In a difficult economic environment many small and medium sized businesses
are struggling and find it hard to obtain additional funding from banks. “A lot
of the small businesses that I talk to are going through the same thing,” says
Rhonda Kelly the president of the Cayman Islands Small Business Association and
owner of an event management agency. “And when you are going to the bank, you
can see it in the bankers’ faces that you are saying nothing that is new to
them. They are hearing the same thing from every single one of their clients.”
Kelly finds that banks continue to
be cooperative even in this economic downturn. “Banks are realising, at least
the bank that I am working with, that they have to be accommodating, because
everyone is going through this.”
Tightened lending criteria?
Bankers from RBC and First
Caribbean International Bank confirm her view, saying the banks have not
tightened their lending criteria.
“From our perspective we have been
fairly consistent. There was never a period when we lent money just because the
economy was doing well,” says Shane Storr, an account manager in business banking
with RBC. “You still need to meet debt service ability and you still need to
have a business plan. But we have been fairly consistent and that has shielded
us in the last couple of years.”
Brian Kong, small business officer
with First Caribbean, believes his bank has actually become more flexible, because,
given the current economic conditions, this is what customers require.
“Your application is critiqued more
and more questions are asked, but that is not to say that it is any more
difficult,” he says. He says that everything the bank needs to know is
typically included in the business plan and this is more closely scrutinised.
The business plan is essential
Storr says RBC helps small
businesses through the necessary steps to obtain a loan. “For small business we
walk you through a business plan, including mission statements, financial statements,
help prepare financial statements, because at the end of the day that is what
we look for.”
This approach walks businesses
through the process, not only from a lending perspective but also for the businesses
themselves, he says, because of lot of people don’t realise that there is a lot
more involved than they initially anticipate.
Kong concurs: “The foundation has
to be there. You cannot just have a great idea without knowing in which
direction you are going.” First Caribbean refers customers to the Department of
Commerce and Investment to help them with the start of their business. “We like
to use DCI, because some people have a great idea but do not know how to break
it down and so we use DCI to sit down and assist them with that.
Having skin in the game
However, specifically service
companies that have no physical assets may find it hard to obtain funding just
on the basis of their business plan only.
Suspecting reluctance on the part
of the banks to give businesses loans that are not secured, Kelly believes that
her organisation CISBA needs to find a way for companies to get funding on
merit as opposed to physical assets and collateral.
Storr tends to agree. “That depends
on how much you want. From a bank’s perspective we need to make sure that you
can service the loan and your cash flow is your first source of repayment. Your
second source of repayment is collateral. Depending on how much you want we
have to make sure there is at least another source of repayment,” he explains.
CI Development Bank
Another avenue for start-up
businesses are the services of the Cayman Islands Development Bank, which has
the objective to provide finance particularly to small Caymanian businesses in
order to promote and facilitate development in the Islands.
According to General Manager Tracy
Ebanks the CIDB is more flexible than commercial banks, which always need a
secondary source of repayment.
The approach of the CIDB is similar
to that of the commercial banks focusing on the business plan and the financial
projections of a potential borrower. The CIDB also at times works in
conjunction with the Department of Commerce and Investment to help businesses
formulate their business plan.
Businesses that have to be turned
away are often those that have not done enough research or those that want to
operate in a market that is already saturated.
“I strongly recommend that [new
business owners] really research what they let themselves in for,” Ebanks says.
They should also really be interested in what they set out to do and have a
desire to do it, she adds.