Financing Opportunities for SME development
24th October, 2012
SME financing may be considered an oxymoron for some as SMEs continually encounter severe impediments and setbacks in trying to gain funding for their business development initiatives. Some business owners may even be forced to think that SME financing is nothing but a myth. The TTMA recognizes the major impediment to business development caused by limited access to and cost of financing. Furthermore, we acknowledge that the growing perception, and all too often reality, is that financing for SMEs is impossible. As a business support organistaion, the TTMA has accepted this as a challenge to us and we have accepted that a two pronged approach must be taken to better assist our members; SMEs in T&T and business development in T&T. TTMA recognizes that government must be lobbied to develop and support a more enabling financial environment for SME development but also TTMA acknowledges that knowledge is power and information sharing is the first step that we must undertake.
In order to ensure that our membership is well-informed about financing opportunities available outside of the formal banking structure, TTMA hosted a seminar on 18th October 2012 titled Financing Opportunities for SME Development. Fifty companies attended a session with presentations on four very different approaches to financing. This all-day event aimed to work with a small group of SMEs to provide information and discussion that could stimulate and motivate SMEs to begin to re-think the issue of SME financing.
Benefits of Going Public on the TTSE
Wain Iton, Chief Executive Officer, Trinidad and Tobago Stock Exchange (TTSE) presented on the local stock exchange specifically highlighting that the potential for SMEs to raise capital on the stock market was a viable and realistic option for T&T businesses. He highlighted that a company’s debt/equity ratio and net worth will improve and future financing alternatives will be enhanced by switching from a private to publicly traded company.
The presentation was even more insightful as he informed that the creation of the SME market in T&T offered SMEs a 60% tax incentive. Attendees were informed that in addition to this tax break an SME could raise capital and increase its capital base to between a minimum of TT$5million and a maximum of TT$50million after the completion of the Initial Public Offering (IPO). The reality of going public for an SME was of course that one would have to offer a more transparent business model with 25shareholders owning approximately 30% of the company. However Mr Iton confirmed that the Jamaican junior stock exchange began in 2009 and has 25 SMEs listed with a high success rate thus far and offered a great example to motivate T&T SMEs to go public.
Ratings you can depend on – CariCRIS
Credit rating agencies have existed for a number of years internationally but the significance to SMEs in T&T as a potential support mechanism for business development has never been on the front burner. TTMA invited the Caribbean Information and Credit Rating Services Limited (CariCRIS) to guide attendees as to how credit ratings and CariCRIS could assist in increasing access to and cost of capital.
SMEs may rely on credit ratings as an independent verification of their own credit-worthiness and the resultant value of the instruments they may be able to acquire. Credit ratings are used by investors, issuers, investment banks, broker-dealers, and governments. For investors, credit rating agencies increase the range of investment alternatives and provide independent, easy-to-use measurements of relative credit risk; this generally increases the efficiency of the market, lowering costs for both borrowers and lenders.
Mr Wayne Dass, CEO, CariCRIS’ offered a presentation highlighting CariCRIS’ aim for the growth and development of the SME sector by enhancing the ability of firms to access appropriately-priced financing. CariCRIS also aims to assist banks to set lending rates to SMEs based on a more structured and scientific measurement of risk.
The Inter-American Investment Corporation (IIC) offers a wide variety of financial products and services for promoting private sector development in Latin America and the Caribbean. IIC support SMEs by helping them address challenges, reformulate business strategies, and embrace new technologies. In turn, this support enables SMEs to continue driving development in the region, help create jobs, generate foreign exchange, create new business opportunities, and improve the quality of life in local communities. Kavita Maharaj, representative to the Inter-American Development Bank presented on the FINPYME Credi programme.
FINPYME Credi programme is a reliable source of IIC financing for eligible SMEs. This type of financing is available in the form of standardized small loans in amounts ranging from US$100,000 to US$600,000, with an expedited internal approval process and a potential interest rate of 5% to 7%. FINPYME Credit loans can be used for a variety of business purposes, including investments in working capital and fixed assets.
FINPYME Credit program benefits:
• Loans in U.S. dollars at competitive fixed interest rates;
• Payment terms of three to five years; and
• Technical assistance for improving financial, environmental, and business management.
Direct Assistance for your company
Kirk Brown, Senior Grant Advisor, Caribbean Export Development Agency offers grant funding through their Direct Assistance Grant Scheme. It is a funding facility specifically designed to provide financial assistance to legally registered businesses with the potential to export their products and services. The programme provides reimbursement financing to firms/individuals/Business Support Organisations to finance projects/actions. Reimbursement financing means no monies are advanced as beneficiaries have to incur full 100% of their project costs once a grant contract is signed by Caribbean Export and the beneficiary.
Funding is available through two (2) facilities:
– Regular Procedures (Max €30,000/ TT$248,000)
– Accelerated Procedures (Max €5,000/TT$41,400)
Grants will have a maximum duration of six (6) months and the beneficiary will receive direct assistance of no more than 70% of the overall project.
TTMA is pleased to note that the last call for proposals was in June 2012 with 92 beneficiaries of the Regular Procedure Grants contracts being awarded by September 2012 with total funding of €2,498,794.04. TTMA awaits the next call for proposals in March 2013 and hopes that all SMEs and members will take advantage of this opportunity by reviewing the presentation of Kirk Brown and reviewing the Caribbean Export website.
Innovation through competition
The TTMA was unable to have a presenter from the Compete Caribbean - Enterprise Innovation Challenge Fund (EICF) however information was shared with attendees as the competition was launched on October 1st and runs until November 30th. The EICF has two funding options - The Innovation Window and the Support to Clusters Window.
The Innovation Window is designed to probe for and develop the ingenuity of the Caribbean private sector by encouraging firms and entrepreneurs across the Caribbean states to compete for non-reimbursable grant funding up to US $500,000. The grants finance projects that are innovative and risky. Specifically, the fund will provide matching grant resources to firms and entrepreneurs, who want to finance innovative ventures, take risks to develop new products, implement new business models, and/or enter new markets.