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There has to be a better wayLast updated 1 hour ago You can save this article by registering for free here. Or sign-in if you have an account.A banner encouraging people to 'love local' near Belleville City Hall in Belleville, Ont. Photo by POSTMEDIA ARCHIVESI signed my first personal guarantee at the age of 19. I was starting a digital marketing company and needed to secure a lease and a line of credit from a major Canadian bank. Luckily, I owned a small condo. I was 19, but I was “bankable.”Subscribe now to read the latest news in your city and across Canada.Exclusive articles from Barbara Shecter, Joe O'Connor, Gabriel Friedman, and others.Daily content from Financial Times, the world's leading global business publication.Unlimited online access to read articles from Financial Post, National Post and 15 news sites across Canada with one account.National Post ePaper, an electronic replica of the print edition to view on any device, share and comment on.Daily puzzles, including the New York Times Crossword.Subscribe now to read the latest news in your city and across Canada.Exclusive articles from Barbara Shecter, Joe O'Connor, Gabriel Friedman and others.Daily content from Financial Times, the world's leading global business publication.Unlimited online access to read articles from Financial Post, National Post and 15 news sites across Canada with one account.National Post ePaper, an electronic replica of the print edition to view on any device, share and comment on.Daily puzzles, including the New York Times Crossword.Create an account or sign in to continue with your reading experience.Access articles from across Canada with one account.Share your thoughts and join the conversation in the comments.Enjoy additional articles per month.Get email updates from your favourite authors.Create an account or sign in to continue with your reading experience.Access articles from across Canada with one accountShare your thoughts and join the conversation in the commentsEnjoy additional articles per monthGet email updates from your favourite authorsSign In or Create an AccountorSince then, I have personally guaranteed millions in business debt over more than 30 years as a Canadian entrepreneur. The possibility of doing so is a privilege not every founder has. But it also changes how businesses are run and how ambitious they are. When a founder’s house is on the line, decisions that might be good for the company are not always good for the founder.When we discuss Canada’s productivity challenges, we usually focus on taxes, regulation, venture capital or culture. The role of personal guarantees receives remarkably little attention.Get the latest headlines, breaking news and columns.By signing up you consent to receive the above newsletter from Postmedia Network Inc.A welcome email is on its way. If you don't see it, please check your junk folder.The next issue of Top Stories will soon be in your inbox.We encountered an issue signing you up. Please try againIn France, Bpifrance, a state-backed financial institution, operates a guarantee program that reduces founders’ personal exposure from 100 per cent of the loan to roughly 20 per cent, and explicitly protects the primary residence. In 2019, approximately 50,000 French SMEs received a Bpifrance-guaranteed loan.The United States takes a different approach. While personal guarantees are still part of the equation for individuals owning more than 20 per cent of the company, the Small Business Administration broadly backstops lenders, which expands access to credit for founders who would otherwise be turned away.Canada has no true equivalent of either.In 2018, I co-founded Fieldless Farms, an indoor agriculture company in Cornwall, Ont. Growth required both equity and debt financing. To secure the debt, my co-founders and I signed personal guarantees. Without them, the company likely would never have grown beyond an idea.The guarantees were substantial enough that our homes were on the line, and they occasionally created an uncomfortable reality: that my personal financial interests were not always aligned with the growth ambitions of my shareholders.After exiting Fieldless earlier this year, I found myself thinking less about the guarantees I signed and more about the companies that never get started because their founders can’t sign them at all.Our system routinely asks entrepreneurs to risk their homes, savings and financial future before lenders will extend credit. This disproportionately affects first-time founders, young entrepreneurs, new immigrants, minorities and entrepreneurs whose previous venture failed — the exact demographics we need to be active in entrepreneurship. A skilled immigrant may arrive with decades of experience and a promising idea but lack the collateral to qualify. A founder whose first company failed may have gained invaluable experience but lost the balance sheet needed to try again.Right now, we are financing past success, not future potential.The consequences are felt across the economy. Canadian investment in machinery and equipment peaked in 2008 but has since fallen dramatically — while comparable U.S. investment has risen substantially. Many factors contribute to that divergence, but our approach to start-up credit is likely one of them.We badly need a Start-up Credit Guarantee Corporation (SCGC). In place of personal guarantees, start-ups would pay modest premiums into a pooled guarantee fund. Lenders would retain a portion of the risk, while the remaining exposure would be covered through a professionally-managed guarantee pool backed initially by public capitalization but ultimately by pooled premiums.This would not be a grant program or subsidy. It would function much like mortgage insurance or export credit insurance, providing a risk-sharing mechanism to allow capital to flow where it otherwise would not.The French experience suggests the impact would be real. Bpifrance’s own evaluations found that 40 per cent of guaranteed start-up loans went to founders who were unemployed when they launched — the profile least able to pledge collateral. The same research found borrowers went on to post higher revenues, invest more and survive at rates four to eight percentage points above comparable firms without the guarantee.With an initial capitalization of roughly $250 million, a Canadian equivalent could unlock between $1 billion and $2 billion in additional start-up credit each year, and many times that in new equity capital. Most importantly, it would expand the pool of Canadians who can build businesses, create jobs and increase tax revenues.Some argue that a stronger start-up ecosystem is a cultural challenge for Canada. After working with hundreds of Canadian founders and building multiple companies here, I am convinced otherwise. The ambition exists. What is missing is a system that allows more of it to be put to work.At a time when Canada desperately needs more builders, investment and growth, it’s a problem we can no longer ignore.Financial PostJon Lomow, co-founder and former CEO of Fieldless Farms, is managing partner at Catalyze4. Join the Conversation This website uses cookies to personalize your content (including ads), and allows us to analyze our traffic. Read more about cookies here. By continuing to use our site, you agree to our Terms of Use and Privacy Policy.