A double-pronged solution is in place to help entrepreneurs and small and medium-sized businesses secure the financial backing and support they need to help them succeed.
Some have faced a barrier to progress because they do not have sufficient collateral to secure traditional bank financing.
The Bermuda Economic Development Co-operation is stepping in to assist by offering debt consolidation micro loans of up to $20,000, and increasing its scope to act as a guarantor of bank loans for small and medium-sized businesses, from 50 per cent of a loan to 65 per cent, up to a maximum guarantee of $200,000.
“We believe anyone can be an entrepreneur, and so we will do whatever we can to make sure that we help people’s dreams come true,” said Erica Smith, executive officer of the BEDC.
In the absence of the private sector offering sufficient small-scale financial services for those seeking them, the agency is filling the gap. It is doing so with the help of a funding commitment boost from the Bermuda Government.
The change to the micro loan programme means the BEDC is now a direct lender, with a capped total of $200,000 allocated for the pilot year of the programme.
Ms Smith said: “We did have a relation with a financial institution with regard to the micro loans, but because it was a small amount of money under the lending capacity that they would normally lend, they found the process was very bureaucratic, very time-consuming and really did not add any value to their inner workings and bottom line.
“So BEDC said we would take that on, and because we already processed loan guarantees it did not mean any additional resources or infrastructure to achieve it. It just meant that we were looking at our capitalisation in a new and creative way.
“The legislation already existed for us to be able to do direct lending and we felt that people needed access to alternatives and so decided we would do it.”
The debt consolidation micro loans have a 5 per cent interest rate, or 4.5 per cent for island vendors and Economic Empowerment Zone businesses. Repayment terms are between nine and 24 months.
Ms Smith said: “We know it is a risk, but it is a calculated risk, and we will employ every technique we currently have to mitigate against those risks and offer the best product to ourselves, our country and clients.”
The value of providing such assistance was shown last year when, in the build up to the America’s Cup, a $300,000 micro loan facility operated through the BEDC had a 65 per cent take-up.
Regarding the BEDC increasing its ability to act as a guarantor of bank loans for small and medium-sized businesses, from 50 per cent of a loan to 65 per cent, up to the maximum guarantee of $200,000, Ms Smith said: “We have heard clients say that even with the BEDC’s guarantee they have been unsuccessful in securing loans from the financial institutions because they do not have the collateral of security to get approved.
“So closing that gap enables our entrepreneurs to meet this and to be able to establish businesses on a right path.”
The Bermuda Government’s commitment to increased funding has lifted the BEDC’s capitalisation from $1 million to $1.65 million. That allows it to leverage its capitalisation six times and write $9.9 million in loan guarantees — up from $6 million — and also increase total direct lending from $500,000 to $625,000.
Jamahl Simmons, Minister of Economic Development and Tourism, said increasing the loan guarantee percentage “addresses a long standing barrier for many entrepreneurs to access bank loans, thus closing the gap created by a lack of collateral to secure bank financing”.
Regarding the debt consolidation micro loan programme, he said: “For years, local entrepreneurs have spoken of the challenges they have experienced in getting the capital needed to start-up, sustain, or grow their local business.”
He said that because of Bermuda being a costly place to live and do business, some entrepreneurs without “the proper channels of support” had been forced to close down or operate below their potential.
“Entrepreneurs told us that a debt consolidation micro loan programme would be a tremendous help, allowing them to consolidate small debts, reduce their carrying costs, and thereby increasing business cash flows. The BEDC and the Government have listened and taken action,” he said.
When asked if banks and other financial institutions could be doing more to help entrepreneurs and local small and medium-sized businesses secure the financial backing they need, Ms Smith said: “We partner with each one of the financial institutions already, but if I’m being frank and honest, yes, they could do more and they should do more.
“We have thousands of small and medium-sized entrepreneurs and they are feeling challenged in accessing finance. So BEDC is doing all it can to offer products, but also advocate on their behalf to access funding and financing that we know are available.”
The BEDC is doing studies and research to access alternative finances, such as from investment angels and venture capitalists. Ms Smith said: “How can we bring other forms of capital to the market so that entrepreneurs have choice? Right now that is what is missing — choice.”
Chris Maybury, a BEDC board member, said: “We are going to see more of that over a period of time. Not only can funds be difficult at times, but the process can be onerous and we are trying to simplify that. “
He added: “We have heard Government’s resolve to make becoming an entrepreneur in Bermuda a real choice. The changes are just a start for us in listening and adapting to make sure that every Bermudian, when they are thinking about their career choice, can actually see that working for themselves and being an entrepreneur is a real option.”