By Barbara Spector

Savvy families understand that encouraging next-generation entrepreneurship increases the likelihood of the family enterprise continuing into the future. Forward-thinking families go the extra mile to nurture budding family entrepreneurs by providing funding for their ventures.

The Rowntree family of Toronto has established a family financing program to help its rising generation start their own companies. Rowntree Enterprises has transitioned out of its original business—car dealerships—to focus on real estate and private equity investing.

John Neretlis, a married-in, second-generation member of the Rowntree family, serves informally as leader of the family assembly. Neretlis says the Rowntrees began to consider a family financing policy about three years ago. About a year ago, the family ratified its policy, which is now included in the family constitution.

Neretlis says the second generation was dissatisfied with how family financing was handled in the past. There had been no clarity about why loans were approved (or denied), and no clear guidelines governing loan amounts or payment terms, he says. As the third generation started to come of age, Neretlis says, the family decided to take action to ensure transparency. They networked with other families to learn how they handled loans—and how they avoided disputes on the subject—before drafting their own guidelines.

The gist of the Rowntrees' policy, according to Neretlis, is that the company will consider funding "a sound business proposal," but will not finance the purchase of a home or a car. "That's something you can ask your parents about, but that's something you wouldn't come to the company about," Neretlis says. "Everyone knows these are the ground rules for coming in and asking for help."

A Rowntree family member seeking funding must write a business plan and formally present the plan to the family's C-suite executives; experts in the industry the applicant wishes to enter will also be invited to review the plan.

The family will readily offer assistance in preparing the business plan, Neretlis says. "We try and offer some mentoring along the way," he says. "We don't want someone to jump into something if they're not prepared to be successful at it."

Just as would occur with a bank loan, the borrower must meet the family's terms and payment schedules, Neretlis says. But he notes that family members receive support they wouldn't get from a conventional lending institution. The CFO and other executives are available to answer the entrepreneur's questions and share expertise. "They can pick up the phone and ask for advice at any time, and we're happy to give it to them," Neretlis says.

Neretlis's nephew Dan Campagna, 26, is the first third-generation Rowntree to receive funding from the family to help start a business. Campagna began his company, a freight brokerage, in the fall of 2013 as the family was beginning discussions on a financing policy. As a young person with no assets to offer as collateral, Campagna says, he was turned down for a bank loan.

Campagna—the oldest of the family's G3s—wrote a proposal and presented it to the officers of the family enterprise as well as industry advisers. "I just kind of pitched the idea, and it went from there," says Campagna, who studied entrepreneurship at university.

The family enterprise took a 25% stake in his company, Ontario-based Everyday Freight. That gave the family a seat at the table when the new company's policies and strategy were crafted, Neretlis notes. "He didn't have to do what we said, but at least he had the opportunity to discuss it with us," Neretlis says.

In the past year, Everyday Freight has grown from four to about 15 employees, Campagna says. Despite the growth spurt, his company is tiny compared with Rowntree Enterprises' other holdings, he notes. "Yes, the family business is making a bit of money off us, but it's not really anything they would ever invest in if it wasn't a family member," he says.

"The clarity, for everyone, really seems to have paid off," Neretlis says. "Just knowing that there's [a policy] that they can refer to makes it easier for G3. But it also makes it easier for G2 to talk to them about it."

Copyright 2016 by Family Business Magazine. This article may not be posted online or reproduced in any form, including photocopy, without permission from the publisher. For reprint information, contact bwenger@familybusinessmagazine.com.