By K. C. Soares, Contributor 
Soares
YOU HAVE now formed your company, made a listing of all the expenses (including the purchase of machinery and equipment) and you are now ready to purchase the necessary start-up assets. However, on checking on the amount of savings (or redundancy money received) you may find that you are short and therefore in need of additional funds.
To acquire these funds the obvious place to go is an institution that lends money. Apart from the commercial banks there are many financial institutions both private and government, that on paper should be able to assist.
These institutions include Micro Investment Agency (MIDA), the Self Start Fund (SSF), the National Development Foundation of Jamaica (NDFJ), National Investment Bank of Jamaica (NIBJ), the National Export-Import Bank of Jamaica (Ex-Im Bank), the People's Co-operative Banks (P.C. Banks) and the Development Bank of Jamaica (DBJ).
On paper, this looks like an impressive list from which to choose. However don't be fooled as apart from the DBJ, they are all in need of massive re-structuring in order to provide financial and technical resources efficiently on a timely basis.
Your best bet at this time in accessing the necessary funds is the DBJ. However, the DBJ does not encourage direct lending and funds will have to be accessed through what is termed an Affiliated Financial Institution (AFI). The AFI is usually a commercial bank, but may be a merchant bank or any other financial institution approved by the DBJ. The AFI usually require blue chip collateral and this is not always available from someone just starting a small business.
The interest rate is another consideration in choosing the DBJ as loans are granted at a rate of 13 per cent locked in for the duration of the loan. This simply means that the rate will not change for the entire life of the loan.
You should be warned however, that the AFI may try to discourage you accessing DBJ funds as they consider such loans less than attractive, as their spread on this type of loan is only 3 per cent.
If collateral is limited you may then be forced to consider one of the other institutions mentioned above as their guidelines are usually not as stringent as those of the commercial banks. This is a hard decision to make as in their present operating state none can be readily recommended for efficient and timely processing of a loan. These institutions take anywhere between one month and nine months in processing loans - loans as small as $100,000. This is definitely not acceptable and a lot needs to be done in improving the performances of these institutions.
My recommendation to someone who is unable to access funds indirectly from the DBJ or directly from a commercial bank is to use your own funds, which may involve the scaling down of operations in the first year or two. To try and access funds from the other institutions referred to above is a frustrating experience, the type that we all can do without.
Can you imagine wanting to start a small business and having to wait for say nine months before receiving a loan for your start-up operations? How would you survive during that time? Wouldn't your expense list become outdated?
With the cost of items increasing almost on a daily basis (due to the gradual devaluation and other inflationary factors), when the loan is received it will not be sufficient to purchase the budgeted items. The borrower is therefore at a disadvantage from the start as his business would be undercapitalised. This is one of the main reasons for the high percentage of non-performing loans at these institutions.
My advice to someone starting a new business is that you should forget these institutions. When we can establish a sound credit and financial system and improve the financial efficiency of the support institutions we will then be providing the platform for economic growth and development.
K. C. Soares is a former banker and is now a business consultant with Soledad Financial Services Limited. E-mail: soledad@netcomm-jm.com
