I didn't get the loan (and another one after that)

by Derrick - October 7, 2012

In the last post I discussed efforts to get a $50,000 loan to build my dream product, Mindfolder.

Earlier this summer I received an answer: that the loan was turned down. If you are one of my 'early adopters' then I already filled you in on that.

Well, to put it simply: that particular loan program was actually more contest than a real loan application. It's called the Spin Master Innovation Fund; a program available to any entrepreneurs aged 18 - 39 here in Canada.

Spin Master Innovation Fund

The program runs once per year and awards $50k on startup-friendly terms: no loan repayments due until year 2, with the principal paid down over the next 4 years at a low rate of interest.

The kicker is that there are only 10 of these startup loans awarded. And since it's a national program there could be several hundreds, perhaps a thousand+ applications to the program. As much as it would have been cool, the odds were low enough that I wasn't getting my hopes up.

But here was the thing: if you were not accepted to the "Spin Master Fund" you could simply convert your application to a different, very similar program that runs year round. This particular one is called the CYBF Startup Program and gets you financing for up to $45,000 with the exact same terms as the Spin Master Fund. So it was a no-brainer to move ahead that application as well.

And honestly, any tech startup - especially those in Canada - should be considering this type of loan before raising angel investment or pursuing venture capital. Why rush to give up ownership in your company when you can get a low interest loan with a 1 year runway?

Indeed, this has been my financing strategy since day one. First pursue debt on favorable terms, then if necessary: other types of non-equity fundraising efforts, and finally - private equity investors - but only as an absolute last resort. And by bootstrapping product dev & building relationships with your market throughout the entire process - there might just be a sustainable business by the end of it. Regardless of whether financing efforts were successful or not.

Needless to say, I converted my application for this second loan. And while the program offered up to $45,000 - this time I would be applying for just $36,000. Based on the recommendation of the representative assigned to help me in submitting the application; 'the mentor'. She had indicated to me that with my credit rating a $36k loan was more likely to be approved. A little less than what I had originally planned for - but still a serious amount of cash to work with for building Mindfolder v1.

This time around, I would also update my business plan - a component of the application - with a few tweaks and some of the awesome data gathered from the survey I ran in my last post. The mentor assigned to my account was honestly blown away by Mindfolders' early traction - which included 21,000 visitors on day 1 of the blog, over 300 engaged survey respondents, and concept screenshots of the product itself.

Anyway - things were sounding really good and the mentor was happy to move this thing forward. She said there was just one more step and then the $36k check could be wrote sometime in October. I had a lot of confidence that everything was a go. She commended me for the work I did improving the application and handed it on to the next stage.

The next day, one of her colleagues called me to get some more information. It was my social insurance number they wanted. Apparently, the original credit check they did on me - the one done as part of the Spin Master application - had expired and they needed to run another oneā€¦

Then later that day, I got a call back from my mentor. "Nice to hear from you," I said. "Well, I don't know if it is nice to hear from me today Derrick - what happened to your credit score?"

Sure enough, my credit had since fallen below their lending threshold and my application would not be able to move forward. By a margin of 34 credit points.

She suggested I fix the issues on my credit report, subscribe to monitor my score and re-apply when it's back up.

So that's where I'm at with 'financing my dream'. Annoyed but not flustered, I am still focusing on Mindfolder every day (albeit its a small fraction of my day given I need to take on other work to pay bills). And will perhaps re-apply for a loan in the future. Though credit scores are notoriously slow in updating - so I'm not counting on that in the short-term.

Rest assured, throughout all of this 'hoop jumping' - there has been significant progress on an actual working prototype. My talented friend Steven from California has been leading development - and has some really cool things working already. An interactive UI, a folder tree hierarchy, and a number of other things we want to introduce in the first version.

Spin Master Innovation Fund

Above: screenshot of the latest Mindfolder prototype (Windows). Click for full resolution.

So I'm happy to conclude these financing related ramblings and get on with sharing product progress in the posts to follow.

If you'd like to stay in the loop, follow @Mindfolder on Twitter.
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