Access to capital for high-risk businesses.

• Author: GOULIQUER, DIANNE
• Position: Ontario - Brief Article - Statistical Data Included

Small and medium-sized businesses lacking the collateral required to secure a bank loan are being handed a break by the federal government.

Under, a new loan-loss reserve agreement between FedNor and Northern Ontario credit unions, high-risk businesses in the North will be given access to the capital and consulting services they need to either get a new business off the ground or to expand an existing enterprise.

The funding program, still in its initial stages, is expected to generate up to $15 million in new commercial financing for small businesses in Northern Ontario. FedNor has committed $8 million to the loan-loss reserve fund and will assume a share of the risk associated with the enhanced financing. Marie Desmarais-Santi, a policy and planning officer with FedNor, says the loan loss reserve agreement is FedNor's latest initiative aimed at generating new business in Northern Ontario, and that a similar arrangement has been made with Caisse Populaire, another Northern Ontario banking group.

"Also, FedNor supports 22 not-for-profit organizations across the North called Community Futures Development Corporations," Desmarais-Santi says. "They also have a component which is an investment fund, so they invest in small business. I guess the whole logic behind that is that access to capital is harder for small business in the North than it is (elsewhere). Often banks will decide that a venture is considered too risky because it's in the North, whereas the same venture somewhere else wouldn't be a concern."

By assuming a portion of the risk, FedNor, through the loan-loss reserve, will enable credit unions to provide increased access to higher-risk term loans, capital and equity financing for SMEs (small- and medium-sized enterprise) to finance projects emphasizing business and market expansion and diversification.

SMEs have greater access to loans

The fund will be overseen by two administrators: Northern Lights Credit Union Ltd. in the northwest, in Dryden, and Northridge Savings and Credit Union Ltd. in the northeast, in Sudbury.

"Any other credit union that wants to participate in the program will be required to sign an undertaking which says that they are willing to abide by the agreement that FedNor has signed with the two administrators."

Desmarais-Santi says. "Then they (the credit unions) participate through the administrators."

There are 29 independent credit unions operating 78 branches throughout all regions of Northern Ontario, and...