Micro loans can turn your great idea into a business

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Microfinance programs can provide new business owners with the funds to get started, and they do not select applicants based on their credit rating or collateral.

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Start-up businesses can struggle to get the capital they need to get started. Without a proven track record, many big banks will not give them a chance. But there is another way for startups to get the funding they need.

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Micro-finance programs can provide new business owners with the funds to get started. These programs differ from bank loans in that they are much smaller in value, typically around $ 5,000, and they do not select applicants based on their credit rating or collateral. With micro-loans, lenders are more concerned about the strength of the entrepreneurs’ business idea and whether they have a viable plan. These small loan programs are aimed at low-income people or people with low or no credit rating, which prohibits them from being eligible for a bank loan.

The Alterna Credit and Credit Union Ltée’s microfinance program was only available to residents of the Greater Toronto Area until February, when it extended its program to the Ottawa area. At the same time, Alterna lowered the interest rate to as low as prime + 2% and changed the administration fee to a lump sum payment rather than a percentage. Alterna loans range from $ 1,000 to $ 15,000.

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But funding is not the only thing offered by the program. “He gives [borrowers] an opportunity to learn more about marketing, sales, work-life balance, accounting and bookkeeping, ”said Susan Henry, Director of Corporate Social Responsibility at Alterna Savings .

“We give them other opportunities to develop their business. We also offer them the opportunity to promote their business in our center at 600 Bay St. We have a unit where they can display their products and services.

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In this tumultuous time when the labor market is changing and the global economy is faltering, alternative finance such as microcredit becomes more and more necessary as people show greater interest in starting a business, but lack capital. starting. Monique Durrant relied on Alterna’s micro-fundraising program to help launch Mondu Floral, a floral design company on Queen Street East in Toronto. Like many new entrepreneurs, she first went to banks but was unlucky. She then discovered the Alterna program.

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“It certainly helped me open a point of sale,” Ms. Durrant said. “If I was working from home I could have grown my business that way, but if you want to do something with a point of sale you need the money. It helps put you more in front of the audience.

Alterna’s program is not the only one of its kind. In Victoria, Community Microlending, a non-profit organization, has a different model but the intent is much the same. The money comes from community lenders who have money to spare. These lenders are people who want to see new businesses in their neighborhood and support a strong local economy.

Borrowers have all kinds of business ideas, from stonemasonry to real estate brokerage. But they don’t just throw money at anyone who asks for it. Community Microlending has a loan committee – sort of a mini dragon lair. He interviews aspiring business owners and makes sure they have a solid business plan. Once licensed, the entrepreneur gets a profile on the organization’s website so that lenders can log in and donate money to whomever they choose.

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Community microcredit offers a maximum of $ 5,000 over a period of one to five years at 10% interest, of which 8% goes to the business and 2% to the lenders.

“We are the only organization in Canada to offer peer-to-peer microcredit,” said Lisa Helps, Executive Director of Community Microlending. “In fact, we make it easier for people to lend money to people in the community who need the money. We ask people to invest in each other.

Community Microlending has distributed 15 loans in its first three and a half years of operation, but has big expansion plans. Ms Helps said they plan to make 15 more loans this year. His three-year plan is to expand the program to the entire province and, in five to seven years, to expand the program nationwide. The logistics of how this will happen are still ongoing.

“I think programs like community microcredit are essential in giving people an alternative to looking for a job that doesn’t exist or that pays too low,” said Helps. “This is the way of the future.

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