State Minister for Industry, Investment and Commerce, Hon. Michael Stern has called for a new attitude to the financing of small businesses in the country, noting that alternative means of obtaining capital need to be explored.
“Today, with most lending to small-scale enterprises being security-based, without any regard for potential cash flow, a whole range of alternative small business financing arrangements is being explored across the globe,” he said.
Mr. Stern was speaking on September 21, at a Small Business Conference, staged at the Wyndham Kingston Hotel, in New Kingston, by the Small Business Association of Jamaica (SBAJ), in collaboration with the Ministry.
He noted, for example, that with the establishment of a Credit Bureau in Jamaica, borrowers will be able to use credit reports as substitutes for formal financial statements and traditional collateral to access loans, usually unavailable from the formal financial sector.
State Minister in the Ministry of Industry, Investment and Commerce, Hon. Michael Stern (left), is greeted by Past President of the Small Business Association of Jamaica (SBAJ) Oswald Smith (right), when he arrived at the Wyndham Kingston Hotel, today (September 21), to participate in an inaugural small business conference, staged by the SBAJ, in collaboration with the Ministry. Looking on (from second left) are: First Vice President of the SBAJ, Meredith Derby and President of the SBAJ, Dalma James.
The State Minister further pointed out that among the important developments in the changing financial system is the increasing role of factoring companies as a source of financing, where the company’s accounts receivable plays the role of collateral.
He also noted that another alternative, leasing, provides a solution to the financing of machinery, land and equipment for Small and Medium sized Enterprises (SMEs). One of the many benefits of this arrangement, the Minister pointed out, is that leasing functions in places where capital markets are less developed, noting that the leased asset is the collateral for the loan, therefore, security arrangements are simpler.
“For years, we have also seen the need for venture capital firms in Jamaica. We need to again examine this option in a very serious way. Venture capital firms offer capital in exchange for equity in a company,” Mr. Stern said, adding that this type of arrangement is ideal for new businesses, since venture capital firms focus mainly on the future prospects of a company, while banks use past performance as a primary criterion.
The State Minister noted too, that asset-based lending is becoming increasingly popular as a means of financing growth and providing working capital. He pointed out that with this type of arrangement, a lender accepts as collateral the assets or accounts receivable of a company, in exchange for a loan.
Turning to another asset-based lending approach, that can be beneficial to small businesses, Minister Stern pointed to floor planning, where companies can finance their inventories. The Minister explained that in floor planning, inventory is financed based on the credit of the vendor as well as the company receiving the financing. The inventory purchased acts as collateral until the sale is made, he said.
“In moving forward, we need to explore how arrangements such as these, or elements of them, can be applied to the Jamaican situation,” he said, adding that money alone is not the answer.
“SMEs need support from various angles – better government policies, regulatory environment, business climate, legal framework, business support services and market information,” the State Minister said.
Held under the theme: ‘Jamaicans Taking Advantage of Business Opportunities’, the one-day event was sponsored by Flow, Guardsman Group, Jamaica Public Service, Power 106, XSomo, Music 99 FM, Jamaica Air Shuttle, Commonwealth Secretariat, and the CARICOM Secretariat.