Advocacy
Response to the Business Development Bank of Canada (BDC) 2022-23 Legislative Review
Jan 10th, 2023
The Business Development Bank of Canada (BDC), a financial crown corporation wholly-owned by the Government of Canada, is Canada’s only bank exclusively focused on providing support to SMEs and entrepreneurs. The BDC provides loans, investments, and advisory services. For several years the Social Enterprise Council of Canada (SECC) and Buy Social Canada have advocated for the specific and intentional inclusion of social enterprises to access BDC services. While not specifically eliminated by legislation, access to BDC loans, investments, patient capital and advisory services is nearly non-existent for non-profit social enterprises.
Their legislative mandate requires periodic public review of their operations and services. The window of consultation is now open until March 31, 2023. This is our opportunity to encourage the BDC, a crown corporation with billions of dollars in assets and B Corporation, to include social enterprises and the social economy into their service umbrella.
Buy Social Canada and SECC have submitted the following letter. We encourage you to send in your own comments, or use our letter, notes, or concepts to add your voice to this effort to move BDC beyond the for-profit-only business models they have supported throughout their history. A social value marketplace is emerging which requires policy and operational support from the BDC.
Submitted to BDC by Social Enterprise Council of Canada (SECC) and Buy Social Canada
Questions
Thank you for the opportunity to participate in the BDC Legislative Review 2022-23. There are two key questions we wish to address in our response to the opportunity to participate in the Business Development Bank of Canada 2022-23 Legislative Review:
- How do you see the current business environment and what do you feel will be the greatest opportunities and challenges for Canadian SMEs that could be seized in the coming decade, whether through the BDC or another mechanism?
- Considering the effects of the COVID-19 pandemic and the changing economic conditions on SME’s how has Canada’s business landscape changed and how can the BDC best position itself to support Canadian businesses in this evolving environment?
Response
Across many stakeholders we recognize the important role that small and medium-sized businesses play in the structure of our society. Within the framework of the Social Enterprise Council of Canada and Buy Social Canada we acknowledge that every business is more than just an economic entity engaged in market transactions. Every market activity, the exchange of goods and services, has an economic, social, cultural, and environmental impact.
There is no invisible hand directing our economy, rather the business choices we make drive the behavior and outcomes of the market. Therefore, why and how we support business finance, capacity, and support becomes so vital to the impact of the market on the whole of society.
Statistics Canada confirms that “Small- and medium-sized businesses are significant contributors to the Canadian economy. For context, in 2021, small businesses made up 98.1% of all employer businesses in Canada. In addition, small businesses employed 10.3 million individuals in Canada – almost two-thirds (63.8%) of the total labour force.”
The last time BDC set forward its priorities and program goals in 2010 it was still Milton Friedman’s ideology in business schools and corporate board rooms influencing the business leadership. The banking situation was in recovery from the 2008 and 2009 mortgage and market crashes. Economic growth of financial profits and share value growth were driving the definition of business priorities and measurements of success. BDC has evolved throughout its history to meet current market and business needs, the current conditions call for another significant step into their presence, and leadership for the future.
Since 2010, BDC’s last review and adjustments the business environment has undergone near revolutionary changes. The business models in Canada are evolving from profits and extraction at any cost to an understanding of the social purpose and sustainability responsibility of businesses.
This shift in the fundamental role of business, from shareholder to stakeholders, requires that BDC create an entirely refreshed investment and lending options, re-design of the advisory services, and adjust their own business practices to achieve its legislative mandate “to fill the gaps in the lending market.”
We believe that BDC must move beyond the profit-only business models they have supported throughout their history. The business environment is changing, a new paradigm is emerging. If BDC is to be relevant in the future, and if BDC will continue to serve the needs of its shareholder, the Canadian government, it must make the adjustment to a market and business environment where social inclusion, economic equity, and justice for all leads its lending, investing, advisory services, and business practices.
The historic realities, pressures, and principles of markets and business are no longer the rule book and guiding principles of the business environment. Since 2010 completely new business trends are emerging with fundamental purpose evolving, new models emerging, and the very role and relationship of business in society is changed. There are four key drivers across Canada that demonstrate the new paradigm of the business environment: social enterprises, co-operatives, BIPOC owned small businesses, and B Corps.
Buy Social Canada defines social enterprises as “businesses that sell goods or services, embed a social, cultural or environmental purpose into the business, and reinvest the majority of profits into their social mission.”
“Social enterprises are businesses with social and sometimes environmental objectives that reinvest profits back into the business. This differs from a traditional business, which distributes its profits to owners and shareholders (Government of British Columbia). As of 2015, there were more than 7,000 confirmed social enterprises across Canada (Elson, Hall, & Wamucii, 2016), which is significantly less than the 1.14 million small businesses in Canada.
“A co-operative is an organization owned by its members that share similar economic, cultural and/or social needs. Each member has the right to vote, giving them democratic power within the organization. Moreover, one of the main goals of a co-operative is to create a business that gives back to the community in which it operates. Co-ops differ from other business models because revenue is determined by a Board of Directors as well as its members. This model can also be adapted to different types of organizations such as non or for profits.
“The co-op business model promotes democracy, equality, equity, and solidarity through the way they operate and live up in their day-to-day to the International Cooperative Alliance (ICA) co-op principles and the co-op values.” (Co-operatives and Mutuals Canada)
Small businesses owned by Indigenous, Black, and other equity deserving groups are not a new phenomenon, but the historic lack of opportunity through systemic racism and colonization is now being recognized in the current business milieu. Social justice, economic inclusion, and equity are societal goals, and extending lending and developmental services to BIPOC owned businesses is not a nice to do, but an essential component to create a healthy, just, and equitable society.
“B Corps are businesses that act in ways that benefit society. What defines them is their belief that the purpose of a company is not just profits, but also social and environmental good.” In fact, BDC itself has been a certified B Corp since 2013, and just renewed in May 2022, which “reaffirms our unwavering commitment to creating greater economic, social, environmental value for Canada and its entrepreneurs.” BDC’s participation in and role as an advocate and leader for the B Corp movement in Canada seems to be an explicit commitment that should flow across and be measured in all aspects of the BDC corporation, including to whom loans, investments and advisory services are offered.
Recently even BlackRock, ‘one of the world’s leading providers of investment, advisory and risk management solutions’ CEO wrote: “Putting your company’s purpose at the foundation of your relationships with your stakeholders is critical to long-term success.”
Reflecting a change in the very purpose of business, moving from the principles of profits and extraction to social purpose and sustainability, means that BDC must change its lending, advisory services, and business practices to meet the new needs of the business sector.
BDC must therefore create new models of patient capital, equity-like investment options, and expand the advisory service to meet the needs of social enterprises, co-operatives and purpose driven small businesses.
BDC must actively engage and support as a lender and advisory service the non-profit and co-operative sector.
BDC must commit to business practices the new principles of purpose, leading social procurement-based relationships in its own supply chain and across the supply chains of all its lending and advisory clients.
Engagement and Support
One major area that BDC must adjust its services to is the social enterprise sector in Canada. Most social enterprises are owned and operated by non-profit or charitable organizations in Canada. BDC’s history of engaging with the non-profit sector has been detrimental to the sector.
“Small businesses and social enterprises contribute significantly to the economy by generating revenue, increasing GDP, creating jobs, and – in the case of some social enterprises – employing people who may otherwise struggle to get hired. Despite this great potential for positive impact, both business types struggle to access financing, support, and opportunities of scale that would increase the chance of sustainability.” (Tina Barton, “Small Business and Social Enterprise: To Thrive Not Fail,” page 34)
Investment and lending models for social enterprises must be a standard offering of the BDC. The traditional model of requiring personal asset equity for loans to non-profits (usually requiring a board member’s house) is unacceptable. Patient capital loans and equity-like investments paid back from revenue are just two simple means to meet the needs of the social enterprise sector.
The ability to grow or scale up one’s social enterprise is just as important as it is for other business types (or perhaps even more so given the motivation to generate social returns).
The BDC business advisory service must include appropriate social enterprise expertise. We would recommend utilizing a network of experienced social enterprise specific consultants to meet the specialized needs of the sector. One existing example is Innoweave’s national network of coaches.
BDC is already a national leader in supporting business succession. BDC should be conscious of community factors and the social succession opportunities through transferring ownership from independent businesses to non-profits, co-operatives, band councils, municipalities, and other collective organizations.
Partnerships with groups like Futurepreneur are nice but that organization doesn’t work with non-profit owned or operated enterprises, which is the common and dominant social enterprise corporate structure.
Involvement with Community Futures, also a valuable channel for BDC, must ensure the Community Futures include evidence of engagement and business development and investment with social enterprise businesses.
Conclusion
We emphasize the need for BDC to move beyond just the profit-only business models they have supported throughout their history. The business environment is changing. A social value marketplace is emerging which requires policy and operational support from the BDC.
If BDC is to be relevant in the future, and if BDC will continue to serve the needs of its shareholder, the Canadian government, then it must make the adjustment to a market and business environment where social inclusion, economic equity, and justice leads its lending, investing, advisory services, and business practices.
Social Enterprise Council of Canada (SECC)
SECC is an alliance of social enterprise leaders who leverage their networks, knowledge, and experience to build a strong and enabling environment for social enterprise.
SECC adopted the following six ‘pillars’ as the foundational components of a supportive ecosystem:
- Expand Market Opportunities
- Promote and Demonstrate the Impact
- Create a Supportive Regulatory Framework
- Enhance Enterprise Skills
- Ensure Access to Capital and Investment
- Animate Networks and Engagement
Buy Social Canada
Buy Social Canada is a social enterprise that believes that procurement is more than an economic transaction, it contributes to community social and economic goals. We see opportunities for social procurement at all levels in the marketplace. Through social procurement advocacy, education, and consulting, we are taking back control from the invisible hand of capitalism. As we create a Social Value Marketplace, we are unleashing the transformative power of the market – to buy and sell with impact.
Share your response
Share your perspective on the BDC 2022-23 Legislative Review by sharing this response and adding your name as a signatory, or making your own version. Responses can be sent to bdcreview-revuebdc@ised-isde.gc.ca, or through this survey format.
