The Business Development Bank of Canada (BDC) and First Nations Bank of Canada (FNBC) are providing $100 million in new financing each year for aspiring Indigenous entrepreneurs, as a wave of retiring small-business owners looks set to flood the market with buying opportunities. 

FNBC will manage the financing—which will be available as loans to Indigenous communities and development banks across the country—and BDC will cover up to 85 per cent of the risk in the event of a default. The loans will cover up to 100 per cent of the price to acquire an existing business. 

The buying opportunity is immense. Over 70 per cent of Canada’s 1.2 million entrepreneurs are set to retire in the next decade, but 91 per cent of them don’t have a succession plan, according to the Canadian Federation of Independent Businesses. That leaves about $2 trillion in assets hanging in the balance. 

“Small businesses, that is the backbone of the country, and it’s an area where a lot of First Nations haven’t been involved historically,” said Bill Lomax, president and CEO of FNBC. “There’s a lot of advantages for First Nations and Indigenous communities coming into this space,” he said. 

Part of the reason for the succession conundrum is Canada’s aging population. Among Indigenous communities, however, this trend is moving in the opposite direction, leaving more young people available to take over businesses from retirees. “It’s a nice matchup, from my perspective,” said Lomax.

In recent years, private equity firms have snapped up businesses from retiring entrepreneurs, often consolidating them into chains in sectors like dentistry and veterinary. Lomax said providing financing for First Nations and other Indigenous groups to buy those businesses instead could be attractive to original owners reluctant to sell their life’s work to a big investor that may strip down their business and resell it a few years later for a profit. 

Financing will be available across the country and in any sector—whether that’s acquiring a plumbing or HVAC business, or a Tim Hortons franchise, for example. Lomax expects transactions to typically be around $5 million, but there’s no official cap. An acquisition target should be an established company with strong earnings and cash flow, he said. Lomax said interest on the loans will depend on a deal’s risk rating, but he expects most rates to be around seven to eight per cent, and likely never above 10 per cent, with the intention of keeping them competitive with market rates.

BDC CEO Isabelle Hudon said the partnership is one piece of the bank’s role in economic reconciliation with Canada’s Indigenous communities. She said when she joined the bank four years ago, BDC was not serving enough Indigenous clients. Part of the problem, said Hudon, was a lack of trust between the federal Crown corporation and Indigenous people and organizations. 

“We need to do better,” said Hudon, adding that BDC’s partnership with the First Nations Bank is a step in the right direction. “We need to find partners that know Indigenous entrepreneurs better and that are credible with Indigenous entrepreneurs.” 

While BDC is taking on risk related to the loans, it’s not contributing capital of its own. The bank does, however, have loans available for Indigenous entrepreneurs and is a lead investor in the National Aboriginal Capital Corporations Association’s $150 million Indigenous Growth Fund. Last year, BDC’s venture capital division announced a separate $100 million for an Indigenous investment fund. Hudon said the bank is finalizing details of the fund and plans to roll it out in the coming months.