KINGSTON, Jamaica – The Jamaica National Commercial Bank is now offering unsecured credit or financing to small and medium enterprises whose working capital is tied up in outstanding receivables from their clients.
The bank launched the new product, NCB Receivables Financing Facility, on Wednesday, saying it was in response to requests from its customers.
“There are a lot of companies out there and access to credit is needed,” said Bernadette Barrow, assistant general manager with responsibility for the bank’s SME division, reports the Jamaica Gleaner.
“The product was developed out of response to their needs.”
Barrow is also hoping that the product would be the catalyst to conquer the rest of the small-business market.
NCB already estimates that it has a dominant 60 per cent share of business from that segment, four years into the launch of its SME division.
“We are going after 100 per cent,” said Barrow, noting that the bank’s definition of SMEs was those companies with turnover of up to $500 million per annum..
Her optimism rests on the relative ease with which potential borrowers will be able to access the current facility, set up as a revolving pool initially capitalised at $500 million.
The bank acknowledges that the facility is risky, but Barrow said NCB has adequate risk-management mechanisms in place to safeguard against bad loans.
In addition, she said the emphasis on approved paying companies was a type of insurance for loan repayments.
What that means is that borrowers have to convince NCB that their debtors are likely to pay up.
But NCB also has its own list of approved companies. The bank says, under the current facility, it is willing to expand the list on the recommendation of borrowers.
The NCB Receivables Finan-cing Facility is being offered through the retail banking division.
It will finance working-capital requirements of SMEs, which already provided a delivery or invoiced goods and services to their clients and are awaiting payment from approved paying companies.
The facility offers unsecured or no collateral for immediate cash to fill cash-flow gaps of up to 75 per cent of the value of the business’ receivables.
Loans range between J$100,000 and J$10 million, or US$2,000, up to a maximum of US$150,000.
Companies or individuals who are already NCB customers will be offered interest rates of 21 per cent on Jamaican currency loans and 11 per cent on the U.S. dollar funds.
Entities which are not regular customers will be loaned at 100 per cent basis points more, or 22 per cent and 12 per cent, respectively.
With local commercial interest rates running above 9.0 per cent on U.S. currency and 11 per cent on local currency, NCB’s loan offer to SME’s is 11 per cent above market rates for the local currency loans, priced to reflect the level of risk being taken by the bank.
Repayment is within 12 months.
A stipulation of the loan is that the company from which collections are due, must make its cheque payable to NCB, and not to the company with which the business was transacted.
“It’s a journey,” Barrow told Sunday Business, referring to the timing of the product offering.
With the peak commercial season only weeks away, she was also confident the facility would be a convenient offering to small-business retailers.