and operations of the Act undertaken in consultation with the Minister of Finance. Within one year after the review is undertaken, the Minister of Industry must submit a report to Parliament on the review. As such, the Minister of Industry respectfully submits to Parliament this report summarizing the results of the research and consultations undertaken in support of the review. Once the report is tabled, the BDC Act stipulates that it must be reviewed by a parliamentary committee.
The development of this report was led by a committee with members from Industry Canada, the Department of Finance Canada, the Treasury Board of Canada, Secretariat and the BDC. The research and consultations focussed on trends and developments in the last five years in the small business financial marketplace. The goal was to look at the marketplace gaps identified in 1995 the risk, size, flexibility and knowledge gaps and to gauge how relevant they remain today. The BDC’s structure and mandate were designed to help the Bank fill these gaps, as were the provisions of the BDC Act itself. A continued existence of these gaps would indicate a continued need for the BDC within the financial services sector.
The review also focussed on the performance and operations of the Bank over the review period as it migrated from being a “lender of last resort” to a “complementary lender.” The key question was the Bank’s ability to balance its public policy mandate with its mandate to operate as a commercial institution to earn a rate of return at least equal to the federal government’s cost of
funds.
Contents
- EXECUTIVE SUMMARY
Part I: Provisions and Operations of the BDC Act, 1995–2000
1.0 INTRODUCTION
The Review
- 2.0 A NEW MANDATE: RESPONSE TO THE SME FINANCING CHALLENGES OF 1995
3.0 PRINCIPAL FEATURES OF THE BDC ACT
BDC Powers and Mandate
Name Change
Capital Structure
Capital and Liability Ceiling
- 4.0 OPERATING MANDATE
Fill the Four Gaps Identified in the Marketplace
Provide Innovative Solutions to Canadian SMEs
Increase Awareness of the BDC Among SMEs
Earn a Return on Equity
Revise Management Services
Establish a Charter of Client Rights and Create an Ombudsman Position
Provide Services to Aboriginal, Women and Youth Entrepreneurs
- 5.0 BDC GOVERNANCE
Legislative and Regulatory Controls
Corporate Planning
Annual Report
Board of Directors
Conflict of Interest and Ethics Framework
- 6.0 FROM LENDER OF LAST RESORT TO COMPLEMENTARY LENDER
Mission and Vision
Renewed Customer Focus
Changes to Delivery Channels
- 7.0 ASSESSMENT OF BDC PERFORMANCE: ACHIEVEMENTS FOR 1995–2000
Financial Performance
BDC Capitalization
Part II: Continuation of the BDC’s Mandate
1.0 ISSUE: WHETHER TO RENEW THE BDC’S MANDATE
Recommendation
Rationale
Adequacy of the BDC Act
- 2.0 TRENDS IN SME FINANCING AND CONSULTING
Supply-Side Trends
Demand-Side Trends
Conclusions
Gaps in the Venture Capital Market
Subordinated Financing
Perspectives on Access to Consulting Services for SMEs
Part III: BDC Outlook BDC OUTLOOK
Contributing to the Success of SMEs
Appendix I: Copies of the Minister’s 1997, 1998 and 1999 Letters to the BDC
- THE MINISTER’S 1997 LETTER
THE MINISTER’S 1998 LETTER
THE MINISTER’S 1999 LETTER
Appendix II: BDC Definition
of Knowledge-Based Industries
STANDARD INDUSTRIAL CLASSIFICATION (SIC) CODE AND DESCRIPTION
Divisional Results
Critical Assessment of the BDC
Appendix III: SME Financing Studies
CONFERENCE BOARD OF CANADA: A CHANGING DEMAND FOR SME DEBT FINANCING?
MACKAY TASK FORCE: REPORT OF THE TASK FORCE
ANGUS REID GROUP: FINANCING SERVICES TO CANADIAN SMALL AND MEDIUM-SIZED ENTERPRISES
SECOR: RECENT DEVELOPMENTS IN SME DEBT FINANCING: THE SUPPLY SIDE
CFIB: BANKING ON ENTREPRENEURSHIP
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