Scotiabank to launch cheap loan fund for SMEs, start-ups

Scotiabank Jamaica has created another J$500 million loan pool for start-ups and small and medium enterprises (SMEs) at a concessionary rate of 8.95 per cent.

To qualify, individual companies must demonstrate an estimated net revenue of at least J$49 million over a five-year span.

The loans of J$5 million to J$50 million are targeted at companies engaged in manufacturing, agriculture, tourism, export, distribution and services, but excluding real-estate development, personal loans, investment loans and commercial mortgages, the banking group said in a statement.

The new Productive Sector Growth Fund opens for subscription on May 1.

The loan terms include a maximum seven years for repayment, and no more than 25 per cent of the proceeds can be used to refinance existing debt.

Borrowers must also pay a one per cent upfront commitment fee.

Scotiabank President Bruce Bowen said the new loan line is intended to add new customers to the bank's base. Subscribers to the fund are required to switch their business to BNS, he said.

"It is a condition of the programme that Scotiabank become the lead bank for all borrowers and, as a result, in addition to the customer loyalty and acquisition benefits to the loan book, we gain earnings from increased demand and savings deposits and fees earned," he said.

"In most cases, our earnings from the new business offset what we would otherwise be giving up by offering below market rates."

further cut

The 8.95 per cent rate is little more than half the base rate of 16.75 per cent that the bank is currently offering. That rate is also to be cut by one point to 15.75 per cent effective May 1, the bank confirmed Tuesday.

Bowen expects the fund to generate strong interest, saying that "Some percentage of applicants will be bringing forward projects that they otherwise couldn't justify at higher rates."

He said that within the past 12 years the bank has launched loan-funding programmes that add up to J$5.8 billion at interest rates ranging from seven per cent to 10.25 per cent.

austanny@yahoo.com