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A Vancouver bakery called Cupcakes started from an idea that struck Heather White, after visiting Magnolias bakery in New York in the wake of 9/11.

Yanina Manolova

Lori Kliman and Heather White didn't think they'd have any trouble securing the financing to open their second small business. After all, their first - a bakery called Cupcakes that capitalizes on the retro trend for convenient comfort food - was racking up sales at its downtown Vancouver location.

But Ms. Kliman and Ms. White, whose pink and fluffy bakery had been open for a year in 2003 when they went shopping for a loan for the second store, forgot to reckon on the Big Banks' conventional streak. The first two banks they approached - Vancity and HSBC - weren't prepared to take a risk on two women in business for themselves, says Ms. Kliman.

"We would go into numerous banks and they would all ask us about our spouses," says Ms. Kliman. "They all wanted co-signing, income, to know what the fall-back plan was."

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Although both Ms. Kliman and Ms. White did have partners, neither of them was involved in the business - and they wanted to keep it that way.

Cupcakes started from an idea that struck Ms. White, after visiting Magnolias bakery in New York City in the wake of 9/11. At the time, both women were working for an odour control company on the site of the former World Trade Towers. Transported from their grim surroundings by the homey scent of baking cupcakes, Ms. White decided that the mini cakes were the perfect vehicle to launch the small business back home in British Columbia that they had long dreamed of starting - by themselves.

"It was our thing," says Ms. Kliman. "We didn't want the financial risk that we were getting into to have anything to do with our boyfriends."

Initially, she and Ms. White did rely on others to get their start. Without a business plan and with nothing but their initial idea and the market research they did on-line, Ms. Kliman refinanced her condominium and borrowed from her mother, who cashed in $17,000 worth of RRSPs to pay the first and last month's rent on their bakery. Ms. White's parents co-signed a loan for her, and each of the women ponied up $40,000 to purchase equipment and renovate the space for the bakery, for a total of $97,000 to start up.

But somehow, that initial family financing seemed less dependent to her than having their boyfriends co-sign a loan. So they were surprised by Vancity's request for the co-signers.

Larry Smith, director of business banking at Vancity, says that bank was the first financial institution in Canada, in the 1960s, that did not require women's husbands to co-sign loans. Although he would not comment on the specifics of the Cupcakes' case, citing client confidentiality, Mr. Smith says the bank will sometimes ask for spouses or partners to co-sign loans - regardless of the gender of the applicant.

"If we were to ask for that, it simply would be because we were looking for greater support for the loan application," he says.

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But Ms. Kliman and Ms. White felt their track record spoke for itself.

"We had already been operating for a year," says Ms. Kliman. "Most small businesses don't survive the first year. We felt we had earned a little bit more consideration."

In fact, Cupcakes did more than $500,000 in business that first year, and the partners were able to pay back Ms. Kliman's mother (restoring those RRSPs) and make good headway on their other loans. Much of the revenue, however, was pumped back into the business. In addition to salaries for employees, there were the costs of research and development and marketing.

The Cupcakes' owners needed $150,000 to open their second store in Vancouver's Kitsilano neighbourhood. When the second bank they approached - HSBC - asked Ms. Kliman and Ms. White if they were married, and what their spouses did, they walked out.

"It was really, really frustrating," says Ms. Kliman. "Being a woman definitely was an issue there. It's surprising, in today's day."

HSBC does not have any specific policy regarding spousal guarantees for small business loans, says Sharon Wilks, senior manager of public affairs for HSBC in Toronto. Each loan application is assessed on a case-by-case basis, she says. Although she would not talk specifically about the Cupcakes situation, citing client confidentiality, she said in the case of a new business, if the assets are not sufficient to guarantee a loan, "the bank would look for outside assets."

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Despite their initial frustration with loan applications, the Cupcakes co-founders were unwilling to give up their expansion plans. They approached the Business Development Bank of Canada, where Sarah Casquilho, at the BDC's Entrepreneur Centre, didn't ask about their marital status. She had seen Ms. Kliman and Ms. White make a presentation about their business at an entrepreneurial class. Impressed by their concept, she took a look at their track record and the business plan they had now put together. She liked what she saw.

"When we're looking for security for the loan, we just look at the owners," says Ms. Casquilho. "We don't want to take on a co-signer. We look at the owners' personal assets and the viability of the project, and its potential for growth."

Ms. Casquilho, who did provide Cupcakes' owners with their loan, remembers Ms. Kliman and Ms. White telling her about their experience with other banks and their feeling that their status as women entrepreneurs was counting against them. She's not surprised, she says - she has other women clients who have recounted the same experience.

"It happens all the time," says Ms. Casquilho.

She provided the women with their loan, at nine percent interest.

Women entrepreneur's perception that it is harder to secure financing than it is for their male counterparts as been well-documented, in testimony before the Parliamentary Standing Committee on Industry in 2000, and in an Angus Reid Group survey done for Industry Canada that same year. The Canadian Bankers Association said then that none of its members' credit decisions were based on their clients' gender, and that they were working hard to overcome the perception.

However, it's difficult for entrepreneurs in general to get financing, unless they have significant assets to put on the table, points out Christina Anthony, president and co-founder of the Forum for Women Entrepreneurs. Financing also tends to be sector-specific, with debt being the best option for entrepreneurs in the food business, she adds.

"Something that's partly product-based and partly service-based, like Cupcakes, it's hard to get venture capitalists or angel investors," Ms. Anthony says. Many women entrepreneurs also prefer debt to equity financing because they don't want to give up control of their company, she says, praising Ms. Kliman and Ms. White for choosing that option "from the beginning."

Ms. Kliman and Ms. White's persistence, as exemplified by their decision to stick to their principle of independence and to find a lender that respected that is one of the reasons for their success, says Elizabeth Newton. Ms. Newton is a business psychologist who teaches an MBA course in managing changes at the Sauder School of Business at the University of British Columbia. She met the Cupcakes founders when she asked them to speak to her class about their experiences in getting started.

"The thing that really struck me was their singular focus and their determination," she says. She also credits Ms. Kliman and Ms. White with having a measured strategy beneath the chutzpah that carried them forward through their first year of business and guided their sense of timing on when to expand.

One of the problems Ms. Newton sees in many small businesses is an attempt by entrepreneurs to expand too quickly, she says. Although Ms. Kliman and Ms. White were approached within their first few months of business by people encouraging them to franchise the operation, they didn't jump at the opportunity. Instead, they sought advice and decided to wait, solidifying their brand by opening more locations themselves, and running them with the help of trusted employees.

"A lot of entrepreneurs tend to be too impatient," says Ms. Newton. "They sat with it a bit, even though they didn't realize the gains they might have anticipated (by moving more quickly,)" she says.

Today, the Kitsilano Cupcakes store has been open for almost a year. Between the two locations, Cupcakes generated just under $1.2 million in revenue at the end of their last fiscal year (October 2006). They are in the process of opening a third location in North Vancouver's Edgemont Village - this time with the assistance of a private lender. Ms. Kliman believes the Pleasantville atmosphere of Edgemont will suit their brand, of which they retain firm control.

Five years after opening the first Cupcakes location, Ms. Kliman and Ms. White are now ready to pursue franchising - on their own terms.

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