Feds' small business loan program supposed to break even incurs record loss

The Canada Small Business Financing Program also guaranteed about $957 million in new loans in 2009-2010, which means the annual loss rate hit about 12 per cent. The report, tabled in Parliament, shows a troubled program that was supposed to break even continues to suffer from red ink and a dwindling number of customers.

The Canadian Press
February 18, 2011

Feds' small business loan program supposed to break even incurs record loss

Tony_Clement.jpg

Minister of Industry Tony Clement speaks in the Foyer of the House of Commons on Parliament Hill in Ottawa, on Monday February 14, 2011. THE CANADIAN PRESS/Adrian Wyld

OTTAWA - A federal loan program for small business paid the banks and other financial institutions a record $113 million in loss claims last year — most of it in hard-hit Ontario, says a new report.

The Canada Small Business Financing Program also guaranteed about $957 million in new loans in 2009-2010, which means the annual loss rate hit about 12 per cent.

The report, tabled in Parliament, shows a troubled program that was supposed to break even continues to suffer from red ink and a dwindling number of customers.

And the big trouble spot was Ontario, where only about a third of the new loans were issued but more than half the loan losses occurred.

Industry Minister Tony Clement, who's in charge of the program, said in the report's introduction that it "continues to be a successful mechanism for facilitating asset-backed debt financing to business."

The loan-guarantee fund dates back to 1999. The fund has so far guaranteed more than $11 billion in small-business loans issued by banks, credit unions and others.

The federal government collects fees based on the size of the loans, but the revenue has never come close to covering the loss claims. Taxpayers are responsible for up to 85 per cent of a financial institution's losses.

A KPMG study last year found that the program has incurred net losses to the federal government of well over $300 million and that "the gap between claims and fee revenues will continue to exist and most likely expand."

The number of businesses helped by the program hit a new low in 2009-2010 — about 7,500, half the number of a decade ago — but the annual loan value still hit nearly a billion dollars because loan limits were doubled to $500,000 last year.

The loans tend to go to the accommodation and food services sector.

There were a record 1,968 loss claims on the program last year, or an average of about $58,000 each.

The program suffered bad publicity last fall when a Toronto Star investigation reported that about $4 million in loan money under the program was partied away. An RCMP investigation resulted in charges, and in accusations that financial institutions were not properly vetting applicants.

An Industry Canada spokeswoman said at the time that the department is not responsible for losses if a bank or other financial institution fails to perform proper due diligence.

http://www.stalbertgazette.com/article/GB/20110218/CP07/302189790/-1/sag0806/feds-small-business-loan-program-supposed-to-break-even-incurs&template=cpArt


Brought to you by WikidFranchise.org

Risks: Bank won't finance deal because they know something you don't, Canada Small Business Financing Act, Canada Small Business Financing program, Comments on article are interesting, Difference between appraised and market value equipment and leaseholds funds fraud, Easy credit fuels worthless system sales, Franchisor financing: faster in, out & resold (serial bankrupts), Government guaranteed loans, abolish program, Government guaranteed loan program very attractive to fraud, Government guaranteed loans, Government guaranteed loans used a great deal in franchising, Government guaranteed loans, massive loan defaults, Government guaranteed loans: program loses $1, franchisee families lose $10, Industry Canada, Hates publicity, Lender's due diligence not done properly, Lending is subject to expert fraud because it is a credence good service, Love money, Predatory lending, Sub-prime lending, Taxpayers end up paying for private gain, Why should we care? It's not our money., Canada, 20110218 Feds small

Unless otherwise stated, the content of this page is licensed under Creative Commons Attribution-ShareAlike 3.0 License