The Small Businesses Loans Act was designed to increase the flow of funds for capital purposes from the banking system to small firms in the Canadian economy. This study examines the need for this legislation. The major sources of funds for small business are discussed and the question of the adequacy of these financing facilities is considered. This part of the study concludes that the 'MacMillan Gap' in Canada has been narrowed in the post-war period, but not yet closed. The study then examines the effectiveness of the Small Businesses Loans Act in bridging the remaining gap. The legislation, and the record of borrowing under the Act are reviewed. Particular attention is directed to the effects of monetary policy on the volume of lending under this Act. The study also includes an examination of the experience of a sample of borrowers, their characteristics, the purposes for which loans were obtained and banking practices with respect to this lending program. The conclusions of the study suggest that the Small Businesses Loans Act has fulfilled a useful role in improving the financial facilities available to small business despite a number of deficiencies in the legislation. It is also suggested however that the need for this legislation has largely been removed by recent amendments to the Bank Act. / Business, Sauder School of / Graduate