Financial Advisor | Financing for a start-up business
QUESTION: I am a graduate of the University of the West Indies, where I studied for a BSc in hotel management. About two years ago, I wrote a business plan when I left community college. Now that I have graduated from university and there are not many opportunities in Jamaica, I would like to carry out the plan I made two years ago. The problem is that I do not have the capital to start, so I am asking your advice on where to start.
FINANCIAL ADVISOR: You need to decide if you want to go on your own as a sole proprietor or if you want to join with others in a partnership or in a company. Joining with others would reduce how much you need to invest, but you would have to convince them that the project is viable and that it is safe to do business with you.
Whichever course you take, your own lack of funds suggests you would need to borrow your input from lending institutions or from family or friends. All of these options could have their own challenges.
There are some credit unions that extend business loans to their members, but my research suggests that you would not likely be able to borrow more than $1 million with a maximum term of 24 months. There are also some small business loan entities linked to larger financial institutions. The Yellow Pages can help you identify some of those credit unions. Thereafter, their websites can provide additional information.
I do not know how much money you need or the type of business you have in mind, but I am suggesting that you consider the Self-Start Fund as a source of funding. It is a government-owned microfinance institution, which provides financial services to businesses for working capital support and start-up capital.
It lends up to $1 million for activities such as manufacturing, services, agro-industry, ICT and creative industries for up to 18 months at the rate of 23 per cent per annum on the reducing balance basis.
If the business has not started to operate at the time the application is being made, the borrower is expected to provide evidence that steps have been taken to start it. Establishing where the business is to operate from, providing required licences, providing proof of investments made by the owners in the business or advertising efforts made, for example, are acceptable.
Acceptable forms of collateral include property, a motor vehicle up to eight years old, machinery, cash surrender value of life insurance policies and ordinary stock. I recognise that you could have a challenge in this area.
Like any other lender, the Self Start Fund will want to be satisfied that your project is viable. A good business plan would help you to make your case. I suggest, however, that you take a serious look at the business plan you wrote two years ago with a view to making changes to reflect any developments since then.
Owning a business can be a rewarding but challenging way forward. Sourcing funds on friendly terms can be a challenge, especially considering the high rates and short repayment term. New businesses are not usually profitable in the very short term, but take heart.
Oran A. Hall, a member of the Caribbean Financial Planning Association and principal author of 'The Handbook of Personal Financial Planning', offers personal financial planning advice and counsel.