The federal government is urging the Business Development Bank of Canada (BDC)—the Crown corporation responsible for filling gaps in Canada’s small-business financing landscape—to take more risks on entrepreneurs from underserved communities. 

A year-long review led by Innovation, Science and Economic Development (ISED) found that BDC ​​“should review its risk appetite to better support equity-deserving groups, underserved regions and sectors, and newer businesses.” 

That recommendation was one of several resulting from consultations with over 200 founders, investors, business associations and financial-service providers since November 2022. 

In an interview with The Logic Thursday, BDC president and CEO Isabelle Hudon said that while the bank tends to take more chances on entrepreneurs than other lenders and investors, she agreed that it can afford to take more risks. “It’s not only about taking more risks, but probably taking different risks, and risks that are not being taken by other financial institutions,” she said. 

Hudon said that recommendation and others in the legislative review are similar to findings from an internal strategic review that BDC commissioned when Hudon took the helm in 2021.

“I would have been very shocked if the conclusions were totally different,” she said. “On the reverse, they’re totally aligned.” 

The legislative review examined BDC’s operations from 2010 to 2022, a period in which BDC’s footprint in Canada’s entrepreneurial landscape has grown significantly. The bank—which lends money to small-business owners across Canada and invests in startups through its venture capital arm—increased its assets under management from $17.7 billion in 2010 to about $41.6 billion in 2022, according to the review. It now serves 95,000 clients, more than triple the 2010 number. And with over $4 billion in assets under management, BDC is the largest venture capital investor in Canada.

BDC has seen its equity soar from $3.6 billion to $20.5 billion, while paying the federal government—its sole shareholder—$1.3 billion in dividends over the period the review covered. 

The Crown corporation has a dual mandate to generate profits for the government and to fill lending and investing gaps for entrepreneurs whom traditional financiers may deem too risky. Achieving both those goals—which can seem at odds—is a balancing act. 

Along with taking more risks, the government recommended BDC increase its presence outside Ontario and Quebec, which Hudon said represent about 60 per cent of its business. One approach, the report suggested, is to forge regional partnerships in places like the Prairies and Atlantic Canada. 

Hudon agreed there are opportunities for BDC to increase its work in those parts of the country. Part of it is a marketing issue, she said, acknowledging that BDC’s brand isn’t as established in the Prairies or coasts. Hudon said the bank could expand its reach beyond central Canada by partnering with local financial providers, like credit unions and banks, as well as organizations that represent underserved groups, like Indigenous entrepreneurs.

In doing so, however, BDC has to be careful not to overstep its mandate, which requires it to “complement” other financial institutions, not compete with them. “We have to recognize that in those regions, there are some very active financial institutions that are supporting entrepreneurs,” Hudon said, “and that probably makes BDC not a financial institution that is top-of-mind for entrepreneurs.” 

She cited Farm Credit Canada as an active lender in the Prairies’ agriculture sector, which represents a large share of entrepreneurs in the region. “BDC is probably not as present as we should [be], she said, “but let’s not forget that there’s another Crown corporation that is highly active in those three provinces.” 

Hudon said BDC could partner more with banks in general, for example by guaranteeing loans that let them take on more risk and serve more clients. 

BDC began addressing many of the recommendations also found in ISED’s report 18 months ago, Hudon said, after its own strategic review. Some of those changes directly address the question of risk-taking. Hudon said the bank set out to better serve underrepresented entrepreneurs, citing the $500-million fund for women-led businesses it launched in 2022. She said BDC is also ramping up “patient capital” in high-growth companies, as well as funding for cleantech endeavors. 

BDC’s responsibility to fill gaps in the market means it tends to be more active when other investors and financial institutions are quiet, the legislative review noted. Hudon said that could mean a busy 2024 for the Crown corporation. 

“If we were to go into a real, severe recession, it would create more business for BDC,” she said. “More clients would come to BDC to get the financial support that usually they would get from the financial institutions.” Hudon said in the current downturn BDC hasn’t yet seen more demand from entrepreneurs who can’t get bank financing, but if need be, she said, “we’ll be ready to step in and play a greater role.”