The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

Bahamian small businesses are facing “a funding crisis”, a sector consultant has warned, with “nothing in the kitty” at both traditional public and private financing sources.

Mark Turnquest, of Mark A. Turnquest Consulting, told Tribune Business that commercial banks and other private lenders were now totally “risk averse” to financing any start-ups and entrepreneurs.

Explaining that these sources only became interested once they had established a “track record” of financial activity, Mr Turnquest said the picture was equally bleak at government agencies.

He added that the likes of the Bahamas Entrepreneurial Venture Fund and the Bahamas Development Bank (BDB), the latter plagued by high borrower delinquencies, were “only dealing in pennies”.

As a result, Mr Turnquest said financing for Bahamian entrepreneurs, start-ups and small businesses - the segments widely regarded as the major growth drivers and job creators in any economy - had slowed to a trickle.

And, while backing efforts by the Bahamas International Securities Exchange (BISX) and the Securities Commission to bring ‘crowdfunding’ into a structured, properly regulated market, Mr Turnquest warned that it must not place financing sources “out of reach” for small business.

“The banks are now, unfortunately, not lending to any type of small business when they are start-ups,” he told Tribune Business.

“They are risk averse to any small business start-ups. It’s absolutely zero. Nothing. There is no access to traditional funding. Start-ups have no money unless they put their own in.

“Banks are only interested in small businesses after a year or two when they see the financial activity in their bank accounts.”

As a result, Mr Turnquest said he had tweaked the advice he gave to his small business clients, suggesting that they open chequing accounts and only seek bank financing once they have established a solid transaction history.

“I tell them: Don’t go to the banks. There’s nothing there,” he told Tribune Business. “The bank doesn’t lend to new entrepreneurs because it’s too risky.

“It’s better for small businesses to start small, put money into a chequing account, write cheques and after a year build-up a transaction activity report.”

Mr Turnquest said banks and other potential lenders would then have a business’s financial history to draw upon in assessing potential credit risk and loan amounts, thereby giving them more confidence to lend.

“That’s the only model that I now try to work with the banks,” he told Tribune Business.

However, given that commercial banks have a fiduciary duty to protect their depositors’ money, the fact that more than $1 out of every $5 lent by the sector to Bahamian businesses is past due is unlikely to inspire them with confidence to extend further credit.

The Central Bank of the Bahamas’ monthly report on October 2016’s economic developments showed that $238.1 million worth of commercial loans, or 23.3 per cent of the total, is past due. Total credit outstanding to businesses has also steadily declined in recent years, providing more evidence of how risk averse banks have become.

Mr Turnquest, meanwhile, said this situation was being repeated among government agencies whose responsibility it is to lend to the small business sector.

“All the Government agencies catering to the small business sector have got nothing in the kitty,” he told Tribune Business. “The venture fund, BDB, ain’t nothing happening there. They are only dealing in pennies. There’s no major funding in the country at all.”

Much hope was pinned on the Small and Medium-Sized Enterprises Development Bill as a mechanism to strengthen and better co-ordinate start-up support and financing, yet two successive administrations have failed to bring this forward to the House of Assembly.

Mr Turnquest lamented, in particular, the absence of the Small and Medium-Sized Enterprises Development Agency (SMEDA) that would have been created by the Bill.

This would have served to provide the necessary support services, as well as avenues to financing, for small businesses, and paved the way to attract European Union (EU) and other grant funding sources.

The Bill is understood to have been overshadowed by the National Development Plan (NDP) efforts, into which it may eventually be absorbed.

However, Mr Turnquest took some comfort from the interest, and efforts, BISX and the Securities Commission were making to try and embrace so-called ‘crowdfunding’ within a formal market structure.

Crowdfunding involves financing a project or business venture by raising small amounts of money from a large number of people, typically via the Internet. It pools money from friends, family and investors, and is thus a mechanism virtually all Bahamian start-ups and entrepreneurs will be familiar with, having relied on such sources for decades.

Mr Turnquest, while praising the intentions of BISX and the Securities Commission, said they needed to “find the right type” of market structure - one that was not too onerous, but employed standards that small businesses could aspire to.

The Securities Commission’s proposed rules would allow entrepreneurs to raise up to $1 million, and small businesses to raise up to $3 million, per year.

Small, ‘unsophisticated’ investors would be allowed to invest $500 per crowdfund arrangement, and $2,500 per year, with entrepreneurs and small businesses.

“Any type of structured funding mechanism is what we need in the Bahamas,” Mr Turnquest told Tribune Business.

“Any type of funding, be it crowdfunding or another creative form that focuses on small business, is desperately needed as there’s a cash flow crisis in access to funding. We can’t get it.”

He urged BISX and the Securities Commission to focus on “finding the right type of structure, adding: “You can’t put it out of reach for individuals. They’ll never get there.

“Structured steps must be phased into the structure so small businesses can meet the criteria. It can’t be too high, and it can’t be too low.”