Huffington Post |Peter Fragiskatos | Jan 9, 2014

In December, when Kellogg's announced that it would be closing its doors, London's economy was hit with another devastating blow.

The cereal plant, based in London since 1924, will stay open until the end of this year. But by the end of 2014, more than 500 people will have to search for work or live off of a severance package that will probably be small. This follows other recent or impending closures in the city and Ontario more generally.

In February 2012, more than 450 workers found themselves out of work when Electro-Motive Diesel closed. In 2007, the McCormick-Beta Brands candy factory shut down, leaving around 100 employees without a job. And the list goes on. Heinz in Leamington. Ford in Talbotville. Smucker's in Dunnville and Delhi. Lance Canada Ltd. in Cambridge.

There are many reasons for these closures. A high Canadian dollar is one answer. Energy and labour costs, both relatively expensive when compared to other markets such as Mexico, Asia and, increasingly, the southern United States, also provide an explanation. Changing consumer trends are important too: the popularity of yogurt over breakfast cereal has taken a toll on Kellogg's sales and has been cited as a reason behind the London closure.

Toronto Event (Jan 15, 2014):  Rotman - Crowdfunding An Evolution in Canadian Capital Markets?

Toronto Event (Jan 15, 2014) – Panel Discussion on Crowdfunding: An evolution in the Canadian Capital Markets?

Instead, the most constructive way forward is to encourage the kind of economic development that has the best chance of ensuring lasting prosperity. This is where the importance of small business comes in. Not everyone can become an entrepreneur. Even those who choose this path will face difficulties and often fail. Yet, with just a few success stories, a broad impact of economic growth can be felt, one that could help the individuals who lost their jobs because of a mass closure and the communities they belong to.

Although estimates vary, according to Industry Canada, close to eight-million Canadians work for a small business, defined as a business that employs 100 people or less. All together, this represents 70 per cent of our country's total private labour force. In contrast, only 10 per cent work for large companies such as Kellogg's and others like it, which employ more than 500 people. On top of this, collectively, small businesses contribute just over 30 per cent to the GDP.

If small businesses are so essential to our economy, then encouraging their growth is an obvious answer to the economic malaise that some southwestern Ontario cities -- London and Windsor are good examples -- are going through.

The challenge, however, is that starting or expanding a small business can be very difficult. Approaching the bank for a loan is not always an option because banks require collateral in the form of a home, cash savings, stocks or bonds, GICs, etc. When such means are not available -- and for many Canadians, especially young people, they are not -- funding sources dry up in a hurry.

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Taking the company public via the stock market, for example, is not a realistic option because this is so expensive and time consuming. Offering potential investors the chance to buy shares is also difficult and the rules vary from province to province. In Ontario, only wealthy individuals, such as "accredited investors" (those with an annual income of at least 200,000 dollars and one million in liquid assets on hand) can gain an ownership stake. The same is true in other provinces, although exceptions exist. In Quebec and the Western provinces, for instance, family and friends can invest and be given equity in return, even if they are not wealthy.

One possible answer to this problem is crowdfunding. In general, crowdfunding is used to fund various projects including disaster relief, charity projects, film and music production and scientific research. Small businesses have also had the opportunity to take advantage of crowdfunding, but in limited ways.

Related Link:
Creating jobs in finance through crowdfunding

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