The pioneering years
BDC has been helping Canadian businesses for 65 years. Inaugurated as the Industrial Development Bank (IDB) on September 30, 1944 as an arm of the Bank of Canada, its main role was to help small manufacturers convert their facilities to peace-time operations, after they had had contributed to the Second World War effort by producing military equipment.
The creation of IDB was part of a series of measures taken by the Federal government in 1944. They included social policy initiatives that led to the creation of family allowances, war service bonuses and veterans benefits, as well as three new acts providing direct support for the economy: the Export Credits Insurance Act, the National Housing Act (to encourage residential construction), and the Industrial Development Bank Act, which created a special institution to meet the specific financing needs of small and medium-sized businesses.
Various task forces concluded that many of these smaller companies, which had not faced much difficulty financing the expansion of their facilities to participate in the war effort, would have real problems financing their conversion to peace-time operations. More importantly, they would be at a disadvantage compared to big business. It was also thought that many soldiers returning from the war would want to start new businesses or re-establish their old businesses but would have difficulty getting term financing from the usual financing sources. At the time, the Bank Act prohibited chartered banks from making loans against mortgage security and the banks showed little interest in getting into the long-term credit sector. During the early years, the majority of IDB loans went to machine shops, chemical plants, sawmills, ceramic plants, textile and garment factories, flour mills, bakeries, auto parts manufacturers and metal-casting companies.
IDB established its main office in Montréal, where all loans applications were processed. As it gained experience during its first decade, regional offices were opened in Toronto, Winnipeg and Vancouver. In 1952, the IDB Act was amended to authorize lending to commercial air services – a change that was to prove crucial to the development of the country's fledgling airline industry. In fact, by the mid-1950s, one out of every 10 planes in Canada was financed by IDB. It was thanks to the IDB that companies such as Eastern Provincial Airlines and Wardair were launched, opening up new regions of the country and raising the quality of air service for Canadians.
When the proposal to create IDB was put forward in 1944, many people thought it was unnecessary. They claimed that existing financial institutions could meet the financing requirements of any enterprise that was the least bit creditworthy. According to these naysayers, IDB would only be used to finance bankruptcies or "lame ducks". Despite these dire predictions, over its 31 years of existence (it would become the Federal Business Development Bank in 1975), IDB authorized some 65,000 loans to 48,000 businesses which it considered unable to find the financing needed with reasonable conditions elsewhere (a requirement under the IDB Act). Far from being potential bankruptcies, over 90% of these businesses were successful and repaid their loans to IDB, in addition to creating jobs for tens of thousands of people.
IDB was one of the first and largest development banks in the world, and gained international recognition as one of the most effective. In the eyes of those who worked there over the years, and of the thousands of business people who benefited from its help, IDB met all expectations. Addressing the House of Commons in 1944, Deputy Minister of Finance W.C. Clark said: "I think you will be proud of this bank's work." Sixty-five years later, this pride is still felt throughout the organization and remains the best barometer of our success.