Access to financing is a considered a significant challenge in Barbados, especially for small businesses.
The commercial bank is usually the financial institution of choice for these entities and their larger counterparts, but are there opportunities for businesses to access other funding sources?
This issue was the focus of discussion last week when the Barbados Chamber of Commerce and Industry (BCCI), with the support of First Citizens Investments Services (Barbados) Ltd., held a seminar at the Lloyd Erskine Sandiford Centre.
BCCI vice-president, finance Ricky Went, said the issue was an important one, especially at a time when there was an increasing focus on entrepreneurship, including in areas such as renewable energy.
“With emphasis on entrepreneurship there is going to be a greater and greater need for financing to be able to exploit new opportunities and innovative ideas,” he said.
While the commercial bank has been the financial institution of choice and is likely to continue to be, there are other sources of finance available in Barbados and others that are continuing to emerge.
Venture capital and equity financing, Government-sponsored credit facilities, funding from development agencies, and monetary support, including grants, from multi lateral agencies are also available.
One supporter of the equity financing option is Barbadian business consultant Dr. Basil Springer. Earlier this year, he said the equity financing model was a good one for small businesses, especially start-ups. Equity financing usually involves the financier investing in a specific entity in exchange for an ownership stake.
“Since commercial banks will not fund start-up operations it means that you will have to come up with an equity model, which is distinct from loans. In terms of equity, an investor invests in your company but it’s benevolent in the sense that when you are ready to, you can buy him out, and you can own your business 100 per cent,” he said.
Springer said a disadvantage of getting a traditional loan, especially for small enterprises, was being required to have collateral upfront and meeting monthly payments.
Having entrepreneurs take the equity route is also favoured by Governor of the Eastern Caribbean Central Bank Sir Dwight Venner, who said raising funds through equity rather than debt was often a better option.
The Barbados Entrepreneurship Foundation (BEF) has also been exploring avenues for alternative financing via its angel investor network project.
“The BEF has been working on setting up the angel network because of the need for alternative sources of finance. In Barbados many start-ups have uncertain income streams and are not stable enough to support traditional debt financing and need alternative finance structure through convertible debt and equity,” it said.
“The BEF believes that this funding can be injected by non-traditional investors with an entrepreneurial focus who are commonly known as angel investors.”
Do all of these options mean the eventual demise of the traditional commercial bank? Analysts suggest otherwise, noting that there will continue to be companies and projects where banks will be their best bet.
Listed advantages of the bank option included the fact that these finance houses did not own any part of the businesses they funded, bankers usually did not get involved in any aspect of running companies.
Additionally, from the day the borrower made their last loan repayment there was no further involvement except if additional financial assistance was sought.
But just as likely as it is that banks will continue to be funding sources of choice, the peculiar needs of small business and other companies will likely spawn the development of other alternative funding avenues.