The Cayman Islands Development Bank is prepared to offer eligible businesses loans of up to $100,000 under relaxed terms and conditions during the current economic crisis, according to CEO and general manager Tracy Ebanks.

The bank is currently working through more than 30 applications submitted under the government’s $5 million business-interruption loan scheme for micro and small businesses to help them survive amid the economic fallout from the COVID-19 pandemic.

The joint programme with the Centre for Business Development offers micro businesses that have a maximum of four staff, not including the owner, loans of up to $20,000, if they have a turnover of not more than $250,000. Small businesses with a maximum of 12 employees, including the owner, can apply for loans of up to $50,000, if their turnover does not exceed $750,000.

However, if a business requires a loan of more than $50,000, the Development Bank is able to provide that as part of its regular business-lending programme, Ebanks said.

In response to the economic crisis, the bank has lowered the first-year interest rate under this programme to 2.5%. The interest rate for subsequent years will be subject to negotiation. While this is slightly higher than in the business-interruption loan scheme, the terms are still significantly more favourable than what is available from commercial banks.

Tracy Ebanks, general manager, CIDB

“Everybody’s operational needs are different,” Ebanks said. “That’s where development banks come in handy for an economic downturn. We provide that counter-cyclical financing, that the commercial banks can’t.”

The repayment terms for the development bank’s regular business-lending scheme are also subject to concessions. In light of the lockdown measures that have hampered most businesses and which are only being lifted gradually, borrowers can choose to repay the interest only in the first year.

The interest rates of the micro- and small-business loan scheme, in contrast, are 1% in the first year and can rise up to 4% during the life of the loan, depending on the borrower meeting performance targets and regularly reporting back to the lender. Borrowers do not have to pay principal or interest during the first six months.

To qualify, businesses must have been registered for at least 12 months, be able to substantiate working-capital needs and be 100% Caymanian-owned.

Loan applications are made through the Centre for Business Development, which is part of the Ministry of Commerce. The relevant financial statements and business plans that are part of the application will be prepared in the Centre for Business Development’s Technical Assistance Programme that loan applicants must enrol in.

During that time, the development bank will be carrying out customer due diligence for anti-money laundering purposes, test the validity of cash-flow statements, assess supply-chain links and ensure that the business meets all the regulatory requirements in terms of permits and approvals.

Ebanks said there have been some misunderstandings about the business-interruption loan scheme.

Although the loan programme is 100%-backed by the government, businesses still have to provide security for their loans. The government backing is only relevant as a guarantee for the Development Bank to protect against potential loss due to the higher-risk nature of the programme, as the bank is putting up its own existing funds for the scheme.

The security requirements are comparatively soft, Ebanks said. The Development Bank, for example, accepts real estate if the CIDB has the first lien. In addition, borrowers can assign shares, deposits, universal life insurance policies or good quality receivables; use a registered debenture over the company’s assets; or name a guarantor.

The loan-to-value ratio is 80%, which simply means the loan covers 80% of the collateral provided. For instance, to receive the maximum $50,000 under the scheme, security for $62,500 is required.

But it does not mean that the borrower needs to have additional equity to obtain a loan.

“We are doing our best to work with applicants and try to be as flexible as we can,” Ebanks said.

Last week, Finance Minister Roy McTaggart announced a forthcoming soft loan programme for businesses in the tourism industry but the details still have to be worked out.

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