MSN Finance

September 15, 2007

Finding money when lenders say 'no'

By Gordon Powers

Microcredit has been attracting a great deal of attention of late, with last year's Nobel Peace Prize going to Dr. Muhammad Yunus, the Bangladeshi economist who pioneered the concept.

The idea is quite simple: in developing countries, a small loan allows the poor to start their own businesses, while exposing lenders to very low risk.

The borrowers use their micro loans, which they pay back with interest, to build small businesses and stimulate their local economies. Loan amounts are often less than the equivalent of $200, but that tiny sum can go a long way in poorer countries.

Not only can microcredit lead to independence for borrowers, but if their businesses thrive, it may increase employment in areas desperate for economic activity and advancement.

Supporting overseas projects

If you want to lend a hand with this type of initiative and get paid for it, have a look at Citizens Bank of Canada's Shared World Term Deposit. Unlike conventional GICs, where you have no say over what happens to your investment, the Citizens Bank product is used exclusively to fund microfinance lending to, say, fair-trade coffee co-operatives throughout the developing world.

Offering competitive interest rates, Vancouver-based Citizens Bank pools the money raised from the sale of the Shared World term deposits and purchases a secure note from the U.S.-based Calvert Foundation, an ethical investing shop that's been helping Americans support developing countries or other local initiatives, including post-Katrina recovery on the Gulf Coast, for about 10 years now.

Working closer to home

While most of the microcredit focus has been on the underdeveloped world, there are also numerous parallel programs available to cash-strapped entrepreneurs here at home.

Ask Nathan Phillips of Ottawa's Nonlinear Engineering. Right out of university, he and partner Cory Chobanik came up with a prototype performance display gauge for motorcycles that they knew was commercially unavailable and much needed.

With the help of a loan from the Canadian Youth Business Foundation (CYBF), the duo was able to hit the trade show circuit where they secured orders for their yet-to-be-manufactured product. They then leveraged these orders to obtain a larger bank loan from the Business Development Bank of Canada to begin full production.

Search hard for funding

No matter how groundbreaking your idea for a new business, you won't get anywhere without funding. Although more flexible than they once were, the major banks are generally more appropriate for more established companies that have been in business for at least two years. What's more, they usually want to see some tangible assets that can be used as collateral – tough to do for boot-strap basement start ups.

That's why micro-credit lenders are worth searching out if you're sitting on the next big thing. Or, maybe you don't have much of a credit history because you're young, are coming out of a divorce, or are newly immigrated to Canada.

Usually, micro-credit operations serve a particular geographic area or community, or a particular group. Much of their working capital comes from soliciting investments from service groups, faith-based groups such as churches or mosques, and local entrepreneurs and professionals. Loans are generally under $25,000 and geared towards those who simply can't secure financing through traditional lenders.

The Ottawa Community Loan Fund, for instance, was formed seven years ago to provide loans of up to $15,000 to start or expand small businesses in and around Ottawa. All its loan capital has been donated by individuals and foundations.

The Fund also provides tuition loans to internationally trained workers so they can get their Canadian accreditation in their profession. In recent years, they've provided loans to teachers, nurses, and biotech workers so they can harness the education and experience immigrants bring to Canada.

These loans can also come with technical support such as business training, mentoring, peer exchanges and networking opportunities in conjunction with their loans.

Where to go for help

There's clearly money out there. Although not exhaustive, here's a sample of where you can go for help.

The Canadian Youth Business Foundation provides loans and mentoring to entrepreneurs aged 18 to 34 who're eligible to work in Canada. It currently offers loans in most major Ontario cities. (416) 408-2923 or 1-800-464-2923.
The Ottawa Community Loan Fund offers loans to individuals and groups with worthwhile business concepts, practical work experience and/or training and a solid business plan. (613) 594-3535.
The ACCESS Riverdale Community Loan Fund, run in partnership with Toronto's Metro Credit Union, provides a series of loans that increase in size as your business grows. (416) 462-0496.
This Atlantic Canada Opportunities Agency program is designed to help you set up, expand or modernize your small business. (902) 426-6743 or 1-800-565-1228.
The Edmonton Community Loan Fund also offers low-cost financing and counseling to small businesses. (780) 944-1558.
The Women's Enterprise Centre of Manitoba, a non-profit group based in Winnipeg, provides access to a loan fund, advisory services, and counseling to existing businesses. (204) 988-1860 or 1-800-203-2343.

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