By Dennise Williams, Staff reporterTHERE HAS been a consistent complaint in the small business community that they cannot get decent interest rates or service from commercial banks. And so, there has been slow trend to turn to credit unions to fill the financing needs of the small business sector.
The turn to credit unions has partly come about because of the perception that credit unions are for the 'small man' while commercial banks only cater to the 'big man.' However, both credit unions and commercial banks state that small business people can rely on them for loans to facilitate business growth. Said Brenda Cuthbert, general manager at City of Kingston Co-operative Credit Union, "we have always been there for small business. There has been a steady growth of take up of small business loans, but not an astronomical rate."
At RBTT Bank, the credit department informed the Financial Gleaner that, while they do not have a small business specific loan package, their overdraft facility is geared to business people who need, "working capital support." At the National Commercial Bank (NCB), a small business unit has recently been implemented. Our source at NCB stated, "we have a new unit that will focus on small business people. We will fit our products with the needs of our clients. We aim to work with our branches to identify the small business people and find out what they are doing. We will then best fit our products to add value to their business. And it will not just be loans. For example, our e-banking facility will allow banking transactions to be completed without standing in lines or other hassles because for the business person, time is money." But what about interest rates. Is there really a difference between commercial banks and credit unions? Checks reveal that that is not really the case.
REDUCING BALANCE
Cuthbert stated that COK's rates were, on average, 26 per cent on the reducing balance and loans start at four times the share account balance. RBTT currently has a loan programme with effective rates of 22 per cent on the reducing balance, however, in a jab at credit unions, a clerk in the credit department stated, "our rates are very competitive, and with the credit union you have to have a share account with at least 10 per cent of what you want to borrow in the account plus produce collateral. We only require collateral to support the loan." Share accounts at many credit unions do not attract any interest payments. Continuing to look at rates, at Churches Co-operative Credit Union, interest rates range from 16 per cent for cash secured loans to 28 per cent for an unsecured facility. Churches rates are also on the reducing balance. At NCB, the Financial Gleaner was informed that the base rate is 20.75 per cent and, "a spread is added to that rate based on the risk of the proposal. Basically, the rate of interest for business loans depends on the proposal presented."
And that brings up another aspect of what makes credit unions attractive to many small business people the ability of credit unions to make small business people without the expertise to create proposals still feel welcomed. Branch manager of Churches, Norman Thompson, explained, "we work with our members who don't have proper documents. Many of them come with pieces of paper and loose receipts as documentation of their business income and expenditure. Additionally, many of them do not separate their business and household records. We sit down with them to help them create proper books.
And we take appliances for security, along with land, motor vehicles and cash, where commercial banks do not. Our clients build themselves through us." As at August 2003, the Jamaica Co-operative Credit Union League reveals that the credit union sector's overall loan portfolio stood at $12.6 billion. These figures were not broken down between loan types but Cuthbert did inform the Financial Gleaner that the average small business loan at COK was between $300,000 and $600,000.00. Figures released by the Bank of Jamaica revealed that at September 2003, commercial banks lent $1.6 billion to the Agricultural sector, $6 billion to the distribution sector, $92 million to the entertainment sector and $4.6 billion to the professional and other services sector.
