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| August 2001 |
Vol. 5, No. 6 |
ACCESS TO CAPITAL: ISSUES FOR MICRO-ENTREPRENEURS IN HALTON A
DISCUSSION PAPER
Introduction
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.
Context
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.
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'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.
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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.
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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
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.
- 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.
To obtain a copy of the discussion paper please contact the Halton Social
Planning Council and Volunteer Centre at (905) 632-1975
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:
office@cdhalton.ca
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