Finding financing to launch a new venture in this shaky economy is tricky enough. But what are the odds that an aspiring business owner who is struggling with a mental illness or living in a rural area could secure start-up capital?
Increasingly good, it turns out.
Inspired by the community-based, Nobel Peace Prize-winning microloans that Muhammad Yunus started years ago in Bangladesh through Grameen Bank, a growing group of charities and socially driven businesses in Canada are lending to entrepreneurs who might otherwise struggle on the financial fringes of society. Many organizations, in fact, said they were open to meeting with entrepreneurs during an annual Social Finance Forum hosted by MaRS Discovery District in Toronto.
PARO Centre for Women's Enterprise, for one, noted the work it has done with some of Ontario's most marginalized women, including Aboriginals who reside up north. The not-for-profit recently expanded its funding scheme so that women who want to start a small-scale business can take out a loan of $1,000 then pay back $500 and keep the remainder as a grant. They can then return for a $2,000 loan and cut that amount in half by repaying just $1,000.
Then there is Rise Asset Development, which focuses on people who are trying to start their own business but living with a mental illness or addiction. It has provided microfinancing ranging from $500 to $9,000 -- normally at a rate of prime + 0.5 percent, and currently fixed at 3.5 percent, according to its site. And no medical documentation is required as part of the application process; all you have to do is tick off a box. "The main thing about mental health addiction challenges is there's stigma around that," said Sally Wilkie, loan coordinator for Rise Asset Development. "Some haven't been formally diagnosed."
Many Canadians got hit hard during the economic downturn, lost their jobs then watched their credit worthiness spiral into the gutter. Some ventures aim to help those who do not have strong credit anymore -- or any history at all. Access Community Capital Fund specializes in "character-based lending" for businesses that are past the seed stage and already considered a start-up, according to the charity's program manager, Ann Lockhart. Up to $5,000 gets provided for the first loan and $10,000 for the second, but it normally takes four to five weeks to process the initial one. The fine print here reads that the interest rate will run prime + 1.25 percent -- with an additional 5 percent administrative fee that goes toward supporting mentoring programs for entrepreneurs. (The charity offsets the rest of its operating costs through donations and grants).
More money is also starting to flow toward socially minded youth who are looking to run a for-profit, do-good enterprise. RBC, the biggest bank in Canada, says it has committed a pool of $10 million to finance enterprises addressing social and environmental challenges. "Business models are changing, because people's value systems are changing -- and what they are expecting is changing," said Gordon Nixon, president and CEO of RBC. "I'm not so naïve to think our profits and share price won't always be viewed as the most important drivers of success," he added. "We're measured on it every quarter. But we can play a role to support this exciting, growing sector."
Another player in this space is Youth Social Innovation Capital Fund (YSI-CF), which launched earlier this year. It loans $1,000 to $10,000 to entrepreneurs for up to two years while charging 3 percent to 5 percent interest. Its inaugural loan got doled out to Twenty One Toys, a start-up that employs toys in workplace workshops about boosting communication and collaboration. Now, YSI-CF says it is hungry to feed -- and help grow -- many more start-ups: "We are launching a call for young social entrepreneurs," said Jory Cohen, managing director of YSI-CF. "We are ready to make more investments."