Flock Free Nation

No nonsense information on small business.

Major Changes Being Proposed to Canadian Small Business Financing Program

Industry Canada is proposing major changes to the CSBFA that would take effect April 1, 2013. The proposal is currently under a 30 day consultation period that began last Saturday.

The main changes to the current program are:

  • The maximum interest rate would increase by 0.75% to prime + 3.75% or the residential mortgage rate + 3.75%
  • Banks would be able to charge higher loan administration fees. These fees are capped under the current program.
  • The personal guarantee provided by the shareholders of a corporation could be 100% of the loan amount. Personal guarantees are limited to 25% of the total loan amount under the current program.

Industry Canada wants to make these changes because the number of loans granted under this program have dropped from 18,000 in 1999–2000 to 7,466 in 2010–2011. Banks complain that the program is difficult to administer and that they don’t make enough money on the loans. These changes are supposed to help change that and get more of these government guaranteed loans in the hands of small business owners.

The increase in the interest rate and fees will cost businesses more when they borrow under this program but that isn’t my main concern. The proposed 100% guarantee will expose the shareholders of a company to full personal liability for the loan amount. I believe that this rule change will reduce the number of entrepreneurs willing to take a chance on starting a business.

The current 25% guarantee ensures that the shareholders have “skin in the game” but that that their losses will be manageable if the business fails. The 100% guarantee would make the losses far less manageable for many people.

I’ve seen many situations where a group of small investors pool their funds and take out a CSBFA loan to start the business. One shareholder runs the business day to day and the others help out when they can because they typically work at regular jobs. Entrepreneurs like this can justify their participation if they can limit their losses to their cash investment in the company and 25% of the loan amount. Increasing this to 100% will prevent many people from starting a business in a scenario like this.

Clarence Campeau Develops New Programs for Métis Women and Youth Entrepreneurs

The Clarence Campeau Development Fund has created the Métis Women’s Equity Program and the Métis Youth Equity Program (18–35 years old).

The Métis Women’s Equity Program

The Métis Women’s Equity Program offers equity assistance of up to 65% of project costs to a maximum of $10,000. Total project costs cannot exceed $25,000, (excluding working capital). The funds can be used to purchase an existing business, start a new business or expand or renovate an existing business.

The funds are repayable over a maximum 5 year term and are interest free. After 24 months of satisfactory repayment the client has the option to repay 75% of the remaining contribution with 25% being forgiven. Security consists of a promissory note, which means that no assets need to be pledged as collateral.

The business must be for profit and have a sound business plan. The applicant must put 5% equity into the business and the business must be 100% owned by a Saskatchewan Métis Woman.

Métis Youth Equity Program

The Métis Youth Equity Program offers equity assistance of up to 65% of project costs to a maximum of $10,000. Total project costs cannot exceed $25,000, (excluding working capital). The funds can be used to purchase an existing business, start a new business or expand or renovate an existing business.

The funds are repayable over a maximum 5 year term and are interest free. After 24 months of satisfactory repayment the client has the option to repay 75% of the remaining contribution with 25% being forgiven. Security consists of a promissory note, which means that no assets need to be pledged as collateral.

The business must be for profit and have a sound business plan. The applicant must put 5% equity into the business and the business must be 100% owned by a Saskatchewan Métis Youth

For more information, contact the Clarence Campeau Development Fund

Canada Working on Startup Visa for Immigrant Entrepreneurs

The Federal Government is going to launch consultations to develop a startup visa to attract entrepreneurs.

It is important to understand what this means in the context of the different types of entrepreneurs. Details on this startup visa are still scarce but it seems that the government will be looking for scalable startup entrepreneurs rather than the more common small business entrepreneurs that are currently accommodated under existing entrepreneurship programs.

Entrepreneurs under this program will likely need to arrange venture capital investment before immigrating. This will mean that it will only apply to entrepreneurs in industries that are capable of exponential growth, such as software.

This effort is part of a competition with other countries for top entrepreneurial talent. The United States has been making efforts towards a startup visa for some time. Currently, it appears that the bill is stalled in the legislative process.

This leaves Canada with an opportunity to gain an edge in the competition for these talented entrepreneurs. Hopefully the consultative process will move quickly and we can put a sensible policy in place to attract these entrepreneurs.

Good Money Impact Venture Challenge

Vancity is sponsoring a competition to help post-secondary and recent post-secondary graduates grow for-profit businesses that have a positive social or environmental impact.

Applicants must submit an 8 page business plan that includes a description of the positive environmental or social impact of the business. Vancity personele will judge the plans based on their merits and up to 10 applicants may be selected to move on to the next phase of the competition. All qualified applicants will get feedback on their business plans, regardless of their ranking by the judges.

The application deadline for submitting a business plan is 12:00 p.m., Friday, March 16, 2012. Finalists will be announced on Monday, March 26, 2012.

Finalists will be invited to pitch their businesses to the contest’s judges. The pitches will take place on Wednesday April 4, 2012.

Winners will be announced on April 25, 2012 at an award ceremony in Vancouver. The prizes are:

  • 1 first prize of $50,000
  • 1 second prize of $25,000
  • 1 third prize of $15,000

This contest is a good opportunity for student entrepreneurs to gain recognition for their companies. The full terms and conditions can be found on the Vancity website.

Saskatoon Entrepreneurship Contest for Prospective Retailers

The Centre shopping mall in Saskatoon is running an entrepreneurship contest for Saskatoon entrepreneurs. The contest is eligible to Saskatoon area residents over the age of 18 who have a business plan and the financial backing to start their business. The winning business must be able to be operated at The Centre.

Prices include 3 months of rent-free retail cart space, a Web Presence Business Starter Plan from BlackSun, and a $500 signage start up among others. The winning entrepreneur will be required to participate in the media campaign surrounding the contest. In many ways, this exposure is probably the most valuable part of winning the competition.

The Centre also has a special entrepreneur contest just for kids. The kids portion of the contest is open to those 17 years of age and younger. Kids need parental consent to enter the contest and may have to submit product samples if asked. The prize for the winner of this competition is a $1,000 RESP.

If you fit the criteria, it’s probably worthwhile to enter the contest. The exposure it brings would be valuable. The deadline for entries is 6pm February 15, 2012. Applications for adults and kids can be found here.

Try Before You Buy

It turns out that we aren’t very good at predicting the future. A sober look at the predictions of economists, political pundits, and sportscasters reveals this lack of foresight.

What is more surprising, is that we do a very poor job of predicting our own futures. It’s difficult to predict how much we will like a certain situation. Part of the reason for this is that we are unable to completely imagine all the details of a certain situation. If you are imagining running your own business, you might be thinking of how much fun it will be to design products or come up with clever marketing campaigns. You might not be imagining setting up an accounting system, filing your taxes, or meeting with your banker. Imagination has a way of filling in some details while leaving others out. The problem is that some of the details that get left out might be very important.

It’s not possible to completely imagine what running your own business will be like. The best way to remedy this is to talk to other business owners who run a similar business to yours. Learn from their experience. They will be able to give you a much more complete picture of what your experience of running that type of business will be like.

If you can find a business owner that is willing, spend a few days job shadowing him or her. Asking questions, while experiencing some of the business’s activities firsthand, will be very valuable.

This might seem like a lot of effort to learn about something you think you already understand. Trust me, your romantic image of business ownership isn’t accurate in all respects. You are about to invest your hard earned money and take substantial financial risks. Do your research first.

Bank of Canada Leaves Interest Rates Unchanged

The Bank of Canada announced today that it is leaving its overnight lending rate at 1%, which is what is has been all year. Governor Mark Carney commented that economic uncertainty had increased in the past few weeks and that the recession in Europe was more pronounced than expected.

Canada’s big bank economists expect the rate to remain at this level throughout most of 2012.

Are You Involved or Are You Committed?

There’s an old analogy that illustrates being involved versus being committed.

A breakfast made of bacon and eggs beautifully illustrates the commitment of the pig vs. the compliance of the chicken. The chicken is involved, but it is the pig that is fully committed.

In a way starting a business is a lot like this. You can be involved. You can make some initial inquires, ask people what they think and dream about starting your business. You want everyone else to do the initial work for you. You have shown an interest that has gotten you involved in the process, but you are not truly committed.

If you were truly committed you would be doing considerable research on your own. You would be making phone calls and investigating start up costs. You would find out what it will take to run the business successfully. You would talk to other business owners in your space to find out what advice they could give you that would increase your chance of being successful. You would talk to potential customers to find if they would be willing to purchase what you have to offer.

You would then complete an effective business plan to make sure that you understand all of the details of starting and running your business. If the prospects for the business were good, you would implement your plan.

You need to ask yourself early on whether starting a business is an idle fantasy or something you are going to roll up your sleeves and do. Are you merely involved or are you committed?

Understanding an Import Letter of Credit

An import letter of credit (import documentary credit) is issued by a bank at the request of an importer. The letter of credit states that the bank will pay a specified sum of money to a beneficiary, normally an exporter, on presentation of particular, specific documents.

If you are importing goods into Canada, you can go to your bank to request an import letter of credit. The bank will evaluate your credit worthiness much like it would for a loan. This is because it is making a promise to pay the exporter of the goods on your behalf. The bank wants to make sure that in the end it can get the money from you. For importers who do not have a long history with the bank or those who have newer businesses that don’t have significant assets, the bank may require collateral in support of the letter of credit. There will be a fee for this letter of credit ranging from 0.5% to 2% of the letter of credit amount.

The letter of credit is a promise from the importer’s Canadian bank to pay the exporter of the goods as long as they are shipped in accordance with specified instructions and conditions. A contract is created between the Canadian bank and the exporter of the goods.

The Canadian bank will sent the letter of credit to the exporter’s bank. The exporter’s bank will then let the exporter know that it is ok to ship the goods. The exporter will draw a draft against the Canadian bank in accordance with the terms of the letter of credit, attach the required documents, and present the draft to his own bank for payment.

The exporter’s bank will send the letter of credit and associated documents to the Canadian bank for payment. If all the terms and conditions in the letter of credit have been complied with (meaning the goods have been delivered) the Canadian bank will pay the exporter’s bank. The Canadian bank will request payment from the importer.

What this series of transactions does is trade the creditworthiness of the importer and the exporter, who may not know or trust one another, for the creditworthiness of their banks. The two banks will presumably know and trust another and have had many other dealings with each other. The importer and exporter each trust their own banks, and the banks trust each other. This makes the transaction much safer than if the importer and exporter dealt with each other directly.

If you are importing significant quantities of product as part of your business, you should speak to your bank about setting up one these letter of credit facilities. One failed transaction could be very costly. Off-setting the risk of this may well be worth the cost of a letter of credit.