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Capital fund good news for small businesses

A new government-backed capital fund is a good opportunity for underserved small and medium-sized businesses to get access to expertise as well as cash, says Toronto corporate and commercial lawyer Marlin Horst.

A number of financial institutions, including the country’s biggest banks, have teamed up to create the Canadian Business Growth Fund, which aims to make available up to $500 million over the next year to help smaller companies grow. If it takes off, the fund will double in size over the following nine years.

The fund’s sponsors have also promised to provide advice and mentorship to businesses so that they can reach their potential.  

Horst, a partner in the Toronto office of Shibley Righton LLP, says a large swath of early stage Canadian businesses are caught in the gap between angel investment funding — unavailable to all but a select few — and the public markets, which tend to be a viable option only for larger, more established companies.  

“Angel investors see a company with a great idea, but they don’t just hand over the funds. They come in and partner with founders to try to make it a success for both of them,” Horst tells AdvocateDaily.com. “It looks like this program is going to do more than just provide loans. They will actually help companies develop business plans to get the most out of their ideas. Not everyone has access to that type of advice right now.

“Typically angel investors tend to be successful business people who have exited from their own enterprise. Normally this type of investment doesn’t come from big institutions, so it will be interesting to see how it works,” Horst adds.

RBC CEO David McKay told the Canadian Press it's a big challenge for small businesses to get their hands on cash for growth to fund new hires, equipment purchases or business acquisitions. 

“We do have a very strong and vibrant investment community ... but it's sub-scale and it's fragmented,” McKay said. “So we do have a challenge raising capital for growth in our economy.”

The fund plans to take a minority stake in the businesses selected for the program. According to the federal Department of Finance, which supported its foundation, the typical investment level for each company is expected to range between $3 million and $20 million.

"The Government of Canada welcomes the announcement by Canada's leading financial institutions to establish a business growth fund that will help ambitious Canadian companies get the capital they need to grow and succeed globally. This will help them create good, well-paying middle class jobs, and will grow Canada's economy over the long term,” federal Finance Minister Bill Morneau said in a statement.

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