Ayanna Kirton, Freelance Writer
SEVERAL SMALL business owners say setting up and maintaining your own business in Jamaica remains very challenging because of the lack of straightforward financing options available.
According to many of them, the difficulties associated with accessing loans, such as high levels of bureaucracy and unmanageable loan terms and rates, make borrowing from lending institutions one of the most difficult problems they face.
"Most times applying for a loan is too much of a hassle," says Erica Francis, owner of a small restaurant in Kingston. "The worst part is thinking that you have satisfied all the requirements and then they tell you that your business is not viable so they can't lend you the money. How do they expect it to be viable without sufficient financial assistance?" she says.
Businessman, O.K. Francis, argues that although loans are available to assist business owners, the loan amounts are minimal. "Reasonable, realistic amounts are rarely available to help finance small business ventures," says Mr. Francis.
Rita Clarke, a beauty supply storeowner in St. Andrew, agrees that the lack of financing options available for small entrepreneurs is disappointing.
"The loan facilities available to help fund small businesses have very high interest rates and very short pay back periods. For entrepreneurs in the starting stages, these interest rates mean exorbitant monthly payments in addition to covering the costs of the overheads necessary to run their business," she says. "Many banks offer moratoriums but when all things are considered, three months is hardly sufficient time for most businesses just starting up to pay back a lending institution," she argues.
The fact is, small businesses are generally seen as higher risks to lenders than larger concerns, so capital will usually be harder to get.
"Historically, 90 per cent of small businesses fail in Jamaica," says Deborah Williams, executive director of Micro Enterprise Financing (MEF).
Therefore, before loan approval from MEF and a majority of lenders, Williams suggests that applicants must have a proven track record of success in order to mitigate the risks that the lending agencies may face.
"It's a catch-22 situation," says T-shirt designer, Michael Robinson. "Banks have to cover themselves so that they don't lose out and businesses must meet strict requirements to ensure that they are worthy of assistance but most times it is difficult for small businesses to meet these terms," he notes.
Clovis Jones, a young entrepreneur in the fencing business, says his business was financed entirely out of pocket largely due to another reason his lack of trust of lending institutions.
"There is a stigma attached to financial institutions. There is a fear among aspiring business persons who feel that if they approach a bank with a business plan or idea they are likely to be turned down and their ideas will be stolen by these organisations and implemented," he says "A lack of substantial collateral, the necessary contacts and clout can also work against you making a reasonable loan very hard to come by."
However, he admits that when personal capital runs short, approaching a lending institution can prove beneficial. "Sometimes to balance probabilities you have to take the plunge and risk it all," says Jones, who recently considered a loan application. "On the one hand, someone might steal your idea, on the other, you could be approved for a loan to keep your business going. For me it is a case of do or die."
LIST OF INSTITUTIONS
The following is a list of lending institutions and some of the requirements necessary to obtain a loan to assist in financing your small or micro enterprise.
According to Thelma Young, risk and credit manager at Jamaica National Small Business Loans, "Micro businesses are usually informal and run by single proprietors (who are usually) low income generators, with a smaller asset base; while small businesses are more established, registered businesses."
These institutions are as follows:
MIDA (MICRO INVESTMENT DEVELOPMENT AGENCY)
Micro investment Development agency (MIDA) is described as a wholesaler of loan funds, lending to the Community Development Fund (CDF) network throughout the island.
There are 16 CDF's across the island that lend to individual borrowers at 23 per cent on the reducing balance.
MIDA lends up to $100,000 per person or $400,000 to a group of three co-signers, with an average of 18 months to repay.
Requirements:
Potential borrowers must
Be 18 years and over
Possess a Taxpayer's Registration Number (TRN)
Provide two certified photographs, two character references and business records, which should include: records of sales, financial statements, purchase receipts.
These are presented at the CDF in the area or parish where the credit officer does an interview and the proposed business is discussed. If approved, the application is sent on to MIDA and, subject to approval there, the loan is disbursed.
Repayment begins 30 days after the loan is received. However, grace periods of up to nine months are given to certain business owners, for example farmers, who may not be able to pay back loans due to harvesting schedules.
If the applicant does not possess the required collateral, a guarantor may be appointed to meet all collateral requirements.
According to Brenton McCarthy, general manager for the Portmore CDF, the majority of the businesses funded by MIDA include: cosmetology, dry goods vendors, car washes, agricultural businesses and restaurants.
MICRO ENTERPRISE FINANCING LIMITED (MEF)
Micro Enterprise Financing Limited (MEF), a lending agency set up under the initiative of the Bank of Nova Scotia, the Kingston Restoration Company (KRC) and the Canadian International Development Agency (CIDA), was established to help entrepreneurs like shopkeepers, vendors and hairdressers and to provide lending opportunities for those and other urban small-scale proprietors with no collateral.
The emphasis is on group lending where four or five micro business owners are advised to form a group and apply for a loan collectively. Loans are short-term and start at a minimum of $6,000 to $40,000. Loan amounts increase once borrowers demonstrate that they can pay back loans in a timely manner.
The idea behind group lending is to ensure that payments are made on time. One member is elected treasurer and it is the responsibility of the entire group to make payments each week.
For example, if your group borrows $30,000 this week, every group member is expected to pay $5,000 on the assigned day of the following week.
If the entire amount is not paid back, individual members of the group will be unable to borrow more until it is paid.
Borrowers are required to open a savings account as well as a loan account and funds can be deducted from the savings account if payments are late.
Borrowers from MEF must meet the following requirements:
Be between the ages of 18 and 60
Be willing to form a group of four or five people
Live and or work in the same area as the other members of the group, and must be Jamaican citizens
Own and operate a business for at least six months
Have a valid ID .g. voters ID, passport or driver's licence
Have a Taxpayers Registra-tion Number (TRN)
Provide one passport size photograph, and two character reference letters.
Be willing to open a group saving account at Scotiabank for the purpose of making loan repayments to the MEFL and to facilitate compulsory savings.
In keeping with its focus on the renewal of urban (inner city) communities, MEF currently lends to residents of the following communities: Olympic Gardens and its environs, West and Central Downtown Kingston (for example, Denham Town, Fletcher's Land, Rae Town, Tel Aviv) and Uptown: Kintyre, White Hall, August Town, Papine, Stand Pipe, among others.
The MEF supports the following businesses vending, small trade wholesale/retail trading activities, service-oriented businesses, light manufacturing involving a simple short process, craft.
Loans can be used for working capital, to purchase stock/raw materials for growth, production, inputs, or peak seasons, inventory for retailers, wholesalers, to finance the expansion of existing businesses, diversification of products.
Loan sizes and terms:
One per cent per week interest rate
Loans are provided for 12-40 week periods (first loan is for 12 weeks)
Loans are repaid weekly
You can apply for a maximum of $10,000 for your first loan if the group is made up of four, each member of the group gets $10,000 making the total group loan $40,000
One per cent of loan amount per week, per group member is required for savings and is compulsory.
A late fee will be charged on accounts where loan payments are made after the due date.
JAMAICA NATIONAL SMALL BUSINESS LOANS (JNSBL)
Jamaica National Small Business Loans (JNSBL) is another resource available to help finance small business ventures.
According to Marsha Ximines, administration clerk at JNSBL, in order to qualify for loans, businesses must be in operation for more than a year. The maximum loan amount is $60,000 for first time borrowers. The system is pretty straightforward.
Once you pay off your first loan in a timely manner you are eligible for a second one. As your track record improves you may be eligible for a loan of up to $200,000.
Like MEF, borrowers pay back JNSBL on a weekly basis. Household appliances are used as collateral (that is, goods used as security against a loan and handed over if the loan is not repaid).
Loan officers interview all applicants to find out their income and expenditure levels in an effort to determine their capacity to repay. Loans are repayable within 10 to 40 weeks, depending on the terms set by the JNSBL.
Applicants must provide:
Two written character references, and two passport photographs
Taxpayer Registration Number (TRN),
Valid identification. After approval, applicants are required to open a savings account with as little as $100 at Jamaica National. While an ATM card may be provided for convenient withdrawals, applicants have to make all weekly payments to the nearest Jamaica National branch.
Though not mandatory, the JNSBL encourages business owners to register the business.
CITY OF KINGSTON CO-OP CREDIT UNION (COK)
Small business loan financing is available to members of COK. Members can access up to 10 times the amount of money in their share accounts. Meaning, if someone has savings of $10,000 in their share account they can get up to $100,000 to borrow for their business venture.
Requirements:
Persons applying for loans are required to be members of COK.
Membership is open to any resident of Kingston or members of their families wherever they live.
Membership fee of $502 and valid identification
Collateral: You can use cars, property, and other investments as collateral. If a member does not have collateral, they can use a guarantor's assets.The guarantor does not have to be a member of COK.
Existing businesses must provide:
A business proposal for larger loans, for $500,000 and over.
Financial records over the last 12-24 months.
Projections for next three years.
Start-up businesses must provide:
A business plan.
COK will then examine the feasibility, market and competition, the potential businessperson's experience in the sector, and overall potential for viability.
The disbursement period for loans is usually just five to 10 working days. But if property is being used as collateral it may take longer.
Interest rates range from 20-27.5 per cent and interest is charged on the reducing balance. The interest rate is also determined by the amount of shares you have. Members with more shares get a lower interest rate and COK is open to negotiations.
"The great thing is, a member qualifies for loans immediately on joining the credit union. This is the result of the core philosophies of the credit union which is to encourage thrift and empower people. So credit unions encourage savings, while making loans available at reasonable rates," says COK representative, Klao Bell-Lewis. "Even while repaying loans people are saving because between 10-15 per cent of the loan repayment amount is returned to the members' share account."
SCOTIABANK JAMAICA (BNS)
Scotiabank provides short and medium-term funding to any well-structured legitimate business that can generate positive cash flows to service the loan amount within the agreed terms. According to BNS, depending on the industry, some business ventures carry more risk than others but as long as they can adequately manage the risk, the bank is not averse to providing loans to fund businesses in most industries.
BNS provides two types of loans to assist small businesses operating credit loans and non-revolving or term loans. Operating credit loans help to finance working capital needs, to deal with direct expenses, finance accounts receivable, and inventory growth. Non-revolving or term loans help to finance fixed assets such as machinery and equipment, office furniture, land and buildings.
The requirements include:
A properly registered/structured company, proprietorship, or partnership. For the most part, loans are given to legal entities, i.e. companies and partnerships so that continuity is guaranteed.
Business data, up-to-date financial data, including in-house/ draft/audited financials, projected cash flows, income statement and business plan.
Collateral securities to adequately margin the debt
Documentation indicating your needs and how the debt will be repaid must also be provided.
Operating credit loan interest rates are variable and determined by BNS. Rates are subject to review based on market conditions.
However, in the case of a non-revolving or term loan, interest rates vary depending on whether projects are funded from BNS resources or from outside resources such as the Development Bank of Jamaica (DBJ) or EXIM Bank. DBJ's interest rate is typically fixed and averages 13 per cent, while EXIM Bank is fixed and averages 12 per cent. The BNS Production Fund offers a fixed interest rate of 9.5 per cent and helps to finance special projects to assist with re-engineering, retooling, technology, replanting and resuscitation of crops.
Applicants can obtain a minimum of $7.5 million and maximum of $22.5 million
SELF-START FUND
The Self-Start Fund helps potential and existing entrepreneurs start or expand their business ventures in the following areas: manufacturing, agriculture, services, craft, and trading.
Loans are offered to persons of varying economic or educational backgrounds so whether you are educated at the tertiary level or possess only a school-leaving certificate for completing secondary education, Self-Start Fund can provide assistance as long as you have ideas and initiative.
Self-Start provides three types of loans:
The small business loan. Limit: $1.5 million; maximum period: 36 months
The micro business loan. Limit: $100,000; Maximum period: 24 months
The micro business short-term loan. Limit: $40,000; maximum period: 12 months
Following an interview with Self-Start's operations officers, applicants are required to provide the following documents:
Pro-forma invoices for equipment and raw material to be purchased with loan funds
Recommendations
Rental/lease agreements
Orders/letters of intent
Market information
TRN and valid identification
Character references from reputable personal acquaintances
Collateral. Some of examples of acceptable collateral are: bills of sale on fixed assets purchased with loan funds, assignment of proceeds from sale of goods produced with the help of the loan, third-party guarantee, personal effects, equipment and furniture owned by the borrower, and or a registered title.
Self-Start Fund has a flexible and innovative approach to lending, the organisation says. They target businesses that may start off small but have the potential to grow, and as businesses grow larger sums can be borrowed.
Their objective is to access funds in order to build businesses. They operate a revolving loan fund, meaning once the money borrowed is repaid to them it goes back towards financing other loans.
Names changed to protect identity.
