The Purdy Crawford Chair in Aboriginal Business Studies

Case Studies in Aboriginal Business

Developmental Financing for Aboriginal Businesses
Marcia Nickerson

SYNOPSIS

Court decisions over resource and revenue sharing continue to benefit Aboriginal communities across Canada and, as opportunities emerge, Aboriginal businesses are growing much more quickly than in mainstream Canada. Consequently there is an increasing demand for access to capital and innovative financing to enable the start-up and growth of such businesses. Most Aboriginal businesses are small and medium-sized enterprises (SMEs) and are often the primary engines of economic growth for many Aboriginal communities. They represent a significant opportunity to address many of the existing socio-economic challenges by reducing unemployment and creating wealth.

However, many Aboriginal SMEs face significant challenges in accessing commercial loan capital for a number of reasons. For example, in the eyes of mainstream financial institutions, most SMEs represent relatively higher transaction costs and are perceived as higher risk due to their smaller size and limited management capacities. These factors are often accentuated by a relative lack of equity capital, over-reliance on debt financing, less familiarity with commercially-oriented debt management practices, and a greater proportion of early stage businesses. In the First Nations context, on-reserve businesses present further challenges related to both Section 89 of the Indian Act (such as differing commercial cultures and fewer incorporated businesses due to taxfree status), and their often remote locations which limit market opportunities.

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