Access To Capital: Issues For Micro-Entrepreneurs in Halton is a discussion paper of the Halton Social Planning Council that provides information on the issues of access to capital for micro-entrepreneurs. The Halton Social Planning Council’s research and community development work with low income groups has identified unavailable and/or inaccessible micro financing for the poor who are striving to become self-sufficient through self employment.
The purpose of the discussion paper is to consider:
- the types of programs or services that could provide capital to micro-entrepreneurs in Halton,
- best practices which enable access to micro financing options for the poor in other communities, and
- to suggest directions for program development.
Data indicates that the most significant source of new jobs in the 1990s has been the rapid growth of self employment or micro-entrepreneurship. Between 1982 and 1995 the number of self employed Canadians between the ages of 25 and 54 increased by 70%, compared to a 45% increase in paid employment. Job growth in Halton also reflects these patterns. Halton Region has recorded a 141% increase in home-based business for the 1986-1996 period.
The main issue affecting micro-entrepreneurs is access to small amounts of capital necessary to begin a micro-enterprise. Access to capital is particularly difficult for groups with specific needs, which include youth, women, the poor and new Canadians. Anyone with bad or insufficient credit ratings, lack of savings or other forms of collateral, will find business loans are inaccessible.
Types of Programs and Financing Options for Micro-Entrepreneurs
Over the last decade numerous public and private sector services have emerged to assist entrepreneurs to be successful in their self employment and to enable poor or unemployed persons to effectively participate in the new economy. The following provides an overview of the types of programs or services that are available. It is not an all-inclusive inventory.
‘One-Stop’ Resource Centres
Regional or local business centres exist designed to provide ‘one-stop’ shopping to people seeking information on starting a small business. These centres can be sources of information and provide services to assist entrepreneurs.
Federal and Provincial Financial Programs
- Canada Small Business Financing Program – under the Canada Small Business Financing Act, this program can assist a business in obtaining term loans of up to $250,000 to help finance fixed assets. The loans are made directly by approved lenders, such as banks, to businesses.
- Business Development Bank of Canada – is Canada’s bank for small and medium-sized enterprises, delivering financial and management services, with particular focus on emerging and exporting sectors of the economy. One of the Bank’s loan services is the Micro Business Program, which provides training, counselling and financing to support the early growth needs of some of the smallest businesses. Under this program, loans of up to $25,000 are available to new business.
- Industry Canada – Industry Canada’s Community Investment Plan is a seven-year program designed to improve access to risk capital by growth-oriented small and medium enterprises. Twenty-two community-based economic development groups across the country were selected to showcase innovative strategies to facilitate investment in local fast-growth firms.
Ventures Burlington is one of the Community Investment Plan pilot sites. This site focuses on two primary services. The first provides the counselling and preparatory work required to make small businesses ready to attract investment capital. The second assists with the sourcing of venture capital
As well as federal and provincial government financing programs for entrepreneurs, private financing sources are available to individuals starting or operating small businesses. The most common private source of financing for small business is the chartered bank.
Most banks offer services to small business entrepreneurs. Banks can provide a number of financing options, such as short-term loans, long-term mortgage loans, loans against inventory or accounts receivable, lines of credit and credit cards.
Credit Unions play an integral role in their communities by investing in community projects, sponsoring local activities and promoting community development. Credit unions are financial service co-operatives owned and controlled by their members. Over the years, credit unions have taken the lead in developing and introducing innovative financial service products.
Services include business advising and consulting, financial services and various types of loans. Credit unions work in partnership with governments, community organizations and other financial institutions to assist entrepreneurs.
Programs for the Unemployed
- Self Employment Assistance – funded by Human Resources Development Canada provides eligible individuals (applicants must be qualified Employment Insurance claimants) with income support, training and technical assistance to enable them to become self-employed. You may receive financial assistance, support in business planning and ongoing coaching for a period of up to 52 weeks.
- Social Assistance – There are self employment components to both Government of Ontario social assistance programs: Ontario Works and the Ontario Disability Support Program. You may be registered in the program for up to 60 weeks. Under the program, you receive:
- Assistance with the development of a comprehensive business start-up plan
- Support in new business launch
- Training in basic accounting
- Access to program counsellors, computer technology, international and local enterprise networks, mentoring and information about new business trends and systems
- Monitor progress and evaluation
Programs for Women
Women and Rural Economic Development is a federally incorporated, not-for-profit organization dedicated to enhancing the sustainability of rural Ontario communities. Their goal is to promote economic opportunity through equitable local control and ownership by providing programs that enhance business development, life skills and networking. Emphasis is placed on providing access to capital, information and markets and on developing an awareness of rural community economic development.
Programs for Youth
- Business Development Bank of Canada – One of the Bank ‘s products is the Young Entrepreneur Financing Program. This program is aimed at giving start-up entrepreneurs between the ages of 18 and 34 a solid foundation to build a new business. Term financing of up to $25,000 and 50 hours of business management support help to ensure that entrepreneurs with commercially-viable business proposals get their business off the ground.
- My Company – offered by the Government of Ontario in partnership with the Royal Bank. My Company is a new initiative from the Ministry of Economic Development and Trade and is replacing the Young Entrepreneurs Program, which was discontinued in March of 2001. The My Company program combines hands-on business training and the availability of loans of up to $15,000 to help enterprising young people start and run their own business.
- Summer Company – a new initiative from the Ministry of Economic Development and Trade and is replacing the Student Venture Program, which was discontinued in 2001.The Summer Company program provides hands-on business training and mentoring, and awards of up to $3,000, to help enterprising young people start up and run their own summer businesses.
- Canadian Youth Business Foundation – provides loans to young entrepreneurs (aged 18 to 29) that are unemployed or underemployed. The Foundation is sponsored by private sector businesses and was founded in 1996 by the CIBC, the Royal Bank, and the Canadian Youth Foundation. The Foundation provides loans of up to $10,000 to cover the start-up costs of small businesses.
- Self Employment Development Initiatives – currently in the process of implementing two national youth self-sufficiency projects, the the “A” Game and youth.comm. The goal of “A” Game is to broaden the focus on entrepreneurship to using entrepreneurial skills to assist youth in planning for and achieving self-sufficiency. youth.comm is a national initiative made possible through the Business Action Program of the National Crime Prevention Centre, and will involve local youth facilitators, participants from local business and local community bankers.
Initiatives and Best Practices in Other Communities
However, despite the various public and private lending programs, the lack of access to capital still remains the main barrier to micro-entrepreneurs thus perpetuating the cycle of dependency, lost productivity, lost opportunity for economic and social benefits, and increased social costs. Consequently, local communities have begun experimenting with a range of different credit delivery models and community initiatives. The document highlights some of these models and examines the following:
- International micro financing organizations with local initiatives which include the Grammen Foundation, ACCION and Calmeadow
- Community based micro financing initiatives which include revolving loan funds, loan guarantee funds, equity or venture funds
- Government legislated programs which includes the Community Reinvestment Act, United States of America
Conclusion and Recommendations
The results of these programs illustrate clearly that with the appropriate supports and services the poor, working poor and unemployed have the capacity to become self sufficient through self employment. The challenge is to devise a new framework, within the structure of Canadian financial institutions and in keeping with good business practices, which will enable access to micro financing options for poor, working poor, unemployed, and vulnerable Canadians.
In regard to this, research points to several policy options and programs that could be pursued at the Canadian federal and provincial government levels, as well as at the local community level to increase access to capital for micro-entrepreneurs. This discussion paper has recommended several options, they are:
- Enact federal legislation that requires financial institutions to invest in their community.
- Promote strategies to permit social assistance recipients to build savings and assets.
- Establish a multi-sectoral partnership among community, local government, and financial institutions.
Each element is important in a strategy to best support the needs of entrepreneurs, with the key being the linking of public and private resources, strategically organized on a local, provincial and federal level.
Produced by the Community Development Halton
860 Harrington Court
Burlington, Ontario L7N 3N4
(905) 632-1975, (905) 878-0955; Fax: (905) 632-0778; E-mail: firstname.lastname@example.org