[Recorded by Electronic Apparatus]
Tuesday, May 28, 1996
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[English]
The Vice-Chairman (Mr. Valeri): I'd like to bring the meeting to order. Pursuant to Standing Order 108(2), this committee will begin consideration of the quarterly review of financing for small business.
I'd like to welcome on behalf of the industry committee the representatives of the major banks and the Canadian Bankers Association, as well as our witnesses for this morning's session from Thompson Lightstone & Company.
The industry committee has had a long-standing interest in the small and medium-sized enterprises. These SMEs constitute the vast majority of firms in Canada and in recent years have been the source of most of the growth in employment.
Small business is very important to the Canadian economy. The state of the Canadian economy is in many respects simply a reflection of the health of small and medium-sized businesses in the economy.
So on behalf of the committee, I want to congratulate the banks on their efforts to date. The accomplishments to date would include the appointment of an industry ombudsman and the Canadian Bankers Association code of conduct. These initiatives announced last year respond to the needs of the SMEs in an effort to strengthen procedures for handling complaints.
This meeting is our first quarterly review of bank lending to small and medium-sized enterprises. So let me settle why we are here and what we hope to achieve.
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Firms require capital for expansion and it's been argued that there are gaps in the financing of SMEs. While some progress has been made, there continue to be gaps in the system, gaps that we believe the banks can and should close.
The meeting today is to review data on bank lending that will help us identify these gaps. This committee has worked with financial institutions over the last number of years to identify and help correct the challenges SMEs have faced. We've had some successes by working in partnership. My objective is to ensure our work will continue to bear fruit.
So please welcome the witnesses: Mr. Ian Lightstone, a director of Thompson Lightstone & Company, and Mr. David Jamieson, senior research associate.
Mr. John Leckie, senior vice-president of the Toronto Dominion Bank, will now introduce the witnesses. Thank you and good morning.
Mr. John Leckie (Senior Vice-President, Business Banking Services, Toronto Dominion Bank): Thank you, Mr. Valeri. Good morning, members of the committee.
We are here this morning to review the results of several initiatives we have undertaken to provide - increased information on banks and their business customers.
One of these initiatives is a survey of small and medium-sized businesses, which has been conducted by the research firm of Thompson Lightstone, as you mentioned. The remaining projects relate to our initiatives to collect statistics on our business credit portfolios.
So this afternoon my colleagues and I will all be joining you at this table, I expect, after the presentation by Thompson Lightstone.
As you are aware, this survey by Thompson Lightstone came about as a result of a commitment made to your committee last year to examine access to financing for small and medium-sized enterprises and to explore the nature of the service relationship between businesses and their financial institutions.
There is a great deal of information in this Thompson Lightstone presentation - that's probably an understatement - but it is information that is important to all of us here today and to the business community. If you have any questions for Thompson Lightstone, we encourage you to ask them. As well, when my colleagues and I join you this afternoon, we will be pleased to answer any additional questions you might have.
We've already introduced Ian and Dave. So on that note go ahead.
Mr. Ian Lightstone (Director, Thompson Lightstone & Company Limited): Thank you, John, for the introduction. Thank you, Mr. Chairman.
As you've indicated, what we'd like to do today is to table the results of a very comprehensive study we conducted on the small and medium-sized businesses in Canada. Basically we'll take you through the detailed findings. As Mr. Leckie said, they are very extensive. So we appreciate the time you're allowing us today to present these results. As well as presenting the results, we're open to any questions and we'll try to answer them today in terms of providing any clarification or further details on the study we carried out over the past few months.
Just to briefly set the tone in terms of the agenda, we'll give you a sense of the agenda we have until about 1 p.m. today.
I'll spend a few moments talking about the study methodology, how the study was conducted, and then in looking at the profile of the small and medium-sized enterprises and businesses that exist in Canada. I'll talk about how they finance their business. I'll also of course look at their access to credit and discuss the loan approval rates that are present amongst those who have applied for credit over the past year.
Then we'll delve into what drives loan acceptance and also look at the root causes of loan turndown. Following that, I believe we're going to take a break. Depending upon how your time sits, around 11:40 a.m. or so, after the discussion on the root causes of loan acceptance or turndown, I'll close off with a discussion on customer satisfaction.
I'll then look at some new business attempts in terms of people who have tried to set up a business over the past year or so. Then I'll finally close off with some conclusions and an opportunity to answer any questions that the committee might have.
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As I said, it is a very extensive presentation today. Please bear with us in terms of a lot of the detailed information we're providing.
I believe you do have a hard copy of the report. It may be a bit tricky in terms of the slides we're showing on the monitors. For those of you who have the detailed copy of the report, the details should be in the report and we'll try to reference which tables they are when we get to them.
We'll just spend a moment on the purpose and mandate of the study and how it was conducted. In terms of the central objective, first of all it was to examine the credit and service relationships of banks with their small and medium-sized clients, and then to look at the levels of credit and access to credit that exist in Canada and to be able to determine the drivers of loan acceptance and as well the causes of loan turndowns. That will be the second area we will be looking at.
The third element as far as the mandate of the study is concerned was to examine or ascertain the level of satisfaction small and medium-sized businesses have with their institutions.
Those are the three major components in terms of the mandate and the objectives of the study. I would like to reiterate that we do have a very comprehensive study, one we think is rigorous and one we think is statistically reliable and representative of the total population of small and medium-sized businesses in Canada.
Just to give you a sense of how we conducted the study and the process we went through, prior to actually going out and collecting this quantitative information we did go through a very rigorous process of testing the vehicle and making sure the questionnaire and the documents we used were relevant to the small and medium-sized business community.
So prior to going out into the field and conducting our interviews, we carried out a number of one-on-one personal in-depth interviews with small and medium-sized businesses to get a sense of the issues and questions we should be asking them.
We started off with these one-on-one personal interviews. Once we had that in December, we designed a questionnaire and put it out in a pre-test to small and medium-sized businesses to be able to see how the questionnaire works with the actual population of businesses in Canada. We did a pre-test of interviews both in English and French just to make sure the questionnaire was understood by the respondents and by business owners and managers.
Also as a pre-test component, we have not only a survey of small and medium-sized businesses, but account managers of six of the major banks also completed a tracking form where they provided information on loan requests from January to February. Prior to actually setting up the tracking form, we also conducted a number of focus group sessions with account managers - again in both English and French, two in Toronto and two in Montreal - to make sure we had an instrument the account managers felt comfortable with so they would be able to complete the amount of information that was required of them.
That was the testing phase before we went into the field. The main component of the study is the whole quantitative examination of small and medium-sized businesses in Canada. There are a number of components there.
Basically we conducted just over 2,500 in-depth telephone interviews with small and medium-sized businesses in Canada. We also conducted the component in terms of the account managers. They completed just over 2,500 tracking forms.
There was a third element that we will be talking about more in a qualitative sense. We wanted to get a base of individuals who perhaps had tried to set up a business in the past year and either didn't get the business going or actually terminated the business before it really got into operation.
So we will be reporting on three elements. The major components are the surveys with the small and medium-sized business and the account managers.
To give you again a sense of the scope of the study, we conducted just over 2,500, actually 2,615, interviews across Canada. The sample size we have is not only extensive but is also representative of small and medium-sized businesses across Canada from coast to coast. It is a random survey of small and medium-sized businesses across the country. So we have just over 2,600.
You'll notice there two components. We call one a random component of 1,809 interviews. That was done in terms of random selection of businesses across the country and distributed equally across the eight regions the committee wanted to be able to examine. There are minimum base sizes for each of those eight regions to ensure the smaller population regions of the country had a proper representation in our sample size. So these eight regions are covered off in equal proportion on a random basis.
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Within each of the eight designated regions, we made sure we had proportional representation by the SIC groups in the country; we looked at thirteen of them. We also wanted to make sure we covered both the small and the medium-sized companies on a proportional basis.
That part was done randomly. Once we admitted some of these minimum quotas, we did additional booster or augmentative interviews to bring us up to a more readable basis for the smaller segments of the small and medium-sized population.
Again, I emphasize that the study is representative of the total SME population in Canada, and when I say ``representative'' I mean representative by region, representative by employee size, representative by SIC category. So we are confident that we have a statistically reliable sample, which we're presenting to you today.
The pre-start-up phase, as I said, was a tricky one. We also wanted to see whether we could identify individuals who perhaps attempted to start up a business and for whatever reason did not get it off the ground or terminated it very shortly.
We conducted 8,000 household interviews, because there's no listing for these types of organizations. We actually spoke to 8,000 households across the country to identify those households in which either the person we spoke to or someone else in the household actually attempted to start some sort of business idea or business operation. That was a fairly complex stage, and in the end it produced only a very small number of individuals who said yes, that they had attempted to start something but for whatever reason the business did not continue or could not be gotten off the ground. In the end, in that area we had a relatively small sample base of about78 interviews, because they are very difficult to do and could be done in only a very small percentage of the total population.
As I said, the third phase is the account manager. We'll be looking at both the SME data, or the small and medium-sized - I hope you don't mind my using the acronym ``SME'', it makes it a lot easier - and the data provided by the account managers.
Approximately 750 account managers from six of the major banks were asked to complete a tracking form during the latter part of January and early February to record the outcome of each approach that was made to them. We received just over 2,500 completed questionnaires or tracking forms, and again I think we have a very good database.
All the data have been weighted to ensure that they reflect the total population, and I think we can be very confident that we have a representative and valid sample of the Canadian population of small and medium-sized businesses.
I do have charts here. For those of you who are following the study methodology and have the documents in front of you, I'll go through these charts very quickly.
It gives you a sense that we have the various regions of the country covered off with a good, strong, readable basis. We have strong bases in terms of not only the smaller companies but also the medium, as well as the larger or upper-end companies within the SME population, or those with50 to 499 employees.
So we have a good cross-section by total number of employees, and we have a good cross-section of companies by how long they've been in business.
Similarly, we have coverage of businesses that are owned by males only, of those that are owned by females only, and of those that are owned jointly, as well as a good cross-section by SIC and annual sales and revenue.
You have these charts in your documentation to give you a sense that we do have a very strong coverage of all the various segments within the small and medium-sized populations across the country.
Similarly, we have representation across all the seven major banks and we have a sample size that allows us to read the data on each of the individual banks as well. That is also covered off in the study as part of the overall study mandate.
This is table 2 in the introduction. To give you -
The Vice-Chairman (Mr. Valeri): Mr. Lightstone, I was wondering whether, when you're putting up the charts, you could also advise the members on what page in the document the chart is actually located.
Mr. Lightstone: That's fine.
The deck I have is a synopsis of the different charts you have in your full report, and so we'll reference the page number or the table number that corresponds to the chart we're showing. So bear with us and hopefully we can cover it off. This was page 25.
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To start off the process today, it will probably be worth while to provide a good overview, a profile of the small and medium-sized business population across the country, and to give you a sense of that business profile, such as who the people are, the types of companies they operate, their size, and the magnitude of their companies.
Needless to say, the population of small and medium-sized businesses is distributed across the country. That comes as no surprise, but as we look at the information it's also interesting to see that there's a disproportionately higher share of these small and medium-sized companies in the west than there is in central or eastern Canada. By and large, the numbers on page 28 are distributed across the country with a slight skew towards the west, where there's a higher concentration of small and medium-sized businesses.
The other element important to look at when we talk about the profile is the SIC grouping, or the types of businesses, page 30. As you can see from the chart, it's evident that the SME population in Canada is very much a service-related type of sector; 38% of the companies we surveyed and 38% of the companies in Canada in this target audience of small and medium-sized businesses are in the service area. Indeed, this is one that we have found is growing. Some statistics in 1987 indicated about 29% of the population of small and medium-sized businesses are in the service sector. That's now up to 38%. So when we talk about the SME population, it's very much a service-driven population.
The other major segments are those in the retail sector - 17% of the businesses - and those in construction, which is 12%. Then there's a variety of representation of the other SICs in Canada.
Looking at the length of time they've been in business, page 32, we can see that the tenure of the businesses in this population is very long indeed. Over half, 57% of the population, have been in operation for over 10 years, 27% have been in business 10 to 20 years, and 30% have been in operation for more than 20 years. It is a long-standing group of companies. It is interesting that when we look at this population, we see that 4% of the existing businesses in this segment of the small and medium-sized businesses have been in operation for less than a year. So as you can see, certainly the vast majority of businesses that are in this population have been in operation for a considerable period of time, namely more than 10 years.
If you turn to page 34, we can look at the number of employees. Here we asked business owners and managers to tell us how many full-time employees they have. Then we asked similar questions for part-time employees. The vast majority of companies in this country, 72%, have less than five employees. Indeed, 30% of them are actually sole operators. So although they've been in business for a considerable period of time, the vast majority are very small in that they have less than five employees on a full-time basis. Then if we look at their part-time employee count, 44%, almost one in two said they do not have any part-time employees, while another 43% indicated they have between one and four.
We also looked at the full-time equivalency. This is on page 36 in your report. When we use the StatsCan ratio of 0.33 for a part-time employee, we find that on average, across the SME population, the full-time equivalency averages 7.7 employees per company. That varies from the very small up to the large. At the top end, those with 50 to 499 employees, there's an average of 86.5 on a full-time equivalency. So there's quite a range of employees, from very, very small to very large, even within the SME population.
On page 37 in your report there are the annual sales. When we talk about small and medium-sized businesses, it ranges from those with zero dollars of revenue up to and including those with $50 million. So although we have a very extensive range in terms of just the annual sales and revenues of these companies, as you can see from that chart, the vast majority, 67%, actually have sales of under $500,000.
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The largest percentage of the population of small and medium-sized businesses in Canada have less than $500,000 of sales. Indeed, when we look at it further, about 35% have sales under $250,000. Although we're looking at a very broad cross-section of companies, the percentage is concentrated in the under-$500,000 population.
We also asked companies to talk about their ownership structure. You may want to refer to page 38 for that area. We asked them what type of ownership structure they have, whether they are incorporated, whether they are a sole proprietor, or whatever the case may be.
One in two, 48%, indicated that they are incorporated. Needless to say, incorporations are far more prevalent with the larger companies, those with sales of over $5 million. They're at 79%. We also find it's more prevalent in metro Toronto and in Alberta, and we find it's more prevalent with jointly owned companies, male and female joint ownership, where it's 72%.
Incorporation is less prevalent among the smaller companies, those that have under $250,000 worth of sales; only 30% of those are incorporated. It's also less prevalent in Quebec, where 25% of the SMEs are incorporated. It's also less prevalent amongst businesses owned exclusively by females, where it's 20%.
Ownership gender was another area we looked at. Just to provide you with a profile here - and there is some commentary in your reports, starting with page 40 - what we're seeing is that more than one in two, 56% of the population, are owned exclusively by males. Just under one in five, 17%, of the small and medium-sized businesses in Canada are owned exclusively by females. Another one in four, 27%, have joint male and female ownership. So we do look at this.
Exclusively female ownership is certainly more prevalent amongst the smaller companies. When we're talking about companies with sales of less than $250,000, approximately 24% are owned exclusively by females. When we look at the smaller companies of five employees or less, it's 22%.
On page 43 you will see that the average age of the Canadian business owner is early forties. The largest group, 51%, is in the 35 to 49 age range, but the average age across the board is slightly younger, with female business owners being in the early forties, with an average age of 44 years.
Companies deal with a wide range of financial institutions, page 44, and here we asked about the main financial institution, the one they considered to be their main financial institution or the one that handled the majority of their business or the company's day-to-day financial needs. So this is the company or the financial institution that they consider to be their main financial institution.
Quite a variety of financial institutions are mentioned. In total about two-thirds, 67%, deal with as the main financial institution what are considered one of the seven major banks in Canada. About one-third is dealing with financial institutions other than one of the seven major banks in Canada. As you can see, there's a cross-section of financial institutions they deal with across the country.
In the case of tenure, I mentioned that some companies have been in operation for a considerable period of time. This will be referenced on page 46. The average number of years that companies have been in business in Canada is just over 13.5 years.
It's also evident that they have very long-standing relationships with their financial institutions. Regardless of which financial institution they're dealing with, the average tenure we're seeing across the country, across all the small and medium-sized businesses, is just under 11 years.
Most businesses have a very long-standing relationship with their financial institutions. That I can say in a general sense, as well as when we look at the seven major banks. The clients of those seven major banks have a somewhat higher tenure; their average is 11.6 years. Again, not only have businesses been in operation for a long time in Canada, but also their relationships with their financial institutions, regardless of which institution it is, are very long-standing ones.
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You can see from that chart that the long-standing relationships, the average being up at 9 and 10 years, are prevalent not only with the larger Companies in Canada but even with those smaller businesses. Those companies under $250,000 or under $500,000 in annual sales also have very extensive and long-standing relationships with their financial institutions. So that's covered across all of the sectors and isn't just concentrated in the larger businesses. We can see here they do have very strong relationships with their financial institutions.
Looking at demographic differences and business characteristics, one of the things we looked at was whether or not there are any characteristics or business differences between male- and female-owned businesses. There is some commentary in your report, but I'll just go through here and highlight some of the key points.
In looking at the business characteristics, certainly female-owned business have a much higher concentration in the service SIC sector, with 61% of female-owned businesses being there versus 31% of male-owned businesses. This is against that national average, which I said was about 38%, and so represents a very high concentration.
Women also tend to run significantly smaller operations. Again, the average annual sales of female-owned businesses is $430,000 versus $1,400,000 for male-owned businesses. There is also a much higher concentration of those businesses at the lower end in terms of the under $500,000 businesses. Those businesses tend to be smaller in annual sales and in terms of numbers of employees. Indeed, as we're seeing, they are also less likely to be incorporated.
So there are some differences in business characteristics between exclusively female-owned businesses and male-owned businesses. Similarly, when we look at the demographics of the two populations, the owners of female-owned businesses tend to be younger - an average age of 41 versus 44 - and also tend to have a higher concentration in the under-35 age segment with about 26% versus male-owned at 18%.
We also asked individuals to indicate their personal net worth. We find the average net worth of female-owned businesses is $160,000 versus $320,000 for exclusively male-owned businesses.
To complete the profile, in looking at what the differences might be between the two types of business operations, we're seeing that the average age of businesses is shorter with female-owned - 10.1 years versus 13.5. Also, women business owners report a lower level of being in business, either in a management level or being in business in total. So we see some differences here.
We wanted to give you an overview, a profile of what the SME population looks like in Canada in terms of tenure and size. I think we have a cross-section of the businesses here. In the detailed tables you have, we are able to look at businesses by various sizes as well as by different regions.
Now I would like to talk about how the small and medium-sized businesses in Canada go about financing their businesses. We have a series of questions we asked respondents. To start it off, you can turn to page 47.
We asked individuals to indicate to us how they financed their businesses. In the survey, we read off a series of different financing sources. They ranged from financial institutions through to the personal side, and involved loans or savings respondents had drawn upon, use of credit cards, use of suppliers, use of retained earnings, etc. It was a fairly comprehensive list in terms of how people actually finance their business.
We found when you talk to the population of small and medium-sized businesses in Canada, approximately one in two or 55% indicate to us or report to us that they currently rely on bank or financial institution financing. So one in two say they currently finance their business through access to capital provided by either a bank or one of the other financial institutions.
Looking at the data and drilling down a little, what we find is that those who have started up in the past year or so are less likely to borrow from a bank or a financial institution. Only 31% of these reported doing so.
What we find is that recent start-ups rely very heavily on personal savings. The population in total relies heavily on personal savings as well, but the most recent start-ups tend to even more - 69% say they rely on personal savings and 52% say they rely on credit cards.
So there is a difference profile in terms of the different sizes of businesses across the country and how they actually finance their businesses.
The third bullet point on this is that female business owners are also less likely to borrow from a bank or financial institution. Only 39% report they currently use a bank or financial institution to finance their operation.
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The next chart is on page 47. This gives you a profile of the actual sources of financing. These numbers are based on the total population of just over 2,500 interviews we conducted. It indicates the types of sources they rely on to finance their business.
As I said, 51% borrow from a bank or another financial institution. If you look at the chart, 44% use credit cards. Then we have a number of other sources including government loans or grants, or the use of the BDBC; 15% say they rely on government loans or grants. As you can see from the chart, a very tiny percentage, 1% in all 3 cases, actually uses less traditional sources of financing, either public equity or venture capital. Indeed, it is only 1% in total across this whole range of small and medium-sized businesses, which as we've mentioned ranges from the very low end of under $250,000 annual sales right up to companies and businesses with sales in the area of $50 million. But the largest percentage borrow from a bank or financial institution.
Then there is a variety of non-institutional types of lending or use of funds, whether it is personal savings, personal loans, etc. So as you can see, there are a wide variety of ways small to medium-sized businesses finance their business operation.
As you can see at the bottom of the chart, 9% actually do not have any business financing. Some people might ask how a business operates if it doesn't have any outside business financing. In our discussions with business owners we found there is a segment of the population not wanting to rely on any outside debt. These business owners run their business on a cash basis and do not rely on any sort of outside financing. So as I said, 1 in 10, or 9%, indicate they do not have any business financing.
For those of you who have a report, and for those of you who are looking at the monitor, if you can read all the individual numbers, this is on page 50. I won't go into all the numbers but you have them in your chart. Again, as you know, the mandate of this whole study was to be able to see if we can examine results by different regions across the country. We looked at eight regions. Can we look at the results by ownership gender? Can we look at the results by the age of the owner? The answer is yes to these questions, and this type of chart will indicate just what kind of differences exist across different regions by gender, by age of owner, etc.
You can see there are numbers for this. Just to explain your charts, and for those of you who have this deck, the circles indicate the number is significantly greater. So if you look down under Atlantic Canada, 65% say they borrow from a bank or financial institution. This number is circled and this indicates the 65% is significantly higher than the total Canadian average of 51%. This is one way we indicate the significantly higher numbers.
There are also boxes that are squared. If I go over to the next column and look at Quebec businesses, under retained earnings - the third from the bottom - 21% is boxed. This means this number is significantly below the national average.
We have tried to highlight differences by the key analysis groups the committee wished us to look at.
So you can see there is a range of facilities or sources used. It does vary by region. Certainly we've seen in Atlantic Canada - we don't have a reason for this - they tend to be more reliant on a variety of different sources of financing to run their businesses. Females, as we said, are less likely to rely on banks or financial institutions. Indeed, they're less likely in a number of areas to use the various sources of financing available to them.
I won't go into all the numbers today. But again, I think it's important to say we have a very rich database here, one that I think can be used very extensively by the House to help get a sense of just how individual businesses run their operations. As you can see, this chart on page 51 basically gives us a profile of the sources of financing used by various SIC groups across the country. These are the 13 groups we have looked at in the study. So we do have a good readable basis in all of these areas. It gives you an opportunity to really delve into, for example, the experience and the types of financing various sorts of companies in different business sectors use to run their businesses.
This detail goes through - this is page 52 - a similar type of analysis by the age of the business, looking at those that have started up. As I said, recent start-ups are less likely to rely on a financial institution for financing. Only 31% use that source versus 51% on average. Indeed, as the business becomes older, there is a larger percentage who will use a financial institution.
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Similarly, the larger companies, those with 20 or more employees, up to the 50 to 499, are the most likely to use a financial institution to finance their business operations.
So again I think it's worth while noting that we have a very rich database to look at to see how businesses across the country finance their various operations.
I'll put it in a little bit more of a synthesized context if you turn to page 48. Again this is on the total population of businesses across the country. Look at those who have no business financing or borrowing whatsoever right up to those who use multiple sources. Look at the 9%, just under l in 10, who say they don't use any type of financing. About 1 in 5, 21%, say they only rely on one single source of financing. Then look beneath that at the different sources they rely on. Five percent talk about personal sources only, another 3% say they only use a credit card to finance their business, government loans or grants are used by 1%, and then 6% of the total 51% of the population actually say they use banks or financial institutions only.
So if we get to that 51%, 6% say the only source of financing they have is with a bank or financial institution, and then another 45% say they use a bank or financial institution in addition to some other source of financing, which is in that third column. Again, you can see the types of financing they use to run their businesses.
So there is a wide range of access, of the financing sources they're using, with the largest percentage, 51%, saying they're using some sort of financial institution to run their business.
On page 54, we've taken those individuals, the 51%, who use a bank or currently finance their company through a bank or other financial institution. If we drill down and take that 51%, which is a population of 1,491 in terms of absolute members we're speaking to, below that we asked them if they're dealing with a bank or financial institution, what type of loan they were currently using to run their operation.
Again, we had a range of different items, everything from operating lines and lines of credit to overdraft facilities, term loans, commercial mortgages, loans under the Small Businesses Loans Act and FIMCLA, which is the Farm Improvement and Marketing - I always have trouble giving the full details on that one - right through to leasing.
Here we've been able to present an indication - there are two numbers there. The first number, for example, under operating lines and lines of credit, tells us that 75% of those businesses that currently have lending from a bank or financial institution, 75% of that base of 1,491, use an operating line or a line of credit to finance their business.
The second percentage we have here, the one in the 39% bracket, takes that same population and presents it on the total population of SMEs. So it gives you two looks. It says on a percentage basis, on a weighted basis, 39% of all Canadian small and medium-sized businesses use an operating line or a line of credit to finance their business. Amongst those who are actually dealing with a banker or other financial institution, it's 75%.
As you can see here, we have a range of instruments they're using, both in terms of the major one being the operating line right through to SBLAs and FIMCLAs where 22% of this group report. It's their report that they use a small business loan or a FIMCLA loan to operate their business.
On page 55 this information is broken down again. We have it by all the total participating banks. As you can see, about 8 or 9 columns over, there's a chart indicating a netted basis for all the participating banks. Then we have information relating to the types of loans, types of lending facilities or credit facilities used by various clients of the individual banks.
This is where the person we spoke to, the owner or the manager, indicated the type of facility they have with the financial institution they consider to be their main lender. So we have that by the participating banks, trust companies, credit unions and caisses populaires, as well as other types of financial institutions such as the Alberta government treasury branches. So our database covers all the financial institutions or types of financial institutions in Canada.
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On page 58, in terms of the types of credit facilities used, we can certainly see that the larger companies, that is, those companies with sales of over $1 million, $1 million to $5 million, and$5 million to $50 million, are more extensive users of operating lines. But even among the smaller companies, those who report no revenues in the past year or those with revenues of less than $250,000, two-thirds, 67% to 69%, indicate they use an operating line of credit but also a wide range of facilities. When we look at these different types of facilities, it averages about 2.2 facilities in total that they say they have access to or are using.
As we can see from this chart, when you look at the various percentages and accumulate them, it's certainly more extensive at the larger end. So the larger the company, certainly the more likely it is to be an more active user of different types of lending or credit facilities.
We also asked participants or respondents to tell us what they think their current debt is with financial institutions. Again, we're talking to small and medium-sized businesses that currently borrow from a bank or financial institution. So that's the base of 1,400 or so companies we're talking about.
When we asked them to indicate their total range - and this is reported by the business owner or manager - we see that if you look at the ranges, first of all the modal group, the largest percentage, 30%, say they borrow less than $50,000. Indeed, when we look at the mean of the different respondents we spoke to, it lies between that $50,000 to $99,000 range. So as you can see, the vast majority of the loans, in their opinion in terms of what they reported, is under $100,000, with the median being in the $50,000 to $99,000 range.
This chart is presented for SMEs in total, but there is a footnote at the bottom in terms of those who are dealing with the seven major banks. Their profile in terms of the current debt they have with the financial institution is basically the same as it is for the population in total, with the mean being in the $50,000 to $99,000 range and 43% or 44% saying they borrow less than $50,000.
So this is information as reported by the business population.
I think we also have to note that this is a recall number. Indeed, when you look at it, certainly the averages when we work it out are driven very much by a small but extensive percentage who borrow over $1 million. But it may also include their personal mortgages or things like that. So it is a number as reported by the population of small and medium-sized businesses.
Looking at the debt, I'll try to summarize this. It's text only in your report. We asked those who deal with or have outstanding debt what percentage of their debt they feel is held by a bank. We find in total that of the SMEs dealing with financial institutions in terms of lending, according to their estimation, to their calculations, 74% of their outstanding debt is with a bank.
The other thing we'll look at and on which we'll get more details is that two-thirds, 66%, consider one of the major banks to be their main lender. The other piece of information we've been able to uncover is that when we asked people who their main lender was, generally a range of 80% to 90% said their main lender also happened to be their main financial institution.
So regardless of whether they're dealing with a credit union, one of the major banks, one of the Alberta government treasury branches, there tends to be this very top-heavy 80% to 90% in total who will deal with their main financial institution for their day-to-day banking and also say and report that this is their main financial lender. So there's a very strong correlation between main financial institutions on a day-to-day basis and who their main lender is.
Here again we've broken this out. This is on page 61. If you look at the information by financial institution, you'll see we asked participants two questions. First, we asked who all the financial institutions were that they used for their sources of financing. That's in the first column, where it says total financial institutions used. We then asked them, if they had more than one, who the main lender was. So we have these two numbers here.
As you can see, in total 68% of the population borrowing from a bank or financial institution say one of the seven major banks is the lender they use and 66% say one of the seven major banks is their main lender. Again we see about a third are using other types of institutions, whether they be credit unions, caisses populaires, trust companies, etc. So about a third use an institution outside of the main seven major banks.
.1025
I may, if we can, drill down a little bit further. What we've done to this point is indicate what type of financing the business owners consider using to run their businesses, which was asked on a total population.
We then asked them this. Fine, they told us what they do in terms of running their business, but we also wanted to know just how many of them made loan requests during the past year. So we did it not only on a generic, total basis, but we also asked them to talk about their past 12 months' financing.
What we see here is basically this - it's on page 62 - in terms of some of the commentary we're looking at. What we're finding is this. Earlier I mentioned that 51%, or one in two, said they used a bank or other financial institution to finance their business. But thinking only of the past 12 months, which is almost basically a calendar year - we conducted the study in January and February of 1996, so they were thinking over the past 12 months - only one in three, or 36%, say that they requested financing from a financial institution in the past 12 months. So the vast majority of business owners in this country do not go to a financial institution of any kind to request financing in the past12 months in terms of running their business.
So 36% said they did request financing. Requests are certainly more prevalent among the larger companies. When talking about those companies with over $5 million in sales, 50% said they specifically made a request for financing over the past year. In the $1 million to $5 million range, it's 44%.
As you can see, there are some differences by different types of SIC groups. Some of those where requests are more prevalent are in the resource industry in terms of the fishing, logging and mining sector, at 58%. Manufacturing is also more apt to make loan requests, at 44%, as are the transportation, commercial, real estate and agriculture sectors, at 42%. We also found that requests were higher than average in Manitoba and Saskatchewan.
As far as start-ups are concerned, not only did we see earlier that they're less likely to say they rely on a financial institution to finance their business or to help them finance their business, but they are also less likely to approach a financial institution in terms of the past 12 months. So 29%, versus the national average of 36%, said that in the past 12 months they actually approached a financial institution to request some sort of financing.
If we also look at one of the other sectors, which is female-owned businesses - these are businesses owned exclusively by females - 25%, or one in four, approached a financial institution for financing, which is again below the national average.
As for this number I reported of 36%, just to give you a comparative number for those clients who deal with one of the seven major banks, that number is 37%. So of those who are clients of the major banks, 37% approached them for a loan in the past 12 months. That average is identical to what the total national population for SMEs is at 36%.
As we can see, the largest percentage of business owners do not approach a financial institution for financing. One of the things we wanted to do was to really get a sense of why they hadn't approached a financial institution for financing, so we asked them. What we see here, in terms of the spontaneous comments that respondents gave us, is that the largest percentage, 85% - it is a very large percentage - say they don't feel they need financing. That 85% said they did not go to a financial institution because in their minds, in their opinion, they did not need any additional financing to run their business. So it's a lack of need as stated by the business owner, and not a fear of a turndown.
If we look at it, 5% said, on a spontaneous basis, that they didn't approach them because they were afraid they might be turned down in terms of their request for financing. It's only 5% there, whereas 85% of those who have not approached a financial institution in the past 12 months said it was because of lack of need.
We also looked further. We wondered whether there were differences between the recent start-ups and younger businesses. For instance, are they more concerned about being turned down? While the number is higher in terms of 9% and 7%, again the vast majority of even recent start-ups, whether they were in the past year or one to five years, which was 77% to 87%, said they did not approach a financial institution even though they had just started up their business. They did not approach a financial institution because they personally did not feel they needed the financing to run and operate the business.
So again, we do want to emphasize that the major reason why they don't approach a financial institution is for a lack of need in their minds rather than a fear of a turndown or refusal.
We do have these answers broken out. This is on page 65 in your report. We do have it by regions. Again, while I think there will be some variances, and some are higher and lower than average in terms of the national average, again for the vast majority of businesses, regardless of which sector they're in - ownership gender, age of operation, etc. - the primary reason they didn't approach a financial institution for any type of financing in the past year is because, in their minds, they just don't need the financing. That number is consistently high across all segments.
.1030
If we look at page 66, as I mentioned, the recent start-ups in the past year are at 9%, which is higher than the national average, but again, it's a very small minority. The larger percentage there, 77%, say they didn't approach a financial institution because they just didn't need the financing, or any additional financing.
One of the things we wanted to look at - we're again looking at the current access to financing - was the type of loan or financing that was requested by business owners and managers. This chart is on page 67, and there are two sections. I'll deal first of all with this SME sample and look at the types of loan requests that were asked for in the past 12 months. These are people who approached a financial institution for financing. So we're looking at a base of just over 1,039 people.
First, we asked about the various types of financing requests that they made. The second question we asked them was about which request they considered as most critical to run their business.
If you look at it in terms of renewals among the SME population, 61% said the type of request they made was for a renewal, while 54% said it was for a new loan request.
I have to emphasize that when we talk about new loan requests, it doesn't necessarily mean a start-up loan. A new loan request means I'm in operation, and it could be for a new type of acquisition I want to make. So it's a new loan over and above an existing loan or any other loan they may have. So we have new loan requests, and we have those who said they want to increase their existing facilities.
We have it on a total basis. Then we did probe and ask them to talk about the one they consider to be the most critical. The second column indicates which one, in their opinion, they felt was more critical.
The numbers are fairly comparable across all three of those, although there's a higher number who say that the new loan requests are certainly the most critical one for them.
The reason we asked this question was that as we get into it, because there are multiple types of loan requests that people may ask for, we want an individual to talk about the one they consider to be most important to them when we ask about their loan approval, and to whom they went, etc. So we zeroed in on the loan they considered to be the most critical to them. Our loan acceptances or turndown numbers are based on the loan they consider to be most critical to them.
The second half of the chart brings us into the information that we collected from the account managers. These are all financing requests in terms of just looking at the account manager's sample.
In terms of the type of the request, you'll notice that the base is 2,500 and change in terms of requests in total. There are 2,069. This is in terms of the completeness of those who had provided this information. Across the different account managers that are used, there are different ways they described the loans, but as you can see here, among the tracking forms that we received, 65% indicated that the request they received was for a new loan.
Now, in terms of looking at these numbers, there's quite a discrepancy between what the account managers reported versus what the SMEs reported. We think it's a result of timing. The account manager tracking form took place in January and February. In terms of what we've been told, the largest percentage of renewals will tend to take place probably around this time of year or in the spring of the year after year-ends are completed. So this may be a function of timing, because when we did the tracking form in January or February, it covered only a one-month period.
The largest percentage of the tracking forms were for new loan requests as opposed to for increasing existing loans or for renewals. But we can see with the SME population that when they were talking about a 12-month period, they gave us a wider range of different types of loan requests. Certainly we see the renewals being much higher. That's the reason. It's when the survey among account managers was conducted. It's really a difference in timing.
As for the number of institutions that businesses approach, the largest percentage - this is on page 68 in your report - approach only one financial institution. So 75% approach only one institution, and 25% said they went to more than one, with just over 1.4 as far as the average number approached. But the largest number said they only went to one financial institution in terms of making a specific loan request.
One of the things we wanted to ask - this is on page 69 - was: why did you approach more than one financial institution? What were the reasons? Basically, they're telling us it was for comparison shopping. So there is to some degree, although the larger percentage go only to one financial institution, the 25% who do go to more than one, and in their opinion they feel there is a level of competition. So they're looking at it as shopping for rates, shopping for terms and conditions, etc.
.1035
So 49% said the reason they approach more than one institution is really to get a sense of what's available to them in differences in rates and terms. Those would be 49%. Another 15% said they went to another institution because of a previous experience where they were refused or got turned down by another financial institution. But again, the largest percentage here, as you can see from this chart, really are going to other institutions to shop and see if there are differences as far as the rates and terms are concerned.
We do have a profile of who they approached. This is on page 70. Again, if we look at it, 74% approached one of the seven major banks. Then we have a profile, we have an indication of just which of the various institutions they approached across the seven major banks, as well as the caisses populaires, the credit unions, and the other types of financial institutions available across the country. So again, a fairly broad array of institutions are mentioned in who they approached for financing.
To look at it on a regional basis, again there'll be regional skews in terms of different institutions having a stronger profile in one region or another in who they approach. As I said, I think it's important for everyone to recognize that this information is available on a regional basis as well as by other business characteristics. It does present who they're approaching. It's not necessarily who the main lender was but who they approached over the past twelve months in requesting a credit facility. It does vary by region across the country.
This chart will be on page 76. Here we asked them, as I said, to look at... We talked about what type of credit facility they requested. Again, this is referring to their most critical loan. We have two profiles here, one we asked the small and medium-sized business owners to tell us about and the other slide what the account managers...
As you can see, there's a good consistency in the terminology of what they used. SMEs tell us 69% said they requested a term loan or an operating line. That's a sort of net number. Of the account managers, 63% said that was the type of request that was made to them. So there's a good consistency between what was reported by the account managers and what was reported by the business owners.
That 69% on the business owner side breaks down to 44% who said they requested an operating line; 20% who said they requested another term loan; and 4% who said it was an overdraft facility. Those will net out to the 69%.
We didn't break it down for the account managers because when we speak to the different banks they use different terminology in how they describe their various loans. It was the same type of discussion, that they are term loans or operating lines. As I say, that compares with the 69% reported to us by the business owners.
If you look at it again, mortgages, SBLAs or FIMCLA loans at 10%... There is a difference here again in what a business owner considers to be an SBLA. It could be the terminology in which it was reported...versus the account manager, who has more relevant information right in front of him or her in the type of information being presented to them. That's why we're seeing the differences there.
If we look at the amount requested, on page 77, here again we asked both the business owners and managers and the account managers to indicate to us just what was the average amount or the amount they requested. As we can see from this chart, the largest percentage is reported by the business owner population. Some 47% said they requested under $25,000.
There's quite a range. Again, when you look at it, the vast majority of loan requests, more than half, are under $50,000 as far as the SME segment is concerned, and certainly they are well under $100,000. However, when you average it out, given we have a range of businesses from the very small of under $250,000 right through to those that have operations in the area of $50 million, as you can see, the average amount is driven up very much by that 1% that indeed have loans of over $5 million. The average is driven up by the percentage that are in the $1 million and $5 million plus, even though they represent only a small population. But as I think you can see here, the vast majority are requesting under $100,000, or indeed under $50,000, as far as their loan requests are concerned.
.1040
One of the issues is the formalization of requests. What we're talking about here, and I guess you can refer to it in your text on page 80, is whether or not, when they made their applications, the respondents were asked whether they had made a formal application - whether they filled out an application - and whether they provided their company's business plan to any financial institution. Two-thirds, or 65%, of the loan applicants we spoke to reported that they made a formal request by providing the financial institution to which they went with some sort of information or business plan. Therefore, two-thirds, 65%, reported they made a formal request. The type of information, the documentation, is quite varied, but generally financial statements, either year-end or interim, were the primary types of information pieces provided to the financial institutions to which they made the request.
I have a chart here, which I'll pass around. It's the formal loan request, and it indicates the requests by region. I don't have the chart handy. It is actually not in that document, but it may be in the appendix. Again, those numbers are fairly consistent across the board.
As for the types of documents presented - and this is on page 79 - we're able to compare what was reported by the business owners and managers with that reported by account managers. Look at the differences. Sixty-three percent said they presented some sort of specific documentation, versus 95% for the account managers. When we were talking to the business owners, we were talking about a recall over the past 12 months, whereas the account managers had the luxury of having the particular loan request in front of them. Ninety-five percent said they were presented with some sort of documentation.
There'll be a difference, because the account managers were talking about actual information that was presented to them at that time, whereas the SME population was looking back and recalling, because they did not have in front of them a list of what they presented to their financial institutions.
In total 63% said they presented some form of official documentation. Year-end, as I said, at 22% was the primary piece of information. It's quite a varied list of what the business owner or manager presented to his or her financial institution as far as it concerned the types of documentation they presented with their loan requests. As I said, 65% felt they had made a formal request.
Mr. Chairman, are we doing fine?
The Vice-Chairman (Mr. Valeri): You're doing very well; you're running ahead.
Mr. Lightstone: One of the key objectives of the survey was to be able to profile the credit and service relationships the business owners have with their financial institutions. We also wanted to be able to look at the access to credit, as well as give an indication to the House of the outcomes of these loan requests, the approval rate, and the turndown rate. Basically, we asked each of the respondents who had said they had made a request over the past 12 months to a financial institution what the result of that request was.
We have a pie chart on page 82. To break this down, when you went in initially and made that request, what happened, what was the outcome? We find that 71% of all those who made a request to a financial institution over the past 12 months said the application was approved in full with the initial attempt; 71% said that request was granted or approved in full. Another 7% said it was approved in part.
When you net those two numbers, 78% of SMEs said that initially, on their first application for a loan...again, we're talking about the loan request, which was most critical to them. This number, by the way, is the same for those who approached one of the seven major banks. Seventy-eight percent, in total, said their loans were approved initially either in full or in part.
If we add to that another 7% who said that the loan is still pending... At the time we spoke to them in January, February, or March of this year, we didn't get the exact time when they made the request, but 7% said it was still pending and a further 15% said, on that initial request, the loan request was turned down.
.1045
That was on the initial request. If we take those numbers and we net out the still pending, it says on the initial request 84%, or over eight out of ten, businesses who go to a financial institution with a loan request had that request approved either in full or in part.
We took this a step further and said, fine, you have your initial request; did they give you an opportunity to rework it? David will talk about some of those numbers and look at this. We asked, if they were asked for additional information and were asked to resubmit it, what happened in terms of the final outcome? We have two looks at the loan acceptance or loan approval rates; the first is in terms of that initial request and the other is in terms of a final outcome. Then we're able to look at the two numbers.
Again, what I think we're seeing here is that 79% said the outcome of their loan request to the financial institution - again, this 79% is identical for SMEs in total as well as for those who approach one of the seven major financial institutions - was either full or partial approval. It was actually 73% who said they were approved in full; the other 6% said their loan request was approved in part. Another 6% percent said the loan was still pending and 15% said they were turned down.
If we look at it, we have this whole range of responses. Then we take out the still pending where the decision hasn't been made and we look at that base in total. Here, 84% of all loan requests made to financial institutions - again, this number is the same for both the seven major banks as it is for the financial institutions in total - are approved either in full or in part and the vast majority of those requests are approved in full.
This was the major issue we had to look at. We had to ask what the outcomes are for loans in terms of approvals and turndowns.
We have this information broken out by different financial institutions. It is on page 91. I'll just give you an opportunity to study this. We look at the total participating banks. Again, this is the information provided by the small and medium-sized business owners and managers. Overall, 79% said they were approved; 73% said the approval was in full, and 6% are partial approvals. If we take this 79% and take out the still pendings, there is an 84% average approval rate across the seven major banks. As you can see in your chart, these are the numbers presented by each of the banks.
Also appreciate there are ranges in here. We're looking at a sample size of between 100 and 150 or so for each of the various financial institutions when it comes to individuals who had serious discussions with these various institutions. There is a level of error range that will be a plus or minus across these, and this error range can be about plus or minus 10%, depending upon the sample size base.
Across the seven major banks, across SMEs and in total across the country, the final approval rate is consistently 84%. We do have the same information for credit unions and caisses populaires as well as for other financial institutions.
Approval rates by the different classifications with major areas of analysis are on page 89. What we're looking at here is by region, by ownership, gender, age of owner, SIC, etc. In terms of the approval rates, there will be some variance across different regions. We will be talking about those in more detail when it comes to looking for any relationship in terms of loan approvals and loan turndowns.
Regardless of which group we're looking at, the largest percentage of people who make a request to a financial institution have their loan approved either in full or in part.
On page 90, if we look at it by age of business, by number of employees, annual sales, etc. and by the individual institutions we had in that previous chart, again the vast majority of all loan requests, regardless of size of business, are approved either in full or in part. There is some variance, however, looking at different groups, either by employee size or the age of the business.
A similar analysis was done with the loan request information provided by the account managers in their tracking form. This is on page 91. Again you'll see here that in the approvals as reported when we take the tracking forms there's a much higher percentage of still pending, again realizing that with the account manager we're talking about only a one-month period between January and February versus the business owners and managers, where we're talking about a twelve-month period, so there's a much higher still pending number. But we have, again, individual loan request approval rates by each of the major banks, both on a net basis as well as on a final approval if we take out the still pending requests. So if you look at these, appreciate that the numbers will vary and part of it will be from a sampling basis and the statistical error ranges.
.1050
As a comment, we've seen the approval rates being up in total; 84% said, yes, my loan request was approved in full or in part. We also asked them in terms of the financing they sought from the financial institution if they felt that the offer they received was reasonable or not. This was a subjective question that the respondents were asked to indicate. Here again what we're seeing is that of those who went to a financial institution, regardless of the type of financial institution, 70% said in their opinion they judged to be reasonable the financial package or the offer that was made. That level is consistent, whether it be for SMEs in total or those who approached one of the seven major banks, where it was 71%. So 7 in 10 said in their opinion they felt that the offer they received was reasonable.
To probe a little bit further as to what in their minds, on a spontaneous basis, would differentiate the types of offers they felt to be reasonable versus unreasonable - these are people who felt that it was unreasonable and had made some sort of comparison. Basically what they're saying is that the difference between reasonable and unreasonable really relates primarily to a sense of better interest rates so that one institution was offering a better interest rate as far as they were concerned, or more reasonable collateral or equity requirements.
Those seem to be the basic ideas that were going through their minds in terms of defining what is reasonable versus unreasonable and what would make one loan offer more reasonable than another. Basically, it was better interest rates or a more reasonable type of collateral or equity requirement.
Not only did we ask those people who received financing over the past 12 months, but we also wanted to get a sense of those people who did not approach a financial institution for financing as well as those who perhaps were turned down. Did they approach an alternative source; that is, did they go to somebody outside of a financial institution for lending or for financing?
What we see here is that of the turndowns - which I said is about 15% - 35% said they searched out an alternative source. I do have a chart following this as far as the types of alternative sources they went to are concerned.
A third said they approached an alternative source. Of those who approached and had a serious discussion with a major bank but were turned down, 25% said they sought out an alternative source of financing. Interestingly, we also asked those who did not go to a bank in the past year or said they were non-borrowers from a financial institution if they approached another source for financing. Again, it's only a very small percentage, 8% of the non-financial institution borrowers, who actually went to another source in terms of attempting to finance their businesses. It's a small percentage who search out alternative sources. Those who do primarily go to family members. They either rely on personal sources or they go to family members or friends for these additional sources. As you'll see in the chart, few really go to any of the alternative government facilities or types of investor facilities that are available in this country.
On this chart they are small numbers, but what we're seeing is an indication of two columns. I appreciate that the last one is a very small base; it's the people who have been turned down by a bank and what type of source they approached. As you can see, it's primarily a personal source as opposed to the so-called real alternate financing sources, whether it be venture capital, or government agency loans or grants, and so on. The vast majority, if they don't go to a bank or financial institution, are turning to their own personal sources or to family sources to attempt to receive some sort of financing.
I'm going to close at this point. I think we've indicated the level of access to credit. We've talked about the approval rates. Now we're going to look at what some of the drivers of acceptance are - Dave Jamieson, my associate, is going to talk about that - and as well, look at the root causes of turn down. So I'll take a break here.
.1055
Mr. David Jamieson (Senior Consultant, Thompson Lightstone & Company Limited): At this point we've certainly seen a lot of information about the profile of small and medium-sized enterprises in Canada. We've seen how they financed their business, their access to credit, whether they've approached a financial institution within the last year, and so forth, and we've certainly seen many findings. I hope you're not completely overwhelmed with the volume of information, because what I want to do now is to take you very carefully through some analyses we did, which were designed to tease apart what the root causes or drivers of access to credit were. In other words, what set of factors are the true determinants of whether or not an SME will gain access to financing?
We saw in the detailed charts, if you were able to follow them, that a variety of factors relate to the probability of acceptance or turndown at the banks: certainly, the age of the business; the size of the business, whether measured by sales volume or number of employees; gender, and so forth. It turned out that for just about all of the factors that were identified prior to the study as being of potential interest, there is some relationship. It isn't the case, however, that all of these relationships are necessarily primary ones or root ones.
The example I'd like to give is that if we were to take 1,000 adults - let's include us in the sample - and we were to measure our height and weight and plot them on some sort of x:y graph, what you would see is a bunch of points that surrounded a line that would be fairly linear, and there would be an obvious strong relationship between those two.
The fact that there's a relationship doesn't necessarily mean there's a cause-and-effect relationship. So, for instance, there is no necessary cause-and-effect relationship between height and weight. If there were, if I wanted to be taller I would simply eat a lot more and I would grow, and that's not going to happen.
What we're doing in this analysis is trying to look at the true causes and separate them from simply the correlated causes. In the case of height and weight there would be an underlying genetic factor that in fact is at the root of both height and weight and causes height and weight to be correlated, to be related, but in fact the genetic factor is the true causal agent. Height isn't causing weight and weight isn't causing height necessarily.
So what we have to do here is look at acceptance and turn down and try to tease apart what are the true causes and what are simply correlates. What we're trying to do is see which factors predict acceptance and turn down. We term this analysis ``root drivers''. You can call it a number of things.
It is done by a statistical technique called multiple regression analysis. The details of that analysis are highly complicated. I won't go into them today. We have a technical appendix you can refer to, to look at how this was conducted.
It is essentially the same kind of analysis that Statistics Canada does when - to give an example - it tries to look at whether there's any effect of, for instance, gender per se on wages. Is there gender equity in the wage domain? What you have to do, of course, is consider many factors. You look at the number of years in the workforce, at the type of work the person is doing, and so forth, and after you've considered all those factors and controlled all those factors, is there any residual effect for gender per se? Is gender predictive at all of differences in wages after you take into account all the ways in which men and women differ in terms of work? By analogy, this is the same kind of analysis as we're doing here.
.1100
Prior to this study, as we have seen in all of the different charts we've looked at, several factors were thought to be of likely interest. This is on page 95, for those of you who have a copy of the report. To review them, they are: age of business, sales volume, number of employees, region, SIC categorization and gender of owner.
The direction of these was not always clearly predicted. For instance, it was of interest to examine whether or not SMEs were differentially supported in terms of their loan acquisition as a function of their SIC category, but we didn't necessarily have a strong hypothesis going in that this category was being strongly funded or was not. Some of these variables are very exploratory. We're just doing the analysis to find out in fact whether there are sectors of the economy that are more or less likely to receive financing.
Most of this kind of analysis is contained in your report. I have made charts that provide a lot of commentary for it in the hopes of abbreviating it, simplifying it and clarifying it a little bit. This commentary that I'll put up is in fact woven through the section on the root causes of acceptance and turndown.
I want to be very specific about what we're going to call a factor that is a ``true driver''. It is a factor that shows a unique and independent ability to predict loan acceptance and turndown status above and beyond the influence of the other factors we're going to look at. If it can do that, then it will be classed as a true driver or a likely causal agent, something that is causing access or non-access to credit.
In other words, we're looking at all the variables considered - all the business characteristics, all the demographics and so forth. We're considering these all at the same time and we're going to examine the effect of any one factor in the context of all the other factors to see whether it has any independent explanatory ability. If it does, we will call that a root driver.
When we did that - and we did the analysis both on the SME sample and on the account managers' tracking sample - we found there were effects for age of business; for sales volume or number of employees, which we could call size of business; and for certain SIC categories. In particular, under age of business, longer-established businesses were more likely to be accepted. After we controlled for all the other factors, there was a definite effect such that older businesses were more likely to be accepted.
You could argue, for instance, that this is a sort of evolutionary process. Those companies that have been around and have a business tenure of ten years or more, or whatever, have proven their fitness and their ability to survive in a competitive marketplace. So you might argue that the best predictor of future success is whether the business has currently survived, has a track record and has longevity. If it does, then you're probably more likely to support that business in future.
In somewhat of an evolutionary interpretation that I might place on this, it could be the case that the best predictor of future success is current longevity. So there is an effect for age of business.
In addition, larger businesses turned out to be more likely to be accepted, so this was classed again as a root driver of acceptance or turndown.
As for SIC categorization, in both samples we analysed - the SME sample and the account manager sample - businesses in the following two sectors were less likely than the national average to receive approval: accommodation, food and beverage; and real estate. Of the thirteen we examined, these were the only two that were consistently and robustly shown, in both of our two samples, to be related to a lesser likelihood of acceptance.
Interestingly, there was no evidence when we did this analysis that the following factors were root causes or drivers of acceptance or rejection.
There were no regional effects. In other words, when we examined region in the context of all these other factors, once the other factors were taken into account, there was no independent effect of region.
Similarly, ownership gender did not show any independent effect per se in access to financing.
And while there were some findings for other SIC categories in one sample or the other, there was no clear applicability on those. My conclusion on that is the remaining eleven SIC categories were probably not related to a higher or lower likelihood of loan approval.
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So overall, when we look at the six factors we started out with, the biggest determinants of acceptance and turndown were related to the business case characteristics, namely the age of business and the size, whether in terms of revenue or number of employees, and these things were much stronger and more likely to be the root causes of access to financing than geography, i.e. region, gender, or in fact the type of business, although we did have that finding for the two SIC categories.
At that point I went on and decided to explore in the account managers' tracking form this idea that business case characteristics are important. It turns out that in the account managers' tracking form each account manager, when tracking the approaches that came to them, to the bank, made ratings of these SMEs in six general areas. The six areas were ability to service the debt, the quality of collateral presented, the credit history the SME presented, certain business ratios the account manager judged and made a rating of, the overall management quality, and the business risks as presented by that particular SME in that sector in that business.
These were six general areas. They were assessed by more than one rating in each case. As it turns out, there were a total of nineteen different business case characteristics the account manager judged. In judging these, he or she made a rating on a three-point scale essentially about whether the business case characteristics - if it was business risk, let's say, whether it was competitive risk - were average, above average, or below average.
When we look at these ratings, we see some very interesting things. It turns out that across all the nineteen different ratings, if a SME received, in the judgment of the account manager, a higher creditworthiness rating, they had a better than average chance of being approved for a loan.
Let me give you some examples of what I mean by that. If, for instance, they were judged on this three-point scale to have a high ability to service their debt, or if it was judged that their business proposal was extremely low in risk - in other words, their creditworthiness was strong - then they were more likely to be approved than not. In most cases - in fact, in about thirteen or fourteen out of the nineteen 19 cases - it wasn't the fact that the SME had to receive a high creditworthiness rating in order to receive a loan approval. In fact, they only had to achieve a rating of average. In fourteen out of the nineteen, getting a rating of just average on a business case characteristic was enough to put them at or above the national average for acceptance.
I want to illustrate this with a number of graphs, which you can find in your report on pages 100 to 105. Let's take a few of these.
The way I've presented these is that as we move from left to right we have greater creditworthiness shown at the right side of each draft. If we look at debt servicing, we see that on a rating of low, medium, and high, if the numbers at the top of the bar indicate the acceptance rate...and I should clarify that here I'm looking only at the acceptance rate among cases where some decision had been rendered, so we're throwing out the still pending here. We're looking only at the approvals versus non-approvals, and again this is in the account managers' sample only. But if the account manager rated the ability of the SME to service its debt as high in the three-point scale, then the likelihood that they would be approved for a loan was 94%. But notice that if they rated that ability simply as medium, the likelihood of acceptance would be 86%, and in this sample where we are considering only acceptances versus rejections the account manager acceptance rate is about 70%.
So the baseline acceptance rate, the national average, in the account manager sample is 70%, and those SMEs judged medium or high achieve an 86% and 94% acceptance rate respectively. If, however, their rate is low, then they're much less likely - in this case it's 25% - to be accepted for their loan. I think what we see across these nineteen categories is that a rating of medium or better is likely to put you at par with the national average, or above par, in achieving loan acceptance.
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Here we have the two items that were used to assess debt servicing, ability to service the debt and credibility of projections. You'll see in each case the graphs have a trend upwards from left to right. The higher the creditworthiness, obviously, the more likely you are to be approved for a loan. Again, the medium category in each case is enough to put you above the national average. We've drawn the line here at 50% merely as to give you some frame of reference against which to judge these three bars in each case.
Under collateral, we asked the account manager to rate the SME on four dimensions: business collateral versus the size of their loan request, personal collateral versus the size of their loan request, the lending value of the collateral presented, and the strength of the guarantor or the security that was offered. In each case we see the same pattern.
When we look at credit history, it is obvious there is a strong relationship: the higher the rating, the more likely one is to get a loan. Business credit, personal credit: when rated in the high category, up above 90%.
When we look at business ratios, here I should stop and explain that in debt to equity, obviously the lower the debt-to-equity ratio the better - the more creditworthy - so a low rating on debt to equity appears on the right side of the graph, because that's associated with a greater probability of achieving acceptance or approval on the loan.
Working capital is not really a ratio per se.
Finally, we have two other categories I mentioned. We assessed management quality by five items. The personal character and credibility of the SME was judged by the account manager. Their relevant business experience was judged. So were the quality of the business plan presented, if any, the management strength or depth, and the financial reporting that seemed to be in evidence as they presented their business case. Finally, business risks were also assessed and judged by these account managers, who are front-line professionals dealing with loan approvals. Again, we've reversed these, so the lower the risk the higher the creditworthiness and therefore the more likely someone would be approved.
In each case you can see a very strong linear trend from left to right, so as we move from left to right the creditworthiness improves and the likelihood of acceptance improves. Again, to reiterate, the medium category seems to be a sufficient condition to get you to the average level of acceptance and above.
I've presented the results on a rating-by-rating basis for all nineteen dimensions. Once we have done this, we can do with this data what we did before, look at all six of our factors of interest and use them collectively to see what the root drivers or causes are. In fact, we can do that analysis again, looking at the root causes of loan acceptance or turndown as a function of these nineteen business ratings.
It turns out that of the nineteen, when we do that analysis...and again, you're looking at each factor, you're controlling for the other eighteen and asking if that factor has an independent ability to predict acceptance turndown after we've controlled for the other factors. If it does, then it is likely a strong or important determinant of loan acceptance and approval. This analysis is presented through commentary on pages 106 to 114 of your report.
It turns out that eleven of the nineteen business characteristics were identified as being important. In other words, they provided some unique and independent ability to predict loan approval. I think what that shows is that decisions account managers are making are somewhat broadly based. It's not that they are focusing on one or two things and these are the prime determinants. Their decision seems to be influenced by a variety of factors, eleven out of nineteen.
However, just to give you an indication of what the most important of these are, the four we have listed here - ability to service the debt, or cashflow; the guarantor's security strength; lending value of collateral; and debt-to-equity ratio - were the ones the quantitative analysis showed to have the greatest weight or to be the most important drivers of loan acceptance and turndown. These are really broadly representative of the total nineteen we assessed.
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As a next step, we went back and asked the following question. Well, we've done an analysis looking at our six factors: age, size of business and so forth. We've done a separate analysis of our nineteen rated business characteristics. What if we now pool those two groups of things together?
So in the next analysis we looked at the account manager's sample again. We considered the objective characteristics we had measured that the account managers had reported on our tracking form. These had to do with, of course, region, gender and sales volume - all the ones we'd been focusing on, in fact that we were mandated to focus on, in this study.
But then we pooled them with the account manager ratings of the business case characteristics, the nineteen that I mentioned. The idea of this analysis was to see which of the factors were most important in the context of all of the best information we can take. In general, the result was that the business ratings were far more often labelled as drivers, that is, they came out as statistically reliable.
Those ratings made by account managers of the business case characteristics were more important in predicting acceptance turndown than were the ``objective factors'' I've mentioned - region, SIC, gender, sales volume and number of employees.
The one exception was for age of business, which still, on its own, had a unique and independent effect, even in the context of all these ratings that the account managers made. Again, we might interpret that in terms of the evolutionary argument.
One way to think of it is if two SMEs approached a loan officer and were matched in terms of how they had been rated on our nineteen characteristics and in terms of their SIC categorization, gender, region of the country and so forth - so if those two SMEs presented almost an identical business case - but the only thing that differed between them was that one business was an older, longer-tenured, more established business and the other was younger, then there is a slight finding that the older business would be approved at a slightly higher level than would the younger one.
Finally, turning back to the SME sample, our broadly based representative sample of SMEs in Canada, we did a similar kind of analysis to the one I've just described. We had all the same information and did ratings on the nineteen business case characteristics -
The Vice-Chairman (Mr. Valeri): David, when you're moving around, the mike somehow is breaking up. I don't know if it's the movement of the hands or the covering of the mike, or maybe you're stepping on the cord.
Thank you.
Mr. Jamieson: Can you hear me now?
The Vice-Chairman (Mr. Valeri): No, it's not working.
Mr. Jamieson: If I speak loudly, do I project enough?
The Vice-Chairman (Mr. Valeri): Continue.
Mr. Jamieson: Just to recap, we then went back to the small and medium-sized enterprise sample and conducted the same sort of analysis. The idea here was to look at our six hypothesized factors, the study-mandated ones, and examine them in the broader context of other information we had collected in the survey.
The kinds of things we pooled together in this regression analysis were the following.
We looked at more details about the business itself, for instance the total debt the business was carrying, and at the ownership structure, whether it was a sole proprietorship, incorporated or whatever.
We looked at the details of the specific loan request made. We looked at the size of the request and the type of loan asked for. We even balanced the size of the request relative to the total debt and relative to revenues.
We looked at other owner demographics, for example the age of the SME that was presenting the business case, the business experience they presented and finally the net worth of the owner.
Again, the idea was to see how these factors would do in the context of all of this information - which ones would be identified as the most important causes or root drivers of acceptance and turndown. As it turned out, almost in parallel with the analysis of the account manager sample, the results showed that none of the six hypothesized factors that we had been tasked to examine in careful detail for the study turned out to be a root or key driver of loan approval or turndown. Some factors that did matter were, first, type of loan requested. It turns out renewals are more likely to be approved than are requests for increases and expansions of financing or new loans.
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Another important factor was net worth. If the SME presented a high net worth it was more likely to be approved. This emerged as a significant and important determinant of loan approval. Obviously we were very interested in that and went on to do some further analysis of net worth to see what it was in fact most related to. It turns out that when we then examined net worth to see what predicted it, net worth was most strongly related to factors such as years of management experience the owner had and the size of the business, in both revenue and number of employees.
I argued before that these types of factors are indicative of the merit of the business case being presented. So one way to think of net worth in this context is it actually seems to have been empirically a kind of proxy measure for the strength of the business case an SME presented. Viewed in that light, the whole series of analyses presents a very consistent story, that things such as region, SIC, gender, and so forth simply do not come out as having unique and independent effects on their own in predicting the likelihood of loan approval or turndown. What does matter is the age, the size of the business, and whether the business can service its debt, provides valuable collateral, and so forth.
This necessarily glosses over a very detailed and sophisticated analysis, but I wanted to give you the top-line results of that analysis.
We then went on in the survey to ask SMEs, if they had been turned down, what the reasons were for the turndown. That is, we asked them what reasons had been given by the financial institution, but we also asked them what reasons they felt were behind the fact that they had been turned down.
We first looked at the account manager sample to see what account managers would report to us about the frequency with which they were giving reasons. The reason this is particularly interesting and important is that as part of the code of conduct for dealing with small and medium-sized enterprises that was initiated and instantiated last year one of the mandates of that code was that account managers should give the reasons for turndowns.
In the account managers' tracking sample, on the forms, we asked them if they had given a reason and what that reason had been. In 94% of the cases, virtually all account managers report giving some reason, at least one, to the small and medium-sized enterprise for why they had been turned down.
Very parallel to the key drivers analysis I just presented, in keeping with the business characteristics that were found to be drivers or likely determinants of acceptance turndown, account managers most frequently reported giving reasons to the SMEs turned down having to do with their inability to service the debt, poor collateral presented, or weak business ratio. Remember these three were three of the four factors that were on top of the list of the root drivers of acceptance and turndown in that sample.
So from the account managers' point of view, they are reporting that with high incidence they are giving reasons, and these reasons tend to track the reasons we found to be important determinants of acceptance and turndown. However, we went on and in the other sample, the SME sample, we asked SMEs - this considers the past twelve months - which reasons they had been given for having been turned down.
It's important to remember the code of conduct was brought into existence only toward the middle or end of last year. The communications for that internally within the institutions went out I think some time in mid-year. That has been done, but we're probably a little early in evaluating the efficacy of that effort. But what's important to do here is to look at what SMEs are saying, what kinds of reasons they're giving, and so forth.
First of all, SMEs recall being given fewer reasons overall than account managers report having been given. On page 111 you'll find a chart that indicates those kinds of figures.
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Part of the reason for that could be because the SMEs are reporting on about a twelve-month period, and that period includes a large amount of time that was prior to the implementation of the code of conduct. It could be that account managers are giving more reasons now that the code is in place. There could be a variety of reasons having to do with self-report, decay of memory, and so forth. This happens whenever you're conducting a ``self-report'' questionnaire on a group of people.
But once we get past that big difference in the sheer incidence of reasons, we can examine where the gaps in communication may be greatest, or where there may be a relatively good job being done by account managers in communicating to SMEs why they've been turned down. It turns out that in terms of incidence level, the greatest gaps in communication - that is, where account managers are reporting that they gave reasons to a high degree, whereas the SMEs are reporting that they didn't receive many of these reasons from the banks - may be for business ratios and collateral. Ratios, in particular, may be a sort of technical issue that is harder to explain; I'm not sure about that.
Relatively clear communication seems to be occurring for business risks and management strength. Most SMEs cite the riskiness of their business as being one of the key reasons they were told that they were turned down for a loan. I should also point out that some of these base sizes are low, because we have, after all, a fairly small percentage of SMEs actually being turned down.
Overall, when citing reasons behind a turndown, most SMEs cite the business case reasons they've been given by the banks, such as the things I mentioned - collateral, debt servicing, risk, and so forth. However, a few SMEs did mention the following things: 7% said they thought the banks were hesitant to lend to small businesses; 6% thought perhaps the banks were unwilling to lend to small businesses; 3% thought the banks and financial institutions might be uninterested in lending to small businesses. These numbers are relative to the other reports that SMEs give - they do cite the business case reasons given to them by account managers, and in relative comparison these are not huge numbers. Four percent said they thought the turndown was due to discrimination by financial institutions against women or immigrants. Again, the number is there; it's not big, but it is 4%.
The key to remember is the vast majority of SMEs do cite business case reasons rather than these types of things.
I'll finish by mentioning that another mandate of the code of conduct was that account managers, when turning down SMEs, should provide a couple of things: first, information about how they could be reconsidered in terms of their loan application to the financial institution - at least to the banks who've agreed to abide by the code; and secondly, that account managers give SMEs any suggestions they might have for pursuing alternative sources of financing outside financial institutions.
What we see with the two samples is very interesting. We have what SMEs are reporting and what account managers are reporting. Again, I'll point out the time difference. SMEs report that they were given information about how to be reconsidered through that financial institution's process 40% of the time, and 11% of SMEs report that they were given information about alternative sources of financing. The account manager rates are comparatively much higher - about 60%. About six in ten account managers report that they either (a) provided information about how to be reconsidered or (b) suggested alternative sources. We've broken out the kinds of sources that they mentioned: government programs 13%; venture capital, and so forth.
There is a big discrepancy between these numbers. Again, 60% is not 100%. At this point in time the code of conduct is in force. A couple of the items in the code say that these things should be acted on by account managers. There's room for improvement there; I think there's room to grow. But we also have to remember that the code only came into effect part-way through last year, so it may be a little early to judge these figure. But I think this provides a good basis as to what reasons are being given by account managers in their self-report and what reasons are being received and understood by small and medium-sized enterprises, from their point of view.
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The code also requires that the reasons be given in writing, should the SME request that. You'll see the numerical breakdown on page 118. These in part repeat what I just showed you; namely that 11% to 13%, the two numbers, major bank turndown percentage of 11%, referrals to alternative sources... This is virtually identical to the total marketplace.
At this point I think I'll turn back to our chair. We had intended at this point to take a break, and we're running a little ahead of schedule.
The Vice-Chairman (Mr. Valeri): Mr. Jamieson, Mr. Lightstone had been running at lightning speed and brought us about fifteen minutes ahead, and we've used some of that fifteen minutes.
I'm in your hands, colleagues, but rather than taking a break at this time, what I'd like to do is... Mr. Lightstone, are you going to continue, and complete the presentation?
Mr. Lightstone: Yes.
The Vice-Chairman (Mr. Valeri): If you would, please, I'd like you to summarize the balance of your presentation. In the questioning I'm sure you'll be able to bring out the area of new business attempts and customer satisfaction. Could I give you ten minutes to kind of wrap up, and then go to the questioning? I know the members have been compiling an arsenal of questions that they would like to ask of you. Is that possible?
Mr. Lightstone: I think so. We can just summarize the topic of satisfaction levels, which I think is an important part of this whole process.
The Vice-Chairman (Mr. Valeri): I do as well.
Mr. Lightstone: We can look at that in terms of a synopsis and then just a very quick coverage. When we talk about these new business attempts it's qualitative more than quantitative. We could then do the wrap-up and take questions, or however you want to handle it, Mr. Chairman.
The Vice-Chairman (Mr. Valeri): Okay. As you're changing over and setting up, perhaps members can take the opportunity to stretch their legs a little bit. We'll continue as soon as you're ready to go.
Mr. Lightstone: Thank you.
Mr. Leckie: I was wondering, Mr. Valeri, whether Ian Lightstone will get a chance to get all the information across. I worry about this sort of ``data dump'', if you will. We have to be very careful that you look at the whole picture and not just pieces of it. Within my own realm, working with my own people, I find that just looking at pieces of it can be dangerous. You kind of have to look at the whole thing.
The Vice-Chairman (Mr. Valeri): I think we'll have ample opportunity to be drawing upon the balance of the afternoon, as well as what we have this morning - another hour and a half.
Mr. Leckie: Okay. I just don't want to lose Ian, because he's the professional, and he'll only be here today.
The Vice-Chairman (Mr. Valeri): Sure. My understanding is that Mr. Lightstone will remain with the committee for the balance of the day.
Mr. Leckie: That is correct, yes.
Mr. Lightstone: Right.
The Vice-Chairman (Mr. Valeri): Thank you.
Mr. Ianno.
Mr. Ianno (Trinity - Spadina): What pieces are you most concerned about that we not only focus on?
Mr. Leckie: I think it's very easy to focus on the negative in isolation of the positive. You have to look at all the pieces of the puzzle. I find even in my own shop we tend to zero in on the problems without looking at the positives. I see this as a balanced report that we can all learn from.
Mr. Ianno: You'll be supplying us with the negatives you think we may focus in on?
Mr. Leckie: I'm sure you'll find most of them on your own.
Mr. Ianno: It's just in case we miss any, that's all.
Thank you, Mr. Chairman.
The Vice-Chairman (Mr. Valeri): Thank you, Mr. Ianno.
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The technician is checking the microphone, so we'll suspend for a few minutes.
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The Vice-Chairman (Mr. Valeri): Ladies and gentlemen, I'd like to resume this sitting.
Mr. Lightstone, please.
Mr. Lightstone: I appreciate the return to getting through the information. What I'd like to do in this section of our presentation is cover off that third component of the mandate: customer satisfaction. We've presented access to financing, approval rates, and so on, and I think it's important in terms of the mandate that was presented to us to indicate whether Canadian small and medium-sized business owners are satisfied with their relationships with their financial institutions.
I will not go through the whole deck, but as I said, I think it is critical to demonstrate the level of satisfaction, if indeed it does exist.
We'll try to give you reference points in the document as well.
In regard to customer satisfaction, before I present some of the key findings here and give you an overview, what we wanted to do in this section of the study was ask business owners and managers to talk about their level of satisfaction with the financial institutions, and in this case, to talk about their main financial institution, that is, the one they consider to cover off the majority of their banking needs.
In measuring and talking about satisfaction, we looked at it in terms of three different dimensions. First of all, we wanted them to talk about and describe their level of satisfaction with the financial institution itself. There were six different characteristics on which they rated the financial institution to indicate their level of satisfaction, plus an overall basis. We also wanted them to evaluate the performance of the person they interact with most frequently, that is, their primary contact. We also wanted to look at it in terms of the branch staff.
So there were three different elements we looked at as to their level of satisfaction. In total, there were 23 different characteristics across those three dimensions that SMEs were asked to rate either their financial institution, their primary contact, or the branch staff.
To speed up the process, David, would you mind giving me the page where the listing of attributes...? It should be in the beginning of that section under customer satisfaction.
A voice: Page 121.
Mr. Lightstone: At least there you have the individual attributes.
The other thing I should briefly talk about in terms of levels of satisfaction is that in all of the attributes, whether they be rating the institution on an overall basis, the account management group, or the branch staff, we asked them to rate or describe their level of satisfaction on a scale of 1 to 10, where 10 says they're extremely satisfied and 1 says they're not at all satisfied with either the institution or the performance of the individual they are rating. That was the consistent scale we used for all of the analysis.
In terms of our commentary and interpretation of the results and presenting the results, we've really broken it down into three major areas. One is saying what percentage of SMEs are satisfied on any given characteristic. When we define satisfied, it's really when an SME gave a rating of 7, 8, 9, or 10. That's the level of satisfaction. Those represent the satisfied percentages.
There's a neutral category of 5 or 6 because on a scale of 1 to 10 there is no actual absolute numerical midpoint. So the 5 or 6 are in essence a neutral rating. They're straddling the midpoint.
When we talk about being dissatisfied, we are taking anyone who gave a rating of 4 or less. So a 4, 3, 2, or 1 rating says the person is dissatisfied either with the institution or with the person they're dealing with, or in terms of the performance on a particular characteristic. I want to get that point across so you understand how we did it.
To give you a sense of what's happening, when we look at the population of businesses and talk about whether they are satisfied with the financial institution they're dealing with, in summary I think we can say generally that, yes, the majority of Canadian small and medium-sized businesses are satisfied with the financial institution they deal with. When we look at it on a total basis, 72% of SMEs in total gave their financial institution a satisfied rating. When we look at the clients of the major banks, that level is 69%.
So in general, I think the population of business owners overall - and this is on page 120 - are giving their banks a good rating, that is, the satisfaction is at a good level. I would not say it's at an outstanding or an exceptionally high level, but whether they're dealing with a bank or with another financial institution, the vast majority of business owners are satisfied with their dealings and the overall performance of that particular financial institution. We would say, in terms of a qualitative sense, that those are good but not outstanding ratings of what we're seeing in this particular...
Interestingly, when you look at page 120, at the clients of the seven major banks, we broke it down further into borrowing clients of those seven major banks, and indeed people who have borrowed in the past year.
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Consistently, when we look at the satisfaction data we find that borrowers in general are more satisfied either with the financial institution they're dealing with, the bank they're dealing with, and as well, the person they are dealing with, than non-borrowers. So we're seeing some differences, with borrowers expressing higher levels of satisfaction consistently across the board.
When we ask business owners to break down their satisfaction with the banks they're dealing with - and these data are on page 126 - looking at the overall satisfaction plus the satisfaction on different performance attributes, as I said, overall I think we're getting good levels of satisfaction - not exceptional, not outstanding - with the 69%.
Indeed when we asked business owners to further characterize and rate their financial institution - that is, the bank they're dealing with - in terms of the different performance attributes, what we find is a very good rating, that is, a 75% satisfaction rating, and it provides convenient business banking. So in essence they're saying they provide good service in general and they're providing convenient banking. But if we go down that list, I think we're seeing softer ratings as to the credit-related issues. This is on the total sample of people who are dealing with the seven major banks.
So overall performance is good, but when we talk to them and ask them how they rate the performance of their institution on the various lending criteria, or the lending dimensions, although the largest percentage - more than half - say they're satisfied, we can see in terms of these scores that they are not as strong as the score we're seeing on providing convenient business banking. So it's softer on the credit issues.
That is also true when we look at borrowers, but certainly it is higher. Of borrowers overall, 70% of company owners who are borrowing from a major bank say they are satisfied with the overall dealings; 77% say they are satisfied in terms of the bank providing convenient business banking; and it's in the 60% range as to their overall satisfaction on the credit issues, the lowest one on that score - page 128 - supporting you in good and bad times. While the majority, or the largest percentage, 55%, say they're satisfied with their financial institution as far as that dimension is concerned, we see that's one of the lower items on the scale.
As I said, overall there's good performance in general, but certainly it's softer as far as the individual lending characteristics are concerned, demonstrating a need to work harder in terms of communicating the type of process that's available to them.
I'm going to skip through your deck on the individual attributes. All of this information I've just presented is again related by the SIC groups and all the major groups. So you have that in your deck.
I think there is certainly a consistency in all those ratings, with some variation. As I said, the overall rating is good and then we see a somewhat lower score on the actual credit facilities.
If I can, I would like to go into the individual dimensions in looking at the primary contact and then the branch staff.
Let me backtrack. There are two ratings that I think are important to close off the institutional rating. We also asked people to talk about, on a spontaneous basis, what they like about the service they receive from their main financial institution. In total, when we talked to the total population, basically 63% say they're satisfied and like the service they're getting. Again, in a general sense, I think business owners and managers, as far as their financial institutions are concerned, are presenting positive responses as far as the overall service is concerned in terms of the staff being polite, friendly, personalized, helpful, accommodating, and so on. That number is there consistently across the database.
Indeed, I have a chart looking at ownership gender, and the female owners provide a higher spontaneous good service rating - this is page 129 - than what we're seeing for male and joint owners.
Again, overall, spontaneously, they do provide a positive description of their dealings with their bank.
When we asked them what bothered them, again, on a spontaneous basis - this is on page 131 - we can see there's a range of mentions that come through fairly consistently across the different businesses we spoke to. When we look at it in terms of some of the commentary, we'll see service charges and fees being at a higher level than access to credit. So on a spontaneous basis they're more apt to mention the fees they pay than access to credit.
From a survey research point of view, when you have these two types of open-ended questions - what do you like and what do you dislike - we're seeing an indication on that first chart where I said that 17% said there's nothing they like. When we asked them what they disliked, a higher percentage said there was nothing to dislike, which is a positive indication or commentary about their overall service relationship.
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To close that off before I get into the primary contact, we did a similar type of analysis relating to the people they're dealing with. I think it's important to set the tone, because we're going to rate the primary contact. I think it's important to know the majority of businesses in Canada do report they have a designated account manager or individual they're working with. So we're looking at the primary contact to set the scene and indicate that not only on a total population basis but also among bank clients the vast majority, 65%, of major bank customers report that they do have a designated account manager to manage their account. That's important.
It was also interesting when we zeroed in and looked at start-ups. Start-ups are more apt...74% say they have a designated individual assigned to their business or their account. We suspect why they're saying that is they have just opened accounts, so they're seeing a higher level of contact and a personal type of service. A very high percentage of recent start-ups say, yes, in their opinion they have a designated account manager.
Needless to say, account management is higher with the larger companies. But overall, as I say, when we're looking at it, it ranges from 49% for those who are less than $250,000 to 83% for those who have sales of $5 million or more. The vast majority of companies, both large and small, do have an account manager or a designated individual to work with them in handling their account. With major banks, as I said, 65% have a designated individual. That's one of the higher levels across the board. The caisses populaires and the credit unions on average have 54% who say they have an account manager.
I mention these numbers because we wanted to get people to talk about their primary contact. It's important in evaluating this whole study, not only looking at the high acceptance rates for loan approvals but also in asking whether the population of business owners is satisfied with their dealings with their institutions.
On page 133, first of all, about the ratings of their overall account management, 77% is very high. Then we look at it from the perspective of just how they evaluate the performance of the account manager, the primary contact, across a range of attributes. Again we are seeing very positive scores when we look at approachable, easy to get in touch with, promptly follows up on requests, treats you as a valued customer. Again, the primary contacts of those dealing with the major banks receive very positive scores. The numbers start to soften up in terms of satisfaction, although the majority still voice a level of satisfaction, when we ask them to rate them on being resourceful in finding solutions or being flexible in meeting changes.
The message I would like to leave in trying to summarize this is that amongst borrowers and non-borrowers - and the results are even higher amongst the borrowers - is that people who are borrowing from the major banks as well as those who are not borrowing from the major banks do hold their primary contact in high regard. The ratings we are seeing here are very strong on an overall performance basis amongst borrowers. On page 135 it's 78%. Again, on the individual attributes we're seeing some very positive ratings, certainly for the demeanour of that account manager from the point of view of follow-ups, being approachable, etc. Where they'd like more help is in being flexible in fully meeting their needs, and also in being more resourceful in finding solutions to their business problems.
Overall, I think we have to say that in looking at the primary contact the business community is rating their account management group or individual at a high level.
About timing, one of the things is account management turnover. That's always an issue. As I said, 65% of major bank customers do have an account management relationship. We asked them further, has your account manager changed over the past three years? If you take that three-year timeframe, just under one in two, 47%, said they have had the same account manager over the past three years. The remaining 53% said yes, they've had a change, and in most instances that change was two account managers in total. That is, over a three-year span they had one change.
By and large, we're looking at a fairly stable environment where most, or at least half of them, have had only one account manager over three years. With those who have seen a change, it's generally only a change of one individual, so two over a three-year period. I think we can safely say the turnover level, while there's still some of it there, is reasonably stable.
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When they did have a turnover, certainly people said they were satisfied. We asked them how satisfied they were with the change, and the vast majority said they were satisfied with that particular change as far as their opinion was concerned.
I'll now look at the branch staff satisfaction, because again, I think it's important to do it. Here we're seeing even higher levels of satisfaction. We saw good to very good levels with the account management staff, or their primary contact. We're seeing exceedingly high levels when they're asked to rate the branch staff.
So from a people side of the business, in terms of who small and medium-sized business owners and managers are dealing with, I think consistently we can say with confidence that they're being well rated by their clients on the characteristics of being approachable and of servicing their business needs. Indeed when we look at the branch staff, we can see the ratings are very high. These are on page 144.
So both the primary contacts as well as the branch staff received extremely high satisfaction ratings from their clients. This is true not only with non-borrowing clients; if we look at it from the perspective of borrowing clients, it's even higher.
As I said, while satisfaction certainly is very strong with the actual staff and is at a good level in terms of how SMEs rate their main financial institution, one of the questions we asked was ``Do you feel you're getting good value for the service and the relationship you have with your main financial institution?''
As far as this evaluation is concerned, we're seeing that despite relatively good overall ratings and indeed very strong staff performance ratings, when SMEs talk about the value they feel they're getting out of the relationship, they only attach a moderate level of value.
So yes, they're rating it as being strong from a performance point of view, but when we talk about this whole value equation - and as you're well aware, today value is certainly an issue, not only in the banking area but in all areas where business as well as the public are dealing - we're seeing only a moderate rating of the value attachment SMEs assign to the relationship with their main financial institution. That's at 63%. Again, I think this whole value equation could be strengthened in terms of communication and working with various clients.
Just to give you a sense of the value - and this is on page 149 - overall 67% say they're satisfied with the value they receive for the time and effort in their relationship. Of the major bank clients, 63% give that type of rating, but borrowers, as we see, give it a slightly higher rating.
We would say these value ratings are at a moderate level. The majority are satisfied with the value, but certainly there's room and opportunity for improvement and expansion on that.
I have a comment before I start to wrap up. To fill out the picture, let's look at not only levels of satisfaction but also whether or not people would refer. This is the type of question we ask in various product or service areas when we're dealing with business owners and managers: would you refer the financial institution you're dealing with to a business counterpart?
We see on page 147 that the vast majority of SMEs, in total 78%, said yes, they would recommend their main financial institution, and amongst the clients at major banks that level is 76%. So the commendation level, the referral level, is strong across the whole industry.
Similarly, of those who were asked whether they had considered switching or would switch, the vast majority said they had not and would not consider switching.
So it's important in judging to look at the total picture, not only at satisfaction but at whether or not people would recommend their institution and whether or not they would switch institutions. In both cases the commendation level is high and the likelihood of switching is at a modest level in total.
I will close off before our synopsis and see how you react to it, Mr. Chair.
One of the things we wanted to look at - and for the sake of time I won't go into the statistical analysis; it's in your report - is we tried to come up with an equation in asking what will help to make business owners more satisfied with the financial institution they're dealing with. We did a type of analysis similar to the one we saw earlier in looking at the drivers for loan acceptance. We also wanted to get into the drivers for what makes a business owner-manager more satisfied, or what would add to his or her level of satisfaction with their financial institution.
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To give you a synopsis on that, we find the bottom line is that while the majority are satisfied with the institution they're dealing with, what would enhance their level of satisfaction even further is a greater sense and greater communication of the flexibility the financial institution is prepared to provide: flexibility in meeting their needs, flexibility in being able to match their lending needs with the types of instruments that are being offered by the bank, as well as communicating and demonstrating a level of commitment and support. While the banks get very good ratings on these attributes, I think there is an equation here that says the more they communicate the level of flexibility, the more they communicate the level of dependability, the fact that they will respond in a timely way as well as respond in total...these are elements that will help to drive up the level of satisfaction.
So we wanted to look at it by asking, first of all, how satisfied individuals are - and we've seen an analysis of that - but also what will help to enhance that level of satisfaction. This analysis has given us some clues to that. I won't dwell on that today, but certainly from the analysis point of view there's some good information here not only for the banks themselves but for the committee, saying what enhances the level of satisfaction individuals have with their financial institution.
We talked about this whole area of new business attempts. I want to emphasize that when we did this study we were looking at existing businesses. So when we talk about SMEs and their loan acceptance levels, their satisfaction, their current borrowing habits, etc., we're talking about businesses that exist. As one of the parts of the mandate we said fine, we also want to be able to get at whether there is a base of individuals who attempted to start a business.
When we use the word ``attempt'', it could be on a formal basis; they could have had a business idea and they wanted to get this business off the ground. Did they attempt to establish a business over the past year?
This was really some new territory we were going into, because as I said, we were working from lists and a random survey of existing businesses. We tried to find individuals who said yes, they attempted to start up some sort of operation over the past year.
In this case we really had to conduct telephone interviews with the population at large. Indeed, we spoke to 8,000 individuals over the course of February and March of 1996 to try to identify households where there was an individual who actually attempted to start some operation.
I think we've come up with an interesting profile here. As I said, it's looking at new territory, because we're trying to find out, given the economy, whether there are people who made an attempt to start a new business.
When we spoke to these 8,000 households - and you can get this information on page 158 and on - what we found in these telephone surveys was that in 7% of the households there was somebody who said yes, either they or someone else the householder knew in their opinion had attempted to start a business.
We have to be careful when we define these attempts. It could be a business in a more formal sense, it could be somebody who is trying to do a sideline business while still working, etc. They defined it as a business attempt. They tried to start up some sort of business venture or business idea in the past year.
Of the households surveyed, 7% said yes, somebody there did that. Of the 7%, the vast majority who started it - and it could be somebody who is selling cosmetics, it could be somebody who's selling different products or services on a part-time basis - the majority of those people who said yes, I tried to start something, 5.4%, or the vast majority, said they're still in operation.
Here we were trying to find out if there are people who said yes, I tried to start it, but the business never got going - and we'll talk about that in a second - and also those who said yes, I started it, but the business failed. On a percentage of households, we're really looking at a very small percentage of individuals who said they tried to start something but it never got off the ground, or they actually started this particular business venture but for some reason it failed and it's not operating right now.
It was very difficult for us to try to find them. We had to try to build our way and find these on a random basis across the households.
As I said, it's a qualitative number. It's a start. It's something that should be monitored over time. But I think it's important to recognize it's a very small percentage of those types of individuals who are out there.
To provide a little commentary on this - and as I said, the numbers are small, so it's more qualitative in scope - we asked those people who said ``Yes, I got my business going'', to tell us a little more about what they did do to get the business going.
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The types of answers we heard - and I think people put some effort into this - were as follows. They talked about researching the market. They went out and studied the market they were going into. They sought out customers. They lined up suppliers, developed a business plan or even registered the business. Some of them even purchased equipment.
So basically these people go through a number of different steps to try to get their business going. That's one of the comments we'll make concerning those who got their businesses going,i.e., what they did, in their minds, to actually get it going.
The other important part - and again we're talking about very small numbers - is those who said they tried something over the past year and it failed or didn't get off the ground. We were trying to get some clues to what inhibited their operation or business attempt, why it didn't get off the ground or why it failed.
Three primary reasons came out of this exercise.
One, they said they tried something but had a lack of time; there just wasn't sufficient time to really develop the business idea further.
Two, they said there was really no interest. They had an idea and thought it was going to be successful, but when they finally started getting it going, there was insufficient interest or no interest in the product or service they were trying to develop or sell.
The third comment we heard - and also an interesting one on why these businesses may not be here today on these early starts - is they found stable employment elsewhere. So it wasn't a case of perhaps the business itself not surviving in terms of trying to set up this operation. Some sort of other employment opportunity came up that they felt was going to be more lucrative or more enjoyable to them. That replaced their efforts in going after this new business.
So they said it was either a lack of time, insufficient interest in the product or service they were offering, or that they found more stable employment elsewhere. Those were the three primary reasons the businesses didn't get off the ground or failed.
I will say this. When we looked at these numbers and comments, very few mentioned that turndown from a financial institution was the primary reason the business did not start off. It was more a case of finding a better job elsewhere, insufficient market interest, or lack of time to develop it.
As I said, at this very early stage, we only have a small base of individuals we spoke to, but it was enlightening to hear their comments regarding why their businesses didn't get going.
I'll close off. I want to wrap up and make some conclusions. If I may, I'll take five minutes, and then we can open it up to questions. Also, if we go through these charts, it will give you a way to frame some of the questions you may have and refresh some of the information you saw earlier.
Let's look at it from the overall point of view of a wrap-up of what we were asked to survey and what the mandate of the study was.
First of all, we'll look at this whole element of access to financing. We're seeing here that basically one in two business owners do use a bank or financial institution for business financing. As we see, 51% of SMEs in total do rely on a bank or financial institution for business financing.
The other important aspect, when we look at the whole issue of access to financing, is that 36% of SMEs in total and 37% of the major bank clients actually requested financing from a financial institution in the past twelve months. One in two rely on it, but over a twelve-month period, only one in three - 36% - actually go to a financial institution.
As we saw, most do not approach a financial institution, because they just don't feel they need this additional financing. They don't feel they require any outside funds.
As far as the loan approval rates are concerned, the data we're seeing here is that when small and medium-sized businesses do go to one of the seven major banks or to one of the other financial institutions, the vast majority of their loan requests are approved. Indeed the probability of their loan request being approved is excellent.
Looking at it in terms of a raw number, 79% said it was approved in full or in part. If we exclude the still pending, that level is 84%. So the vast majority do have their loans approved. Indeed, as we saw, the vast majority say the loan approvals were done on their initial request.
It's a bit tougher for new business start-ups, but again, it's 77%, and 78% when you exclude the still pending. The vast majority had their loans approved over the past twelve months in terms of their requests. It's slightly lower, but the vast majority do have their loans approved.
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I want to comment a little on the special analysis we did to ask what the drivers or root causes of turndown are. It's important when we look at this analysis that while there may be variations between one sub-group and another in loan approval rates by different demographic or regional...in the end, when you analyse the data very rigorously, you can see the decision to approve, and as we see, the vast majority are approved - the decision is judged on the merit of the business application, not on gender or other demographic differences. The data we have here, the analysis we've seen, the analysis we conducted on this, prove very conclusively the decision is made on business merit and not specifically on issues such as gender or region. Yes, there will be some relationship, but when you look at the types of attributes and what drives this, things such as higher net worth, the type of loan request, the age of the business, etc., there are a number of variables that will enhance success, but it's certainly not related specifically to the six areas that were hypothesized prior to the research.
Risk of turndown is higher, yes, with younger businesses. But again, the vast majority are approved. It's higher with businesses with lower sales volume. When the applicant comes with a lower net worth, their chances of being approved are somewhat lower. But again, the vast majority, regardless of that attribute, are approved.
So again we can conclude, based on this data, that while there may be some relationships, the approvals versus turndowns are based on business merit reasons, not on gender, age of the application, or the region of the applicant. These are not factors by themselves. They are embedded in other characteristics.
Finally, on customer satisfaction, if we have to summarize it and say what kind of ratings the banks get, overall, if you look at the SME ratings and total them for the seven major banks, I think they got a passing grade overall, but that's as far as it goes; a passing grade as being good. It certainly wasn't outstanding or exceptional. So there is certainly an area to enhance the ratings as far as clients are concerned.
They very clearly describe the banks as providing convenient business banking and good service delivery in general, and they're very positive about the staff. We've seen some very high and very positive ratings from a staff perspective. But overall, when you look at what business owners and managers are asking for, they're asking both the banks and their account officers to be more flexible - they said flexible in being able to adapt to their needs - more understanding of their business needs, more resourceful and supportive. The majority said they were satisfied with the person they were dealing with and with the financial institution and those characteristics, but they were asking them to be more flexible, and certainly understanding.
Despite some good overall ratings, there is an indication the overall value they attach to their relationship is only at a moderate level rather than a good or very good level. There is some room for further communication and further efforts there as far as the satisfaction and the value are concerned.
In closing, overall we've seen some positive numbers. There is room to increase and to enhance those satisfaction levels. Where we see the opportunities is again in communicating and delivering by being more flexible, communicating the dependability and the willingness to stand behind a customer, timeliness and responsiveness. These are the areas that will help to enhance the level of satisfaction.
The Acting Chairman (Mr. Murray): Thank you very much, Mr. Lightstone. It's a fascinating piece of work. I think you've produced the seminal study on small business financing in Canada. I congratulate you and the Canadian Bankers Association.
Questions. Mr. Leblanc.
[Translation]
Mr. Leblanc (Longueuil): Mr. Chairman, I must say that I'm pleasantly surprised by the results of this study.
I must also say that these results are somewhat similar to the vision I had of the banks. Of course, many details will be very useful for the banks themselves, but also for the small and medium sized businesses that have to work with the financial institutions.
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I would like to ask a few questions. For example, you mentioned in one of the tables that a significant portion of funding of small and medium sized businesses is done through credit cards. I have some problem understanding that and I would like you to explain what this means. It seems to me that businesses are not financed through credit cards. And yet it says here that a good number of them are. That's my first question.
My second question is about the personal collateral that are required. According to the table, it seems that the percentage required as personal collateral to grant a loan to a company is quite low. I've always heard that banks required a lot of personal collateral to write a loan.
Thirdly, you don't say much about the degree of tolerance that financial institutions have toward companies when they are in temporary difficulty. Business complains that banks are very prompt in calling in their loan or seizing their assets. You don't discuss this very much in your report. I would like you to elucidate on that.
[English]
Mr. Lightstone: Let me take the first question, about the credit cards. Just to give you a sense of what they said, what we asked business owners for was to indicate what sources of financing they use to finance their businesses currently. There was a range of different vehicles or different lending institutions or instruments they could talk about. As I said, 51% said they rely on a bank, but I think it was 44% or 40% - bear with me; I don't have the numbers with me - who said they use a credit card.
Again, these are individuals who are saying if they have a balance on their credit card, in essence that's a source of financing. The fact that they have been able to put a balance on their credit card is one way of financing their business, much in the same way as they might use their suppliers to help financing, they stretch out their payments to suppliers, or indeed use their retained earnings.
So it's one of a number of sources business owners and business managers talk about. When you look at their business honestly and ask what they use to finance it, it could be from outside a financial institution in the traditional sense. Indeed in this case 44%, I believe it was, or 40%-odd, said in some ways they are using their credit card, whether it's a business credit card or a personal credit card - I don't have a full breakdown on that - to finance their operation. They're putting purchases on there. They may be leaving a balance. We don't have that information. That went beyond the scope of the study.
In their opinion, they're honestly saying credit cards are indeed one way. We've had discussions with business owners, and yes, they do see credit cards as one of the means they can use to finance their operations and how they make their payments.
The second question, about collateral...and bear with me, because we touch on collateral in a number of areas. I don't know if you're referring to some of the information we obtained from the account managers or to what the business owners and managers were talking about. With collateral we have the different levels.
I might need a moment to find that chart again to answer your question completely, sir.
Do you mind rephrasing a bit? When you said ``collateral'', what area were you talking about there?
[Translation]
Mr. Leblanc: You seem to be saying in your report that only 5% of financial institutions require personal collateral. In my opinion, that's very little, but perhaps I didn't understand correctly.
[English]
Mr. Lightstone: Now I understand; I see where you're getting the question. This is where we asked them, if they had to make a formal request, what kind of documents they were asked to present. Again, appreciate that this was a question on a recall basis, because we're talking about over a full year. Indeed, over 60% said yes, they did present some documentation. But when we asked them on a spontaneous basis what they actually presented, only 5% said they had to provide some personal statement of guarantee or of their assets. One would think it would be higher. On a recall basis only 5% said that.
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Even when we look at it from the point of view of the account managers, using that as a more realistic tone, because these are individuals who are actually making the request, 51% of the account managers said they had asked for or received a personal statement of guarantee. So even amongst the account managers it's not a 100% universal request.
That is one benchmark of the 51%. When we talked to the business owners in total, only 5% made a reference to actually providing that. They see it more as providing year-end statements; information about their business more than about themselves. But again, this is on a recall basis.
The Acting Chairman (Mr. Murray): I think Mr. Leckie has a point he wants to make.
Mr. Leckie: It's a good observation. In practice a guarantee may be taken and held for several years and not changed.
It's a good question. It would appear to be low if you were looking at it in isolation. The practice is you hold a guarantee against the line of credit and it may not change very much for several years.
[Translation]
Mr. Leblanc: In fact, what you're saying is that 5% is not an exact percentage. It's a percentage that's multiplied by the number of years when you look at the evolution of personal collateral over several years. That means that 50 to 75% of loans to businesses are secured by personal assets.
[English]
Mr. Leckie: I'm sorry, I missed... Is the question whether 75% may be supported by personal goods?
[Translation]
Mr. Leblanc: No. You mentioned earlier that the client's personal collateral were often recorded in the file and stayed there. When there was a new loan, the client did not always realize that he had personally endorsed it, because he'd probably done so three or five years beforehand. That means that 5% of personal securities is not a valid percentage. Perhaps it's a new agreement, but many years later, personal collateral end up representing 50% for each of the loans.
[English]
Mr. Leckie: I agree. It would certainly be higher. I just think the way Thompson Lightstone asked the question of the client was whether they provided documentation in this past year. You get only 5%. I'm trying to explain why you get only 5%. I totally agree, it's undoubtedly higher. I don't know what it might turn out to be, but this is a line of questioning that's relevant as we go forward and do the study again next year, to focus on these areas to get clarification.
It's in our interest, frankly, as bankers, that the client knows they are guaranteeing. I wouldn't want them to forget they are guaranteeing and have it all come as a surprise. That's territory we'd like to avoid.
[Translation]
Mr. Leblanc: I'll repeat my question. You say that the average to a small or medium-sized business is approximately $25,000. That's what you said. I'm extremely surprised that further personal collateral are not required. That figure does not seem to correspond to reality. I'll leave it at that, but I simply don't believe this.
[English]
Mr. Lightstone: About tolerance, I think what we should refer to when you speak of looking at it is where we didn't go into that in terms of the ratings for the financial institutions...it's probably worth while when you talk about whether people who are borrowing from the major banks are satisfied with whether or not their financial institution is showing tolerance... You used the word ``tolerance''. We presented it in terms of whether they will support you in good times and in difficult times.
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You may want to refer to page 128 of our document, where we have the individual ratings. Of the people who are borrowing from one of the seven major banks, 55% say they are satisfied with the performance of their institution on that characteristic, 20% say they are neutral, and 18% say they are dissatisfied.
So yes, there's some level of dissatisfaction. One in five say they're not satisfied with the way the banks present themselves in terms of supporting them in good and in difficult times. But 55% in total said yes, they are satisfied.
When we look at that number in relation to some of the other performance attributes, as we said, it's a bit soft and there is some questioning of it, but the majority do say they are satisfied with their bank's performance in terms of supporting them in good and in difficult times.
The Acting Chairman (Mr. Murray): Thank you, Mr. Lightstone.
Mr. Schmidt.
Mr. Schmidt (Okanagan Centre): Thank you, Mr. Chairman.
My first question is somewhat facetious, but I think we have to lighten this up just a little bit.
It has to do with page 147 and figure 30. I was wondering if there is any relationship between the earnings per share and the percentage who would recommend the bank to another SME.
I read the quarterly review in The Globe and Mail this morning, and I saw that CIBC has a $2-per-share earning projected, and it's the highest of all of them. I notice it has a 72% referral to other SMEs, so I was just wondering if there's any connection there.
That's not a serious question.
The more serious question has to do with the satisfaction level or the assurance you have with regard to the adequacy of your sample.
The overall sample of 2,600 is reasonable. When you break it down into the regions, however, and when you start drawing conclusions about what happens in each region and about whether it's representative, there is a difficulty. There is a correlation between the size of the business and the size of the loan: the larger the business the larger the loan, probably. But there is also a difficulty, I think, when you get into regions. In some regions the SMEs would tend to be larger, on average, than in other regions, perhaps.
Could you give some indication of the representativeness of the sample, when one region is compared with another, as to the overall consistency of the sample?
Mr. Lightstone: Good question.
Certainly one of the things we wanted to make sure of was that each of the eight designated regions was represented in the survey. The representativeness is there.
The other question was on whether or not the base is valid.
Mr. Schmidt: Yes, that's right.
Mr. Lightstone: Overall, as far as the SME component is concerned, of the 2,650, with the exception of Metro Toronto, we're looking at 300-plus, with Metro Toronto being 240. So from a statistical and survey point of view, yes, in any sample, you'd like them to be larger so you can drill down, particularly, as you said, on the SIC basis, where it gets a bit small in each of the regions.
Mr. Schmidt: Yes, exactly.
Mr. Lightstone: But overall, when we look at it on an individual region basis, we can be very comfortable that we have a statistically reliable sample in total, especially when we're looking at sample sizes of 300. On a total basis, we're looking at a possible error range of 300, which I think is about 5% or 6%. So there's a good level of confidence on one region versus another region. We are very positive about the comfort level of the statistical reliability.
We would definitely agree with you that because we're talking about thirteen individual SICs, if we divide that up into 300, we're not talking about a very large sample. It would be dangerous in some instances to look at an individual SIC by region. We would not recommend it, nor was the study designed for that.
We wanted to make sure that we had proper coverage and that all of the major SICs, those thirteen SICs, were represented in the survey. Indeed, if you want to look at the experiences by individual SIC, dividing thirteen into 2,500 will not produce a very large basis, but with 150 to 200, depending upon the SIC, there's a good level of reliability. But we would caution you not to drill down within a region and take an individual SIC.
We wanted to make sure the sample was representative of that whole fabric of businesses across the country, by business type and within region, so we made sure that was there to give you that level of statistical confidence and liability.
Mr. Schmidt: Thank you.
I have one other question. It has to do with the table on page 97.
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I'm sorry, I have the wrong page number. I have the wrong reference here.
It has to do with the satisfaction level, again. It has to do with the stated satisfaction with responding to credit needs. I believe it's around 53%.
The reference isn't clear now. Page 126; we'll try that one.
Yes, on page 126, on satisfaction with main financial institution, flexibility in meeting changing financial needs, there was 53% satisfaction at that level. Yet earlier, when it came to relationship with the bank and meeting financial needs, it was quite a bit higher. If we look at this in reverse, 47% are dissatisfied; well, maybe not totally dissatisfied, but certainly not as happy as they could be with that.
Does this relate, then, to the explanation you just gave us that in fact the people who borrow money borrow it on the basis of the size of their business, yet if they felt a little more confident their loan would be approved they would be a little more satisfied? So really a hunger is still developing, and they express it in response to the questions on page 126 as compared with the questions they're answering about the actual loan application approval.
Mr. Lightstone: Certainly we've made the comment that when it comes to performance rating on this issue of credit, there's room for improvement. You mentioned the number on page 126, that 53% give the institution a satisfied rating on being flexible and meeting changing financial... That includes both borrowers and non-borrowers -
Mr. Schmidt: I understand that.
Mr. Lightstone: I'd also reference you to page 128, where we talk about it being 60%.
So the majority are satisfied -
Mr. Schmidt: But that still leaves you 40% -
Mr. Lightstone: It's soft. But I caution you, you can't say it's 43% who are dissatisfied -
Mr. Schmidt: No, I corrected that.
Mr. Lightstone: - because we're looking at 20% who say they're dissatisfied. The rest are neutral or there's no opinion.
I think it says there's room for improvement. Communication as well as effort, I think, reading this information from our perspective, needs to be done there. But overall what we're seeing is that business owners may give positive ratings. As they're asking of many of their suppliers in many industries, they're saying be more flexible, be more nimble. That's coming out in this study.
Mr. Schmidt: Did I hear John say you're going to do this survey again next year?
Mr. Leckie: Yes, we are. We plan to.
Mr. Schmidt: That really helps me. I was going to ask the question about this being based on the last twelve months. As a longitudinal study develops here, the information will become far more reliable. It's really just a snapshot of a very small part of the business a bank does. To draw too many conclusions from this would be very, very dangerous, but once we get into a longitudinal thing, that would help us a lot, and I really would encourage you to do that.
Of course a question then arises about the comparability of results. Are you going to replicate the study using the same questions, or are you going to change them? In other words, how are you going to ensure the returns from one year are going to be comparable with those of another survey?
Mr. Leckie: I would suggest both sides of the committee here today come to grips with that and we work with the guidance of the professionals. I totally agree with you, Werner, there's no point in tracking something if it ends up being apples and oranges.
Mr. Schmidt: Exactly.
Mr. Leckie: I think we're on the same wavelength.
Mr. Schmidt: Good.
Just a final word. I want to express some appreciation for the report. I think some good work has been done here. It's a good baseline from which to start moving. I'm happy to see this.
The Acting Chairman (Mr. Murray): Thank you, Mr. Schmidt.
Mr. Shepherd, ten minutes.
Mr. Shepherd (Durham): Thank you very much.
I think you've provided a lot of good information for who knows what other studies.
I want to focus on the methodology. I guess most financial managers in this country will tell you small and medium-sized businesses are under-capitalized. I have to reconcile that with the statement in here that the vast majority of these people decided they didn't want or didn't need financial institution financing.
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Also, I recognize that the average person feels intimidated by discussing their financial needs with their bank manager and also, I suspect, with pollsters. I look at this question, which is 62b), and try to reconcile that with the fact that you said something like 80% of these people said they didn't want any financing whatsoever.
Maybe stepping back one step further, what was the sample size? You started out with 2,600. How many rejections did you get to get the 2,600? In that question in particular, it says ``Do not read this list''. How did people then volunteer that they didn't require financing? Did they just sort of slough it off and it ended up in this category? How was that categorized?
Mr. Lightstone: Let me address the methodology.
On the question of the survey sample, it's 2,500 interviews, so it's a comfortable and very strong sample. You talk about the number of people we had to speak to. We do call-backs. Once we contact a business and identify that it is a business, we do multiple contacts.
The person we had to speak to was the person most responsible for the financial decisions and the financial operation of that company. In over 80% of the cases, this was the owner, the president or a director or shareholder of the company. These are the principal people who run these companies, and in most cases they're the owners. All of them are senior managers of the company.
It had to be the person responsible for making the decisions. We went after that person. We did not speak to a second-level or a third-tier level individual. We wanted to speak to the key decision-maker. I'm comfortable that we have those in our sample.
In total, when we made all these calls, about 36% of all the companies we contacted agreed to participate in the study; 31% refused, for a variety of reasons. In survey work, yes, there is a refusal level. When we look at it in terms of standards of what makes for good survey research, the level of 36% is a good level. We'd always like to have a higher level of participation, but that number is more than satisfactory as a response rate. So 36% agreed to participate.
People ask if there is a difference between those who refuse and those who do participate in the study. I won't go into them today, but there have been studies on research that demonstrate there usually is a strong consistency; the people who don't participate tend to be replicated by the people who do participate. I don't have actual facts here, but there have been studies, and our industry does look at that.
The percentage that participated certainly meets industry standards and at times exceeds industry standards. It's certainly much higher than what you would see for a self-completion questionnaire, where a survey was done on a mail-in basis so people filled in the answer to the question themselves and then sent it back. So 36% is a good response rate.
You asked whether they are intimidated. The answer to that I'd say is basically no. There may be some who are intimidated, but from our years of doing survey research and public opinion research, the public is prepared. We have information on this. The public is interested in giving their opinions and indeed business owners are interested in giving their opinions. I wouldn't say they're intimidated. They may at times be a bit busy running their business, but they will give us that time to answer the questions.
They do want to answer properly. We started off the survey by saying ``This is a study on running your business. It's being sponsored by the Chamber of Commerce and by a number of major financial institutions. We need your honest opinion.'' I think we can safely say they did respond honestly.
I wouldn't say they were intimidated. Business owners want to give their opinion and they want to be heard. That's one of the things we're seeing with public opinion research. Here is an opportunity for the smallest company right up to the largest company to be able to express their opinions and indicate what's happening. They had the opportunity and they took it. I don't think they're intimidated.
We tried to ensure that the questions were worded in a way that they would understand; that's why we did all this pretesting, to make sure it wasn't just us as a research group building the questionnaire. We went out to the field and spoke to people on a one-on-one basis. We sat down with them side by side and said ``Let's go through this questionnaire. Tell us if there's something you don't understand or if there's something you'd rather not answer.''
The final questionnaire we used was based on hours and hours of surveying and research with business owners to make sure that survey instrument was well understood. I would say they understood it.
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You asked another question about why they didn't go to a financial institution. Again, we did not want to put answers in their mouths. We wanted to hear the reasons spontaneously, from the heart. As we said, 51% said ``Yes, I use a financial institution to finance my business''. The remainder said ``No, I do not'', and we wanted to find out why, as one of the concerns was: are people not approaching a financial institution because of fear of turndown? What they're saying here is that's not the issue. In their minds, in their opinion - even though, as you said, statistics will demonstrate that many businesses are under-capitalized - they don't think they need additional outside capital, and their opinion is all we can go on. We didn't put any words in their mouth. They told us they just basically didn't feel they needed any financing.
Mr. Shepherd: They actually said they didn't need financing. That was the exact response?
Mr. Lightstone: That's the type of wording. There may be a few such as ``I don't require financing''. We have the types of words that they used. We don't present all the verbatim comments individually; we've grouped them. But people said, ``I have not gone to a financial institution because in my opinion I don't think I require financing at this time''. That's how they answer it. If you speak to them, there are many business owners who for various reasons either don't want credit - they've told us that - or they don't feel they need financing at this stage.
Mr. Shepherd: Just to confirm, to get your sample of some 2,000 you started with 6,000. Is that -
Mr. Lightstone: No, we started with a list of randomly drawn numbers of businesses in Canada. We started with about 14,000, and we spoke to 36% of these people in the end - those are the ones who cooperated - 36% of our ``qualified base''. There were some business owners who were not available, for example, or we couldn't get the interview, etc. So we started with a list of companies that were available to us. Then we called back to get to the person who is responsible for the decision-making. In the end we interviewed 2,600 companies in detail, who completed the full questionnaire.
Mr. Shepherd: But simple mathematics...if it's 26% successfully completed, then the reverse must be that over 6,000 were attempted. So 36% successfully completed...
Mr. Jamieson: There's a chart in the appendix of the people we screened. Thirty-six percent agreed. But there are people who just don't have the time, who are not available to respond to the questionnaire. There are numbers we called and called and we weren't able to get to that person; their schedule is such that they just don't have the time to give us the interview.
Mr. Shepherd: I guess what I'm looking for is whether there was some kind of skewness in this whole process. To what extent did you get to a certain stage in your questioning when you said it was something to do with the banks, that people said they weren't interested and didn't want to participate?
Mr. Jamieson: I don't think that's the case. I think, if anything, what we're seeing is that people wish to give their opinions - and they had an opportunity. If they have some concerns, they view this as their opportunity to express them in a valid, representative sample. I don't think they're turned off at anything. Again, if somebody really did have an axe to grind, they may have had more reason to participate.
We are comfortable with the results and the sample size. When you look at this size of sample base and how we selected the businesses across the country, you can be confident that you have a reliable representative sample of businesses as they exist in the country.
From listening to the interviews and going out and speaking to business owners on a one-on-one basis and listening to the telephone surveys, I don't think they're intimidated. I don't think they're driven by certain types of things they want. They're saying ``Here's an opportunity for me to express my opinion''. That's what we see in terms of our years of experience in conducting public opinion and marketing research.
The Acting Chairman (Mr. Murray): Thank you.
Mr. Schmidt.
Mr. Schmidt: Thank you, Mr. Chairman. My question centres around the 36% of the small businesses who said they would take loans and the others who apparently said they didn't need them. My question is, is this part of a cycle? In other words, does a business need money every year, or is there roughly a three-year cycle? It's a hypothetical question, because I think that question is outside the parameters of the study.
From the comments that you received, if a business went to a financial institution for money, would it go every year, or once every three years? Is there some kind of connection here that would suggest that this is not necessarily a complete picture of the 64% of the businesses who don't go to financial institutions?
Mr. Lightstone: I won't answer the technical question. Mr. Leckie would be better to say something about the cycles; I'm not in a position to answer that.
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From the surveys we found that at a given point in time over the past year, 36% of all Canadian businesses asked for financing.
It says that at any given point - whether it's a cycle or whether they feel they don't require it at this time - the vast majority of businesses in this country are not approaching a financial institution for financing.
Mr. Schmidt: In the last twelve months.
Mr. Lightstone: That's correct.
Mr. Schmidt: That's all you can conclude from this, though, isn't it?
Mr. Lightstone: That number, yes. Then you may take it a step further and say that in total only 51%, only one in two, say, even rely on a bank or financial institution for some financing. Again, a large percentage of the population of businesses is not approaching a financial institution.
Mr. Schmidt: But this is all limited to the last twelve months.
Mr. Lightstone: For that particular question, yes. We wanted a profile; as you said, a snapshot. We wanted to make sure we were talking to the representative sample of business owners across the country. That's our universe. Within that, a third said that in a given twelve months we went for... It also talks about the benchmarking and the need for longitudinal...
Mr. Schmidt: I think that's precisely the point. One in two in any twelve-month period may not be the same one in two that happens in the next twelve-month period. That's very critical in order to determine the satisfaction and the actual meeting of the financial requirements of a business. I may not need it this year but I may need it next year. If you were to ask me this year whether I had approached a financial institution, I'd say I hadn't. But if you were to ask me next year, you may find out that I had. Had you asked me whether I'd be approaching one next year, I would have said yes.
So I think there's a very critical significance to the question.
Mr. Lightstone: I may agree with you on that in terms of the cycles. One of the reasons we did it this way was that... The key issue here was to measure loan approval versus turndown rate, and we wanted people to talk about it in a relative timeframe where they could definitely give us an accurate answer as opposed to going back in time where their memory may be fuzzy.
Mr. Schmidt: This relates directly to the business plan operation as well. You said there was very little relationship...at least, the study reveals that there is not a strong relationship between a strong business plan and loan approval. Yet I'm sure, Mr. Chairman, that there is a relationship and that in fact when the loan executive or the account executive comes into this, he looks at that very definitely. It does indicate the future, because one of the key factors in here is that repayability of the loan is a number one requirement as far as getting loan approval. So I think those are not unrelated issues.
Mr. Leckie: Ian Murray, I would like to avoid getting into a dialogue, as you are probably aware.
While I chair the CBA committee, there's not exactly a lot of solidarity at the CBA, so I would prefer to answer questions when my colleagues join me this afternoon. I'd only add to what Werner Schmidt says. I think we should look at these studies through the cycle, through a whole economic cycle, to get some true meaning out of them. I couldn't agree more.
The Vice-Chairman (Mr. Valeri): Thanks, Mr. Leckie and Mr. Schmidt.
Mr. Lastewka, please.
Mr. Lastewka (St. Catharines): Thank you, Mr. Chairman.
First of all, I'd like to congratulate the group on the detailed report, looking at banking from all different angles. As I think it was mentioned earlier by Werner, it's a very good base for future comparisons.
I would like to have two questions answered. First, on figure 18, was it a surprise to you that it would be so different from what the SME people said versus what the account managers said? Can you give any reason for the differential?
Mr. Lightstone: Certainly, we see in terms of survey research, when you ask people from a recall... They presented it so that the SMEs talked about what they felt they had presented in the past year. I think it's more a reflection, as far as looking at recall from the small and medium-sized business owner is concerned, versus an account manager...I'm talking about the documents presented - figure 18. The account managers have a shorter timeframe. They've been looking at that past month and they are the ones who have all the documentation in front of them.
This was a new exercise of comparing the opinions of business owners with what happened with the account managers. There are some discrepancies, although there is a lot of consistency as well.
I don't know if it was a surprise. I think the account managers had more concrete information in front of them versus the business owner, who was thinking about it from a recall of what he or she presented when indeed they did present some documentation.
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Mr. Lastewka: I relate that chart to chart 38. This is where we have the account managers working with the SMEs and where they provided information to the SMEs. Was it in writing or was it verbally? It seems to me that when we delve into cases we continue to get differences of opinion as to what really was said and what was not said. Those two charts confirm my past suspicion that the sooner we get to a point in dealing with SMEs... Because they come from various backgrounds and probably have fewer resources than larger businesses, it's so much more important now to define to an SME what additional information or work has to be done to get the loan and why they were turned down, so there's no question of why they were turned down. Chart 13 verifies that.
Mr. Leckie: I might add that it's in our interests to do that.
One of the things I've learned from this study is that when we propose a rework of the application to the client, there's a very high percentage of them - about 80%, isn't it? - that get reworked on a satisfactory basis. It's in our interest as a bank to work with the client to accomplish that. So we're very much interested and have a lot of incentive to improve the communication. We'd like to do the deal.
Mr. Lastewka: It should be in writing and it should be detailed.
Mr. Leckie: We have committed in our business relationship standards to provide it in writing.
I think I'd be the first to admit we should be doing more of it. We should be volunteering to do that, and there's lots of room for improvement there. But we're heading in that direction.
Mr. Lastewka: My next question concerns the study. With all this information, with all this data, I would have hoped that there would have been at least one page that would have said that as a result of all this work this is what we are recommending to be done, one, two, three, on a priority basis. I know you tried to do it in your slides, but from all this data, what are the recommendations you bring forward to take this from a passing mark to a much better mark and go forward? What are your recommendations on a priority basis?
Mr. Lightstone: It was our mandate to report the environment, what's happening, and we've reported that.
I think as to recommendations, the individual banks will respond to that in terms of what their activities are. It's beyond the mandate we have to recommend what they should do.
It was our responsibility to ask, what are the business owners saying? Are they satisfied? Are they not satisfied? Are they getting approved or not? Here is the report card. It was outside of our scope in terms of the mandate to actually then give recommendations of what they should be doing. I'll leave that to Mr. Leckie and his -
Mr. Lastewka: I realize it was outside your scope, but with all this knowledge and interviewing and information you have at your fingertips, I'm sure you as a consultant and one who has done a lot of work on this would want to recommend where you think, first, second, third, the banks should look.
Mr. Lightstone: It's a very tempting challenge.
Certainly the interpretation is there. We talked about the flexibility in any communication. But I think it's important to recognize that here are the grades; here is what's happening; this is what people are pleased with and what they're not. I think then each individual bank may decide on their own on certain recommendations.
So bear with me. To give my opinion in a public forum I think would be unfair.
The Acting Chairman (Mr. Murray): Thank you very much, Mr. Lastewka.
We have time for one more questioner. Ms Skoke, please.
Ms Skoke (Central Nova): Thank you very much for coming. I represent the Atlantic region with respect to this committee and therefore my questions are focused on the Atlantic. You've certainly given me a lot of information to digest in a short time.
I wonder with respect to your study here if you can indicate to me the number of participants from the Atlantic region and if you can break that down for me in relation to our provinces: New Brunswick, Nova Scotia, Newfoundland, and P.E.I.
I'm concerned also about the sectors and industries you've sampled specifically in these provinces in our region, and also with respect to our businesses, the numbers that were small businesses, the numbers that were medium-sized businesses, and those that were incorporated, partnerships, or sole-proprietor, if you can break it down, and also on the basis of the size of the loans for these individual businesses.
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It would be helpful if you could prepare a chart for me to regionalize it. I realize in answer toMr. Schmidt's question you indicated that wasn't the purpose of your study, but I think you will agree it's very important, particularly when you go through the tables you produced for me.
For instance, on page 50, as I read table 13, it shows that Atlantic Canada relies more on outside financing as opposed to bank financing compared with the rest of Canada. I'd like to know why. When we look at table 7, page 48, you indicate 45% use banks and other sources to finance their businesses. I want to know why. I want to know why banks aren't meeting the total financial needs of our small and medium-sized businesses.
We can go through the other tables, but on page 123 I note that Atlantic Canada is more satisfied with the service than the rest of Canada. I have considerable concern about that.
Maybe that will be it for now. Perhaps this afternoon I can get into more detail, if you could answer those questions.
Mr. Lightstone: Let me try to answer some of them. Certainly you have a number of questions.
About the Atlantic, we spoke to 326 companies in the Atlantic region. We didn't have a specific breakdown... It's there in our database, but I don't have it today. I can tell you the actual number in Newfoundland, P.E.I., etc., each of the provinces in Atlantic Canada, but our mandate was Atlantic Canada as one region in total. We would not want to suggest going beneath that, because the bases would be very small, depending on the population of each of those provinces in the Atlantic region or Atlantic Canada. Overall we do have a good base for Atlantic Canada, 326 companies in total.
Throughout the data, all the questions have been tabulated by region. Again, I want to emphasize that we have a very rich database here, which I hope will be used not only by the banks but by the committee for a considerable length of time. All the questions, and indeed many of the charts you have in this report, do look at the responses by individual regions. So automatically you have the Atlantic in terms of SIC by region. You talked about the loan levels. In the database it's there.
Be careful. As I say, when you get down to small bases it starts to get unstable. But every question has been tabulated by Atlantic Canada, so that database is there, and indeed it is possible for a summary to be prepared for Atlantic Canada on all those questions.
You mentioned a couple of points on table 13, page 48, if I understand the -
Ms Skoke: I believe it's table 13, page 50. My conclusion there is that in Atlantic Canada we rely on outside financing more than on using our banks compared with the rest of Canada. I want to know why.
Mr. Lightstone: First of all, what the statistic here is showing is that Atlantic Canada is one of the heavier users of borrowing from banks or financial institutions. They have an above-average utilization. Some 65% of Atlantic Canada businesses borrow from a bank or other financial institution, versus the average of 51%. So Atlantic Canada businesses are above-average users of bank or other financial institution financing.
They are also above-average users of the other sources of financing, whether credit cards, 53% versus 44%; government funding; personal loans... There's no significant difference in personal or family sources, 58% versus 54%. But in the uses of supplier credit, where they say yes, they use their suppliers in essence to finance their business, they are higher. In essence what the data are saying is if we look at Atlantic Canada versus the other regions there's a higher reliance on the use of financing vehicles, if I can use that term, than in other regions.
About why we did not ask why they use each of them, we wanted to know what they were using. I don't have an answer in this survey for why it's higher than anywhere else. I could not give you an answer to that. But certainly Atlantic Canada businesses are more active users.
Ms Skoke: Maybe, Mr. Chairman, that issue, and why, could be addressed specifically this afternoon. I'd appreciate it.
The Vice-Chairman (Mr. Valeri): Thank you, Ms Skoke.
I think we'll have to draw to a close on that note. We've been presented with an awful lot of material this morning. I know we're going to be presented with a lot more again this afternoon.
It's interesting to look back over the last couple of years at the road that's brought us to today. This is a very important milestone in the life of this committee, when one considers all of the talking that's gone on over the last couple of years about having access to this kind of material we're seeing today. So I do want to thank our presenters.
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I'm pleased you will be with us this afternoon, Mr. Lightstone, Mr. Jamieson and Mr. Leckie. It's been very interesting.
This committee now stands adjourned until 3:30 this afternoon.