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March 27th, 2017

Business Development Bank of Canada

The Business Development Bank of Canada (BDC) has existed with different names and mandates since 1944. In 1995, BDC's mandate was redefined in the Business Development Bank of Canada Act, supporting Canadian entrepreneurs by providing financial, consulting and venture capital services. It reports to the Minister of Innovation, Science and Economic Development in Canada and is managed by an independent board of directors. Between 2001 and 2010, the BDC extended its services to nearly 57,000 clients, while an estimated CAD54.2 billion of direct and indirect value-added economic activity was generated by those BDC clients who received financing in 2010 and contributed to some 687,000 jobs.

The initiative

The DC was first known as the Industrial Development Bank (IDB), created as an arm of the Bank of Canada in 1944. It had a mandate to undertake social policy initiatives and support to small manufacturers that had been contributing to the Second World War effort.[2]

Over time, the Bank has had different names and slight changes in its mission. It was only in 1995 that the Parliament of Canada passed the Business Development Bank of Canada Act, which redefined and updated the Bank's structure and it became the BDC as it stands currently. The Act defined the BDC's mission as follows: "to help create and develop strong Canadian businesses through financing, advisory services and indirect financing, with a focus on small and medium-sized enterprises".[3]

The BDC provides support to businesses through a range of services including financing (loans, venture capital and subordinate financing) and consulting services. "BDC is a small niche player, with 3.4% of the term financing market and approximately 6% of the dollars invested in the venture capital industry. BDC is mandated to act as a complementary financial institution, its financing and investments are meant to fill out or complete services available from commercial financial institutions... [Similarly,] BDC must earn a return on equity at least equal to the Government's (its Shareholder) average long-term cost of capital."[4]

The challenge

SMEs typically have difficulties in access financing and capital markets to boost their investments and operations. Commercial banks' requirements are usually too demanding and not tailored to match SMEs' needs.

For SMEs to be able to fully contribute to the Canadian economy, they need support in financing and advisory services. "Due to the fact that SMEs are seen as higher risk, often requiring smaller loans and more flexible terms than other business borrowers, they experience more difficulty in accessing financing than larger, more established businesses.”[1]

Recognising the contributions of SMEs to Canada's economy, as well as the need for SMEs to have capital to establish themselves and grow, the Government of Canada decided to create an institution that could support SMEs in overcoming these challenges.

The public impact

The BDC has had a positive influence on the entrepreneurship, venture capital (VC) and startup environment in the country. The Bank performed a formal review of its operations in 2010, at which point it was able to identify the following outcomes:

  • "Over the review period (2001 - 2010), the BDC extended service to nearly 57,000 clients. Its client base grew from 20,000 in 2001 to 29,000 in 2010, an increase of 45 percent.
  • "The BDC serves a countercyclical role in the marketplace for SME financing. Its financing activity increases during periods of economic weakness or turbulence, when the private sector tends to restrict its financing.
  • "One study estimates that CAD54.2 billion of direct and indirect value-added economic activity was generated by BDC clients who received financing in 2010. Those clients contributed to some 687,000 jobs.
  • "The BDC's VC clients have nearly CAD900 million in total annual revenue and employ more than 5,700 mostly knowledge workers.
  • "Analysis also suggests that BDC clients display higher survival rates over time. For instance, about 62 percent of BDC startup clients survive at least five years, compared to 51 percent for all startups in Canada"[5]

Stakeholder engagement

The BDC was created by an Act of Parliament and has a single shareholder, the Government of Canada. The bank reports to Canada's minister of innovation, science and economic development.[6] The minister responsible for the BDC must conduct a review of the 1995 Act five years after its creation and every ten years thereafter, in consultation with the minister of finance, and report on the review to the Parliament.[7]

The BDC partners with regional development agencies (RDAs) in order to maintain a close reach into small communities and isolated areas to make sure that local initiatives and conditions are taken into account. "Through its business centres in communities across Canada and its daily interactions with entrepreneurs, BDC has extensive knowledge of the regional realities that entrepreneurs face. To maximise its reach, BDC has invested in dedicated regional resources to foster and manage relationships with regional partners. RDAs and provincial and territorial governments are key partners with which BDC is collaborating to develop solutions to support entrepreneurs."[8]

Political commitment

BDC is a crown corporation, created by parliament and wholly owned by the Government of Canada. It reports to parliament through the minister of innovation, science and economic development.[9] The Bank's strategic objectives are closely aligned with many of the government's priorities, especially regarding the promotion of innovation, exports, collaboration and promising sectors such as clean technology. Therefore, BDC is perceived to be in a favourable position to help the government deliver on these priorities.[10]

To support these efforts, the Canadian government provided BDC with CAD450 million in 2009: CAD100 million for an Operating Line of Credit Guarantee and CAD350 million over three years to help drive VC investment in promising Canadian technology businesses. The then minister of innovation, science and economic development declared: "The health of the Canadian economy depends greatly on the vitality of Canadian businesses, which often need credit to finance their growth... The Operating Line of Credit Guarantee will allow BDC to work with financial institutions to make it easier for Canadian businesses with strong balance sheets and business fundamentals to access the credit they need to get even stronger. The funding for [VC] will assist growth-oriented firms to get the funds they need to innovate and boost the Canadian economy."[11]

Public confidence

BDC conducts an annual survey through an external provider in order to monitor the satisfaction rates of its customers. "The reported client satisfaction rate was between 90 and 93 percent throughout the decade [the 2000s].”[12]

BDC also conducted a recent survey and study assessing the business confidence of entrepreneurs in Canada, with very positive results. "This survey confirms the optimism we're hearing from our business clients every day, says Pierre Cléroux, BDC's Vice President, Research, and Chief Economist. ‘Entrepreneurs are increasingly confident in the economy, with exporters leading the way in terms of investment intentions. Canadian businesses are ready to invest and they have growth on their minds.'”[13]

Clarity of objectives

BDC's mission is to help develop Canadian business through financing, VC and consulting services, with a focus on SMEs, mainly by increasing access to capital and advice for entrepreneurs, promoting innovation, growth and productivity for entrepreneurs, and improving the Canadian entrepreneurial infrastructure.

In its latest corporate plan, BDC has structured its strategy around two objectives:

"1. Catalyse the entrepreneurial ecosystem: With an aging demographic, it is more important than ever for a new generation of Canadians to pursue entrepreneurship and for the ecosystem to have the resources it requires to support economic growth and prosperity.

"2. Support competitiveness of Canadian SMEs: In order for Canadian SMEs to be competitive and contribute to Canada's economic prosperity, they must improve their productivity, incorporate innovation into their business, grow and achieve scale, and be sensitive to global opportunities and threats."[14]

Moreover, to achieve these objectives it has identified the following five strategic action areas:

  • "Entrepreneurship: Increase entrepreneurial intensity in Canada
  • "Partnerships: Work with partners to increase collective impact
  • "Innovation: Support the creation and adoption of innovation
  • "Productivity: Facilitate firm-level efficiency improvements
  • "Growth: Enable clients to achieve full potential."[15]

Strength of evidence

The financial services offered by BDC had been provided by two equivalent entities for 50 years before its creation by statute in the 1995 Act. It started out as the IDB (see The initiative above) and was known as the Federal Business Development Bank at the time of the 1995 Act. "The Federal Business Development Bank established by the Federal Business Development Bank Act is continued as a body corporate under the name 'Business Development Bank of Canada'."[16]

During half a century, therefore, the Canadian government had accumulated evidence about the use of national development finance to support the funding of SMEs. It was also able to draw on the experience of other countries' development banks, such as Germany's Kreditanstalt für Wiederaufbau (KfW), which was created in 1948, four years after Canada's IDB. This experience indicated that through judicious deployment of investment capital, a development bank could have a positive impact on startups and growing businesses in Canada.


BDC's legal feasibility rests on the 1995 Act, which guarantees its legitimacy. The Bank has been operating in one form or another for many decades and has experienced positive returns, demonstrating its economic feasibility. As required by its mandate, BDC has earned a return on equity at least equal to the government's average long-term cost of capital. "It must maintain an ROE at least equal to the government's average long-term cost of capital. To measure its performance, the BDC benchmarks itself against the 10-year moving average returns for Government of Canada 3-year and 5-year bonds."[17]

It was set up and managed by a strong organisational foundation and corporate structure. "BDC's Organisational Foundation includes Risk Management, Complementarity, and Financial Sustainability as ways in which BDC approaches all of its operations."[18]


The BDC follows best-in-class management structure, being led by an independent board of directors responsible for supervising its direction and management.  Its activities are defined in the Mandate of the Board of Directors, and the president and CEO reports to the board. The board's duties include the following:

  • "Approve BDC's strategic direction and Corporate Plan to meet its public policy mandate
  • "Set performance targets and monitor progress
  • "Ensure that BDC is identifying and managing its risks...
  • "Review and approve management's succession plan and evaluate the performance of the president and CEO
  • "Review BDC's internal controls and management information systems
  • "Oversee communications and public disclosure...
  • "Approve financing and investment activities beyond management's authority
  • "Ensure that BDC is meeting the provisions of the BDC Act."[19]

Similarly, various committees assist the board of directors in fulfilling its oversight responsibilities. "The Audit Committee advises the Board of Directors on the financial management of BDC;  the Investment Committee Approves [VC] and equity investments and other activities exceeding the delegation of authority to senior management , as well as other matters related to [VC] and equity investments; the Risk Committee ensures that the bank's key risks are identified and appropriately managed; the Governance/Nominating committee advises the Board of Directors in fulfilling its corporate governance oversight responsibilities; the Human Resources Committee Oversees and advises the Board of Directors on corporate policies and strategies related to human resources."[20]

The management team executes the day-to-day operations and business strategy of the bank. The board delegates to the senior management team the power to manage the business, and thus requires them to provide them with regular, complete and accurate reporting.[21]


The BDC has a set of thorough performance measures with annual targets to track against. These are monitored across each of the Banks strategic actions:

  • "Entrepreneurship: number of loans, % of BDC financed startups that survive 5 years, number of authorisations to new businesses, etc
  • "Partnerships: number of transactions authorised with and from partners (such as syndications, loan referrals, alliances, etc)
  • "Innovation: number of ICT interventions, and VC return of capital
  • "Productivity: number of loans authorised for equipment purchase
  • "Growth:  % of high-growth firms in BDC Subordinate Financing portfolio  (high-growth defined as having annualised sales growth greater than 2% per year over a three-year period)."[22]

Additionally, there is an established procedure for a periodical evaluation of BDC's performance and review of its mandate. Every ten years, the minister of innovation, science and economic development conducts a review of the provisions and operations of the BDC Act. The Bank's mandate was renewed in April 2002 for a period of ten years, and a new legislative review started in 2010.[23] The review is intended to study the provisions and operations of the 1995 Act, to examine how BDC has responded to the needs of SMEs over the evaluation period, and to recommend how it can best address emerging challenges for SMEs over the following decade.


In order to ensure best practice, BDC works with a range of institutions across sectors with compatible goals, i.e., crown corporations, federal and provincial governments, private sector and financial institutions, international organisations, and sector associations:

  • "Crown Corporations - BDC and Export Development Canada share an important relationship, including a two-way referral system that ensures Canadian companies can access the services of the organisation whose competencies best meet their needs, BDC also works with Farm Credit Canada to increase the availability of financing to agribusinesses.
  • "Federal and provincial governments - BDC's partnerships with government departments include: the Department of Foreign Affairs and International Trade to help provide Canadian entrepreneurs with access to foreign networks; to support entrepreneurs in Canada‘s North, BDC works with federal and provincial government partners, including Aboriginal Affairs and Northern Development Canada among others.
  • "Private-sector financial institutions - To reinforce strong working relationships with these sectors, BDC participates in industry forums, committees, etc. This also allows private-sector officials to bring forward concerns and have them discussed at high-level events.
  • "International organisations - BDC has strong relationships with associations and global development banks to share best practices. These include: the Association of Development Financing Institutions in Asia and the Pacific, and ALIDE (Latin American Association of Development Financing Institutions).
  • "Sector associations - BDC gains a greater understanding of SMEs by working with [NGOs], including associations such as the Canadian Manufacturers and Exporters [and] the Conference Board of Canada."[24]

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