Bridgehead established a program called "plant a bean," whereby customers buy gift cards in amounts varying between $250 and $1,000. The customer receives the money back in instalments of "Bridgehead dollars" every six months over a three-year period. Customers also receive a 20-per-cent bonus on the value of the card, says Bridgehead managing director Tracey Clark.
"For years we've heard from customers, ‘How do we support you?' ... We felt this was a great way to engage customers and give them that opportunity," says Ms. Clark, adding it was an opportunity to generate buzz around the company's new Little Italy facility.
Along with a coffee shop, the 15,000-square-foot location will house a roastery and a room for staff training and community use.
The roastery will supply coffee to the company's 14 shops across the city when it opens in May, allowing for more frequent shipments and giving Bridgehead more control over its products, Ms. Clark says.
Although the company was able to secure funding before the remodelling of the old brick building, Ms. Clark says "every dollar helps."
Bridgehead is not the only local company to borrow money from customers to fund an expansion.
David Loan, co-owner of ZenKitchen on Somerset Street, says his company explored community financing to help open his restaurant after encountering difficulties in finding lenders interested in investing in a fine dining establishment.
"For independent restaurants, you need to raise that money yourself," he says.
When Mr. Loan decided to open the eatery with partner Caroline Ishii, they received a small bank loan to get started. But the Business Development Bank of Canada subsequently declined their application, saying there was too much risk associated with launching a single restaurant.
"BDC wouldn't even consider our application," he recalls.
To finance the final stage of the project, the duo raised $21,000 in two weeks by selling gift cards. Without the cash infusion, Mr. Loan says, they would have been forced to scale back on their business plan.
For other businesses, commercial loans are too costly. Christopher Smith, owner of Collected Works, an independent bookstore in Hintonburg, says he was concerned about the financial burden of carrying too much debt if interest rates rose.
A program allowing his customers to fund the store's expansion while getting something in return was the cheaper option, he says. An expansion into retail space next door will be done in two stages, the first of which has received one-third of the necessary capital.
"If I am beholden to anybody, it should be my customers," says Mr. Smith.
He said the model reinforces the relationship between the store and the surrounding community. With consumers able to buy books at competing stores and online, Mr. Smith says it is a way to differentiate his business.
Tom Williams, owner of Wellington Street West burger joint Hintonburger, didn't think a bank loan was an option. While moving to a larger location up the street in January, Mr. Williams reached out to the community to build a larger, loyal customer base.
"People that buy gift certificates are more inclined to support your business, show other people, and bring their friends and relatives," he says.
The microfinancing model has its origins in community-supported agriculture, in which customers give money to a farm early in the year in return for a portion of the farmer's products during harvest season, ZenKitchen's Mr. Loan says.
The model provides the necessary capital for a business owner to launch or expand their enterprise while benefiting the customer a short time later. Similar to a traditional investment, lenders have an interest in the company's success, creating a stronger tie between the consumer and business owner.