Stop us if you’ve heard this before. Surveys show a significant number of the country’s small businesses struggle to obtain funding the desperately need to grow their operations and help the economy. Other data shows billions on the sidelines looking for a place to grow.
Sounds like the United States? Yes it does.
It also sounds like Canada, whose post-recession experience, while not as extreme as the United States, is still following a similar path of locked money and small business left wanting.
Two Canadian entrepreneurs hope to change that by importing a model proven successful in the United States.
InvestNextDoor‘s Borrowing 2.0 is now possible in Canada because of new federal regulations allowing Canadians to invest in small businesses, founders Tabitha Creighton and Lisa Ohman said.
InvestNext Door employs debt securities instead of traditional lending structures while providing the possibility of similar returns available to banks and private equity firms, Ms. Creighton said.
“Small businesses deserve to have access to the same financing options available to their large corporate counterparts. Our platform does just that, using a securities-based lending model that allows business owners to conveniently apply online and use the power of their community relationships.”
The credit gap left behind as Canada’s big banks decrease lending to small businesses is estimated to be at least $3 billion annually and doubled immediately following the recession.
At the same time Canadian consumers are sitting on $75 billion and looking to invest.
InvestNextDoor has developed a patent pending benchmark rating model which aligns to global securities indices. It accesses some of the largest databases of consumer financial obligations in North America. Employing an algorithm which evaluates publicly accessible small business debt securities, InvestNextDoor adds a four-step due diligence process during underwriting allowing them to complete an evaluation, assign a benchmark interest rate, and make a final decision within a day.
Those opportunities are presented to investors to review.
Ontario’s largest credit union likes the model so much it is InvestNextDoor’s first community banking platform. Meridian’s Bill Whyte said this new model allows them to fill a need expressed by their small business clientele.
“Small businesses account for more than 90 per cent of companies in Canada and play a large role in job creation so their success has a major impact on the economy,” the Senior Vice President and Chief of Member Services said. “By working with InvestNextDoor, Meridian is able to support our small business members with access to additional capital, and investors with unique opportunities that support their communities.”
“Our business is evolving both investment models and small business lending, by taking a page from Bay Street and making it applicable and accessible to small businesses,” Ms. Creighton said.
“This solves the issue of access and supply, using technology as an efficient way to transform lending. It’s a win-win-win situation because when businesses prosper, so do investors and the communities.”
InvestNextDoor is registering as an Exempt Market Dealer. Until it does it will focus on education and marketing.