George Brown said out of the 100 loans the OCLF has handed out, only six have defaulted, blowing away the myth that it's risky to make business loans to the poor. (Photo by Etienne Ranger, OBJ)

Amanda Pelicos runs a one-woman hairdressing salon out of her home in Lanark. Rural Roots hair salon is a humble affair, but Ms. Pelicos wants to improve it. "I need to renovate the area to make it more professional, to have a hair washing station for my clients, and I just can't do that for them right now," she explained. Business is good, but it could be better.

That's why she wrote up a business plan and took it to the Ottawa Community Loan Fund (OCLF), a private organization that provides short-term loans of up to $15,000 to individuals and groups with viable business plans, or those undertaking accreditation and training programs. Based on that business plan and Ms. Pelico's character, she is the 100th recipient of a microloan from the OCLF.

"If it wasn't for them, I don't think I would be having my shop done for another two years. This way I will be able to make money and pay them back even faster," she said.

Focusing on the micro credit, OCLF's capital comes from donations and loans from the Ottawa community, business, government and other non-profits, and is reserved for those who are unable to access financing through traditional means.

"We like to talk about people pulling themselves up by their bootstraps, but if we don't make it possible for people, they're not going to be able to do it," said George Brown, president of the OCLF. "There's not a whole lot of alternatives out there (to traditional business loans), contrary to what people think."

Mr. Brown said most banks don't even look at business plans when addressing a loan for less than $100,000, and only focus on credit history. Business owners with less than two years experience and new Canadians are put in an especially difficult spot.

"We're a bit more like venture or risk capital, but not in the traditional sense of course. Also, we will lend working capital for equipment or whatever, so we're a bit more flexible," he said.

The OCLF works in partnership with Alterna Savings, which provides a community microloan co-ordinator to review the business plan, interview the client and write a review, which is then sent to the OCLF. The OCLF's committee then decides on who will receive a loan and Alterna disperses it. The higher risk associated with these loans, where equity and collateral play a lesser role in the decision, is reflected in the interest rate which ranges from prime-plus-three to seven per cent.

Besides businesses, the OCLF also lends to non-profit organizations, co-ops and internationally trained professionals participating in accreditation programs. The results have been extremely positive since the OCLF's inception in 2000.

"We're responsible for over $700,000-worth of investment in 100 loans, and we've had six defaults. So to me that blows away the myth that the poor are a credit risk. They're just as risky as anyone else if you do your homework and look at their business plan," Mr. Brown said.

One example of just what $15,000 can do for an entrepreneur is Noel Tarabocchia's business, X-Scream Video Production. Mr. Tarabocchia had an idea to take green-screen technology and use it in corporate online presentations. "So getting people to walk around on websites and interact with things, it is much more interesting than just watching a presentation," he said.

He was able to secure $15,000 from the OCLF as well as some money from the federal government's Canadian Youth Business Foundation after trying – and failing – to secure a business loan from the banks.

"In the early stages, we did make a connection with the banks, but it was a very lengthy process – they always wanted to see more history for our business and when you're a new company, you don't have a long history," said Mr. Tarabocchia. He said the fact that he had purchased a lot of the company's assets with his own personal credit also worked against him.

"We received our loan in the middle of June, and towards the end of July we had our first client contract and that was a $30,000 contract. Since then we have been building on our technology, and we are about to launch a completely new product division under the company," he said.

It's in the pilot stages right now, but Mr. Tarabocchia said local businesses looking into the new technology are very excited. This product would not be possible without the initial loan from the OCLF.

"If someone has a good plan and a drive to see it through, that extra funding into micro-funding programs could be a big help for someone," he said.

"A lot of the times it is just that small thing that can make a big difference, bridging the gap to get from A to B. And from B, it's a steady climb. I know for us it did."