Pounding the Pavement: Real Stories of Financing Struggles of Early-Stage Entrepreneurs

*Originally published in the Branson Centre’s B:Inspired eZine Issue 10.

Mervin Kerr, CEO of Island Integrators, was using three credit cards to fund his business’ growing operations – a personal credit card that attracted a 49% interest rate, a business card at 22% interest, and a credit card in an employee’s name, also at 49% interest.

In 2014, he requested a J$5 million revolving credit facility from a commercial bank, but was approved for a J$2.5 million facility instead. He soon found out that he had to pay a processing fee of J$100,000, hold J$280,000 in escrow to guard against non-payment, and pay an annual interest rate of 25%.

He knew that there was an 8-12 month lag between designing a proposal for a client and getting paid, so he would have to incur interest charges for using the line of credit to cover that lag. He ended up paying approximately J$540,000 per year in interest charges. Without these high borrowing costs, Mervin believes that he could have saved enough money to buy a small pickup truck so that he could transport more teams to project sites and be able to take on more projects.

All five winners of the Made of More Entrepreneurs Challenge have stories similar to Mervin’s. They each tried various methods of funding their businesses, but came up against significant costs, heavy collateral requirements, or rejection from a conservative lending system. The partnership between the Branson Centre of Entrepreneurship – Caribbean (BCoEC) and the Arthur Guinness Project helps solve many of these problems for the entrepreneurs, offering loans of up to US$40,000 collateral-free and at a 4% interest rate.

Thanks to the Made of More loan, Mervin will be able to buy two small pickups, accept more projects, grow his revenues, and hire more people.

The other four winners also shared their experiences.

Hellen French, CEO of Mt. Pleasant Farm Chocolatiers and the first-place winner of the Made of More Entrepreneurs Challenge, had spent the past year and a half trying to get a loan on favourable terms. She bemoaned the delaying tactics used by some banks, who gave a list of requirements, which even when fulfilled, led to another list of requirements that were then followed by others. For example, she had planned to use her house as collateral for a J$3.5 million loan. First the bank required a recent survey of the property from one of their approved surveyors, which she did. Then they required her to insure the property for the full value, which she also did. Then a new requirement was added: J$200,000 in cash to  guarantee the loan. This was in addition to the loan commitment fee and the loan processing fee. Then she was told that the equipment she was purchasing to expand her operations would also be used as collateral – her house was not enough.

Jovan Evans, CEO of Aquaflow, applied for a J$700,000 loan from a government funding agency, and believed that with his fully-owned car valued at J$1,000,000, he had sufficient collateral to be approved. He was disappointed when he was rejected because the asset to loan ratio was too low – he would have needed two or three times the amount instead. The 20% interest rate being offered was also a shocker, and he decided it would be a better bet to self-fund his operations. He had recently left his 9-to-5 so he could work full-time on his business, and so he ended up using his pension fund payout to launch his company.

Marie Wilson, CEO of DeJaFrut, had grown up in New York to Jamaican parents, and, along with her twin sister, had moved back to Jamaica to start the company. Without professional work history in Jamaica, she did not have sufficient local credit history to obtain an unsecured loan. Like Jovan, she also had problems meeting collateral requirements. She approached a few banks looking for J$1 million for working capital, and tried to use the company’s freezer van as collateral. It was too old. She then tried to use the company’s freezer equipment, but it was not on the banks’ list of approved collateral. Finally, she tried her using account receivables to collateralize the loan, but  the amounts were too small for the loan requested.

Patria-Kaye Aarons, CEO of Sweetie Confectionery, tried to get a loan of just US$10,000 from a commercial bank. She submitted her business plan, but was told that the bank would not be comfortable giving an unsecured loan to a business with less than one year of operations. Imagine her surprise when she was told that the business plan she had created through the BCoEC was being used by the bank as training material to help their Business Loan Officers identify what a good business plan should look like.

These stories illustrate that despite great progress made over the last few years, it is still very difficult for early-stage entrepreneurs to access funding. BCoEC strongly believes that early-stage entrepreneurs can catalyze growth in Caribbean economies, if they get the support they need to grow their businesses and create jobs. Capital is a key part of that support.

We could no longer be passive observers as our Official Entrepreneurs tried to get funding with limited success. We had to act. The Arthur Guinness Project understood our mission and stepped up to the plate to the tune of US$400,000 – allowing us to act much faster than we otherwise could. We hope that this partnership will help to change the funding landscape in Jamaica and the Caribbean for early-stage entrepreneurs, and that lending institutions will join us in making financing more accessible to early stage entrepreneurs with the potential to change the economy.