By John Guise
Tammy Allarie’s Cat Connections was able to stretch its paws in October thanks to the Ottawa Community Loan Fund.
“It’s given me the opportunity to try out some new products so we can give our customers a little bit more variety,” she says.
Allarie’s is one of six businesses that have received loans from the fund. She received $4,200 to help expand her business, which sells cat products and does cat sitting in the west-end of Ottawa.
“They’re very supportive and community oriented,” she says.
The Ottawa Community Loan Fund, started in July 2000, issues funds to people who want to start small businesses and are unable to get loans from large commercial banks, says managing director Brenda Richardson.
“The gap that we’re looking to fill is those individuals who aren’t able to access the sources of financing, and that’s because they don’t have the personal assets to secure the loan or they haven’t established a credit history,” says Richardson.
“Or, there may have been a time in the past when they had a problem with the credit bureau but they’ve since established a track record.”
Chris Michaud, manager of workforce development for the people services department of the City of Ottawa, says the program is an “essential component to the community in Ottawa” because it helps people become self-sufficient.
The development of the fund started in 1999, when reports by the former regional government of Ottawa-Carleton and the Ottawa Economic Development Corporation both recommended a micro-loan fund be established.
The fund receives money from the City of Ottawa, donations, and also has a three-year grant from the Trillium Foundation.
Richardson says the fund has dispersed six loans worth a total of $38,000 since February of 2001. It has approved four loans for which money has not been issued (two loans have conditional approval, whose value is confidential and two were just recently approved).
The average loan so far is $8,000 (this includes the two conditional loans), while the maximum loan the fund offers is $15,000. The loans are usually paid back over a period of two to four years, depending on the type of business, Richardson says.
The fund aims to issue a total of 12 loans by the end of the year, with plans to issue up to 40 loans next year. It has a $100,000 line of credit from the Royal Bank, which it uses to disperse the loans. The fund is currently searching for more financing to use as capital for loans.
The Ottawa Community Loan Fund has issued all loans with a fixed interest rate seven per cent above prime, but once the organization gets more equity to use as capital, Richardson expects the interest rate could go as low as three per cent.
Late last month, the major banks lowered their prime rate to four per cent. There is also a one-time administration fee that varies according to the amount of money borrowed as well as a $10 application fee.
“[The interest rate is] a reflection of two things primarily, one being the cost of our capital – we are borrowing the capital that we in turn lend out, and secondly, these loans tend to be higher risk because they aren’t fully secured,” says Richardson.
The fund is also the Ottawa partner for the Canadian Youth Business Foundation, which offers loans to young entrepreneurs aged 18 to 29
To qualify, candidates must be 18-years-old, and be a permanent resident or citizen of Canada.
They must live and operate a business in the new city of Ottawa and any previous bankruptcy must have been discharged.
The business has to either be starting up or expanding, as the loan cannot be used to pay debt. Most importantly, candidates must show the fund they have a viable business plan and that they are able to pay back the loan.
“I think [the fund is] great for people like me,” says Allarie. “For people starting out that really need some help.”