“After reading your column last week, I must agree with a lot of things you said. I am a small business operator for the past ten years and I have found that a loan is one of the hardest things to access. A small business like mine aspires to become a big business one day but when no one wants to lend you the amount of money that you want, you will never reach that goal.

“If every time I need a loan I can only get J$30,000 then I will remain a small business owner for life. Are the banks really interested in helping small business or are they just interested in making their interest? Let’s face it- a lot of small business operators don’t own land or houses so telling us we need a registered title or car title to access funds only drives us up the wall and give us no hope.

“As the saying goes BANKS ONLY LEND MONEY TO PEOPLE WHO DONT NEED IT.”

These are the words of a clearly frustrated business owner who emailed me last week. I have reprinted this passionate plea almost in its entirety because his views seem to reflect many of the concerns and complaints I receive constantly from entrepreneurs. Finding money to turn a business dream into a reality can sometimes be a nightmare.

Last week in our continuing feature on some Jamaica’s unsung financial heroes- small business owners – we looked at some of the documents that persons seeking financing would be required to submit.

Most lending institutions need to see written documentation of how the business expects to use the money being requested, and how they will be paid back. These details are usually captured in a business plan, cash flow projections and financial statements such as the profit and loss account and balance sheet.

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However, even if business owners came to the lending table with the appropriate documents to prove the worth of their enterprises- there is still one major hurdle that many entrepreneurs find difficult to climb over- the need for collateral.

Types of Collateral

The reality is that most lending institutions (remember that they, too, are in business to make money) will require some tangible asset to hold on to if the business receiving financing goes under and can’t repay the loan. Financiers typically want something whose value can readily be converted to cash such as real estate, motor vehicles, cash deposits, equipment, cash values on insurance policies, or a guarantor who has sufficient assets.

Your lending agency is going to require additional documentation in support of these forms of collateral- when you’re borrowing money, the paperwork can seem never-ending! Below are some of the documents needed for each type of collateral:

• Real estate (land or buildings) – current valuation from an approved valuator
• Motor vehicle – title, current valuation report, registration documents
• Cash deposit – document assigning the money to the lender
• Equipment – purchase receipt and bill of sale assigning equipment to lender
• Insurance policies – original policy and document assigning the cash value to the lender
• Guarantor – proof of ownership of assets and guarantee document assigning assets to lender

Unsecured Loans

However, what if you, like my frustrated reader, have absolutely no access to these traditional forms of collateral? There’s still hope, as many financial institutions have listened to the cries of their customers and have designed some loan facilities that do not require collateral. Unfortunately, most unsecured loans come with interest rates that may be much higher than regular loan rates.

If you’re in business part time while still working at your nine-to-five, or you have a close relative who is employed, you can use a salary deduction as collateral to get financing. Other agencies will allow you to use small household appliances as partial collateral to access loans for working capital support. Micro-lending agencies have mushroomed over the last few years offering non-collateral loans, and some businesses use credit cards to satisfy short-term cash flow needs.

Also, depending on the sector your business is involved in (such as export or tourism) you may be eligible for unsecured credit to develop your operations. Call or visit the Corporate Finance Broker Unit of the Jamaica Trade and Invest (JAMPRO) for more details on lending options.

Make Use of Your Credit Rating

There is one area that many people overlook when it comes to accessing financing – their own personal credit rating. Many financiers are now looking favourably at persons who have proven that they are good credit risks. If you have always repaid your loans on time and never misused your chequing account, if you have a clean record with the utility companies, and have a history of good business practices, you could approach your bank for an unsecured loan based on your outstanding credit rating. It’s definitely worth a try!

Copyright © 2007 Cherryl Hanson Simpson. No reproduction without written consent.

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Originally published in The Daily Observer, October 18, 2007

Cherryl is a financial columnist, consultant and coach. See more of her work at www.financiallyfreenetwork.com and www.financiallysmartonline.com. Contact Cherryl