Feds, big banks announce fund of up to $1 billion for small, medium businesses
Canada's Finance Minister Bill Morneau receives a standing ovation while announcing the date of the federal budget during Question Period in the House of Commons on Parliament Hill in Ottawa, Ontario, Canada, March 7, 2017. REUTERS/Chris Wattie
TORONTO — Canada's biggest banks and other financial institutions have launched a fund of up to $1 billion over 10 years to help small- and medium-sized companies access capital to grow their businesses.
The fund, which will be financed by the private sector and aims to fill the gap between angel investors and the public markets, will initially start at $500 million for the first year.
If demand from the businesses is strong and the fund's performance is good, it could be increased to a total of $1 billion over the next nine years.
RBC's CEO David McKay said small businesses face challenges accessing the cash they need to expand their operations — for example to hire new staff, purchase new equipment or facilities, or acquire another company.
"We do have a very strong and vibrant investment community ... but it's sub-scale and it's fragmented," McKay said. "So we do have a challenge raising capital for growth in our economy."
The financial sector has been meeting for about a year to try to solve this problem, he said, and the investment fund is the solution they devised.
The fund will be set up as a for-profit, independent entity governed by a board of directors who will determine which companies to invest in. It will only be acquiring a minority stake in the businesses it invests in, allowing the firms to retain control of their operations.
In addition to providing cash, the business growth fund will also help companies seek mentorship and advice to help them flourish.
Initial contributors include the country's six biggest banks — the Bank of Montreal, Royal Bank, TD Bank, CIBC, Scotiabank and National Bank.
Insurance companies Manulife, Sun Life and Great-West Life are also contributing to the fund, as are a number of other financial institutions including HSBC Bank Canada, ATB Financial, Laurentian Bank and Canadian Western Bank. A number of other companies are considering coming onboard.
The announcement follows a recommendation issued last month by a federal panel advising Finance Minister Bill Morneau on economic growth.
A report by the federal Advisory Council on Economic Growth recommended the government encourage the financial sector to create a business growth fund of $1 billion to provide so-called "patient capital" to high-growth companies that want to expand.
The council noted that it was particularly enthusiastic about the initiative because it doesn't place any additional burden on taxpayers.
Morneau said the initiative highlights the critically important role that the private sector plays in stimulating innovation and economic growth.
"This effort of the banks and other institutions to come together is one that we've been pleased to be involved with, of course, but it's really been a bank-, insurance company- and fund-led initiative, to seek a way to provide capital, patient capital, that will make an important, long-term difference for our company," Morneau said during a news conference held in Toronto on Thursday.