Clearing the hurdles of on-reserve start-ups

When the Cold Lake First Nation created Dechen Corporation in 2006, a forestry company, it had two goals: diversify the band's economy into logging, and use its abundant timber resources to build homes and address the on-reserve housing shortage.

The Cold Lake First Nation a community of 1,200 residents on-reserve, and another 1,150 off-reserve, 300 kilometres northeast of Edmonton has succeeded at encouraging business on reserve. It now boasts 52 companies: nine joint-venture companies where the band owns 51% of the company, 10 companies owned wholly by the band, and 33 private enterprises.

Dechen, a Dene word for wood, took more than a year to incorporate, and another three years to be fully functioning. The company employs about 25 band members full-time, and another 25 during peak seasons, but it had trouble securing $300,000 in start-up financing from traditional banks.

Challenges are bigger on-reserve

Starting a business on a First Nation reserve in Alberta has many of the same challenges as starting a business anywhere else: finding customers, recruiting skilled workers, and securing financing. The size of the challenges, however, is magnified, since reserves are often small and remote, and its members have lower levels of education compared to non-aboriginal Albertans.

"To get a line of credit or loan, they say, 'you're owned by the band, why don't they fund you?'," says Wendy Blackman, the band's economic development director, and Dechen's managing director.

"It wasn't easy as a band-owned company to secure financing. We have a trust company, so we borrowed from the band's trust. It's not traditional financing, and traditional financing is pretty much not possible," Blackman says.

"One of the reasons could be that we don't show a profit," Blackman explains, since any profit is a dividend that goes back to the band to build log homes for the community.

Dechen uses the reserve's lumber to build or renovate homes for its band members. The company also sells lumber products, operates a sawmill, and offers logging and log-hauling services to nearby oil and gas companies.

One log home has already been built and five more are under construction. The homes have not been designated to band members yet, but there are selection guidelines for who will live in them, and a housing authority is supposed to be established. For now, members will live in the homes for free, but the band is contemplating charging rent.

"But it's not something [that is] done. We are not used to it," says Blackman about renting or selling the homes to band members. "Ownership isn't really, in theory, going to happen. You can pay for a home, but you'd never get equity for it."

Financing is a challenge

That's because in most First Nation communities, home ownership is uncommon. Band members often live a traditional, communal way, passing the land and home on to future generations.

"On most reserves, there's no market to sell a home, so you can't use the net worth you've built in your home as collateral for a loan," says Tony Shirt, vice-president of business development for Peace Hills Trust, Canada's largest aboriginal trust company. Peace Hills is owned by the Samson Cree Nation in Hobbema, Alta., about 70 kilometres south of Edmonton.

Even on reserves where homes can be owned, there is a big gap in market values. "The equity you have in a home in Edmonton is not the same as the equity in a home on a reserve, because the markets are so different," says Shirt, who lends more than $1.5million annually to aboriginal businesses in Alberta.

"Another reason start-ups are turned down [for financing] is Section 89 of the Indian Act," which, Shirt explains, prohibits use of reserve land as collateral. A bank is less likely to lend money if it cannot seize assets, such as reserve land, in the case of default.

Section 89 often forces entrepreneurs to "put forward other assets or seek government programs to strengthen their equity position to qualify for a loan," says Shirt.

Other financing options exist, including development banks that will finance what are considered higher risk, on-reserve ventures, but their interest rates can be higher. Most traditional banks are starting to see past Section 89, and assessing the viability of a business based on its merits, its cash flow, and the credit history of the borrower.

A variety of federal and provincial grants also aid on-reserve entrepreneurs, through tax breaks and incentives for lenders.

For example, in December 2008, the federal government announced the Loan Loss Reserve pilot to encourage commercial lenders to give loans to First Nations businesses on-reserve. The program offsets a portion of potential loan losses, according to the government's release, thus "creating an incentive for financial institutions to provide loans to businesses that would otherwise fall below the lender's standard for acceptable risk."

In its announcement, the federal government said such programs are needed to blunt the "impact of one of the principal impediments to First Nation business development, i.e., the Section 89 provision of the Indian Act."

The federal government announced in its 2008 budget that it would develop a "Framework for Aboriginal Economic Development," to replace its outdated 1989 economic development strategy.

The government sought input from interested parties, however, the process has not been well received by the Alberta First Nation Economic Developers Network. The network is a formal group made up of economic development directors from each of Alberta's 45 First Nations that advises Alberta chiefs on economic development policies.

"The Network was extremely disappointed by the planning & preparation leading up to the session and the manner in which the information was shared at the session," says a December 29, 2008 letter from the network to the department of Indian and Northern Affairs, INAC. "The Network members were offended by INAC's apparent disregard for them, illustrated by the absence of any senior INAC officials with which any meaningful dialogue on the important issues at hand could take place."

The new policy was to be released at the end of 2008, but has been delayed.

Skilled workers wanted

At the Blood Tribe in southern Alberta, Canada's largest First Nations band, Rob Crow confirms the challenges facing on-reserve entrepreneurs are larger than off-reserve. He is the band's economic development director, a position funded by INAC to spur economic activity.

'Many have left to work in Fort McMurray our skilled plumbers, electricians and pipefitters.' Carol Wildcat, Montana First Nation regional economic partnership co-ordinator

The biggest challenge he sees is a lack of business skills and training. "Many band members have good ideas, but they haven't planned it out or don't have the skills," says Crow, who regularly runs business-planning workshops for the band's members. He says many would-be entrepreneurs become disillusioned once they realize what is involved.

The Blood Tribe is home to 10,451 people and 141 businesses, according to the band's last count in November 2008. Most are cottage industries such as arts and crafts, Crow says, with the biggest employers being the reserve's gas stations.

On the Montana First Nation in Hobbema, a community of 900 people, skilled workers are leaving the reserve. "Since industry isn't in our backyard, it has been hard to attract businesses here and keep our trained workers," says Carol Wildcat, who travels 20 kilometres each way to get to the band's economic development office in Hobbema.

Wildcat is the band's regional economic partnership co-ordinator, a position funded by the Alberta government as part of a provincial strategy to provide a co-ordinator in every band to encourage economic development.

"Many have left to work in Fort McMurray our skilled plumbers, electricians and pipefitters." Even the local band administrators, she says, make about $20,000 a year less than public servants in the provincial government. "These are band administrators, the ones holding the band's structure together, and it is important work, but they are under-paid in comparison to government workers." Wildcat says it is only a matter of time before they move on to better-paying jobs elsewhere.

Being aboriginal and female still barriers

When Karen Young started KB Jodan, her mobile medic business five years ago, she had $3,000, a van and no business plan. "That's how I started, and I haven't looked back since," she says, smiling. A paramedic by trade, Young now has more than 200 clients in three lines of businesses, generating more than $1 million in annual revenue.

The company operates eight mobile medic units servicing companies on-site, runs a training facility teaching first aid, construction safety, and hazardous-goods safety courses and owns a private medical clinic in Lac La Biche that offers hearing tests, pre-employment medicals, and alcohol and drug testing.

"We want to be a one-stop shop before a person goes out to work in the field get your medical tests and have all your safety certifications in place," she says, noting that she and her husband, Brian, are only two of three certified master trainers in drug and alcohol testing in Canada. "We can train the trainers," she says.

'They think you don't know enough; they are always second-guessing if you could provide the service or not.' Karen Young, owner of KB Jodan

For Young, lack of skills wasn't her biggest challenge. Nor was financing. "I never borrowed money to run the business," she says. "I didn't pay my medical director for 11 months, and we waited for more money to come in before purchasing more equipment," Young says of the cash-flow problems during the first year of business.

"One of my biggest challenges was being aboriginal, [and] being a woman," she says, pausing. "They think you don't know enough; they are always second-guessing if you could provide the service or not." Young had to push herself to overcome that bias. "I had to make sure everything I had done was to par, and show that I could do the job and offer excellent customer service.

"And I still have to continue to prove myself."

Young is a cancer survivor, and some of her nine children still live at home, but she is not slowing down.

"We want to expand, to build our own building for the clinic and the training centre. We are looking for investors," she says, "but I don't know where to start, don't know where to look for investors."

Young employs eight people full-time and as many as 27 during the winter, which is high-season for the mobile medic ambulance service. Her entrepreneurial saavy was acknowledged with the 2008 Aboriginal Woman Entrepreneur Award of Distinction from the Alberta government.

"I've come to learn that hard work and commitment do pay off," Young said during her acceptance speech in Calgary on Feb. 29, 2008.

"I've also learned that if you have the desire to succeed, if you have the determination it takes to conquer your fears and overcome the obstacles that are put in front of you, no matter how big the challenge, you can fulfil your goals and make even your wildest dreams come true."

Certainly words to live by from someone who has cleared the steep hurdles facing aboriginal entrepreneurs.