OTTAWA (Reuters)—Canada's government on Thursday offered up to $1 billion Canadian ($581 million) in extraordinary funding to the country's six private credit insurers to help boost business activity and combat a steep recession.

The government said demand for credit insurance in Canada surpasses capacity as companies that sell goods seek protection against risks such as customers refusing to pay or going bankrupt.

The state-run Export Development Canada, endowed with new powers to combat the credit crisis, said it will step in to fill that gap.

"What we've seen in our discussion with private insurers is that many times clients come to them and look for protection on certain buyers ... and the private insurers are not able to offer the full amount of coverage," said Pierre Gignac, senior vice president of insurance at EDC.

"What we're doing is matching their offering."

Lead players in Canada's credit insurance sector are Coface, a unit of French bank Natixis S.A., and Euler Hermes, a unit of Germany's Allianz S.E.

The other, smaller players are AIG Insurance, Atradius, Execurisk and The Guarantee Co. of North America.

Their clients can use the insurance policies to protect their balance sheets, but can also take the policies to the bank and leverage them, or turn them into cash, Mr. Gignac explained.

"The more insurance that this collaboration can provide, the more that financial institutions can lend against those receivables, and that means greater access to credit for Canadian companies," said Paul Flanagan, chief executive officer of Euler Hermes.

The EDC expects there to be demand for the full $1 billion Canadian on offer. The insurance typically applies to a 90-day contract and so can be rolled over four times a year for a total annual coverage on $4 billion Canadian ($2.33 billion) worth of sales.

There about 30,000 policy holders in Canada.In the Conservative government's latest budget, the EDC was authorized for a two-year period to finance domestic business as well as exporters to help combat the economic downturn.