J.F. of Kingston applied and got approval from a PC bank for a loan of $2.3 million at 12 per cent interest to expand a retail outlet into selling ice cream and juices.
J.F. has a registered company and a new business plan for this venture. But, to secure the loan, she has to come up with 10 per cent of the cash - $230,000. She had the funds, but lent it to a relative who has not repaid her. Now J.F. wants to know what she should do.
ANSWER: SmallBiz: Problem Centre called around to companies and agencies to determine which of them might be willing to provide the money which J.F. needs to activate the larger loan.
COK Credit Union was the only financing agency willing to consider lending J.F. money to qualify for another loan.
Self-Start Fund offered to take over the entire loan. Others suggested that J.F. might want to downsize her plans.
In Kingston, at Nation Growth Micro Finance, the loan officer expressed concern over J.F.'s ability to repay two loans at once.
"If we assist her with a deposit, she will have to pay back our loan, as well as the one secured from the PC bank. J.F. will have to prove that she can handle both."
If she can do this, in order to get the unsecured $230,000 from Nation Growth, she would have to find 25 per cent of the amount applied for, or $57,000.
J.F. would also need two recommendation letters, two recent passport pictures, identification, and her tax registration number (TRN).
The business-support fee she would pay is $6,900, plus $200 for administrative fees and $40 for the promissory note. Interest would be one per cent per week and the loan period would be for six months. J.F. would pay pack $47,533.33 cents monthly.
Total interest for six months would be is 24 per cent, or $5,200.
Amount to borrow
At Self-Start Fund Limited, also in Kingston, loan officer Joseph Pinnock suggests that J.F. consider applying for the entire amount from his organisation.
Self-Start offers between $100,000 and $3 million at 25 per cent on the reducing balance.
There is also a loan window with the NIF where funds of the same amount can be accessed at 10 per cent. If J.F. secures $2.3 million at 25 per cent for three years, she would be paying back $111,808 monthly.
"If we are able to write the loan at 10 per cent for three years, she would pay the $84,000 monthly," Pinnock states.
J.F. would need collateral in the form of real estate, preferably a house with title available and status of existing mortgages documented. She could also use cash deposits as collateral.
Self-Start's loan fees are normally 7.5 per cent of each project. Depending on the feasibility of the venture, however, the agency would consider including the money the applicant would have to pay in the loan, Pinnock said.
She advises that if J.F. sticks with the PC bank, she could also ask the bank to make a similar concession.
Loan requirements
For Self-Start, J.F. would need to bring in financial statements for 2008, bank statements for her existing business, all company documents, her TRN, as well as that of the business.
J.F. would also need her her tax-compliance certificate. The financials she provides should include a 12-month cash-flow projection.
She would also need identification, pro-forma invoices for equipment and supplies to be bought. Disbursements would made directly to suppliers.
For the Self Start application, she would also need two references, one from a justice of the peace (JP) and one from "any other respectable person", as well as two passport-size photos signed by the said JP.
The Self-Start application would be written in her name and that of the company.
The loan officer at COK with whom we spoke had no difficulty with the fact that the money was needed for the deposit on another loan.
She said that if J.F. took the $230,000 as a personal loan, she would pay $8,185 for five years at 30 per cent on the reducing balance.
In order to get this amount, however, she would need to have cash of 10 per cent, $23,000, to be placed in a COK account, two pay slips, a job letter, proof of what she was doing with the money and additional security of $207,000.
She can provide security in the form of savings, stocks, bonds, and any other cash. COK does not take appliances as collateral.
JN Small Business Loans Limited advises that J.F. would not be able to borrow as much as $230,000. Its maximum on a first loan for business expansion is $100,000 at one per cent per week for 25 weeks.
Her weekly payment would be $5,000 weekly for 25 weeks.
The loan officer suggested that for J.F.'s ice-cream business, she could check Nestlé for appliances and products on credit.
According to Nestlé sales agent Troy Druisdale, only locations with a potential monthly sale value of $28,000 would qualify for a loan to acquire a freezer/refrigerator and credit on goods.
If J.F. is interested in getting the JN loan to expand her business, J.F. would need to open a JN account, fill out an application form, provide valid ID, TRN, two passport-size photos and two written recommendations, either from a pastor, senior police officer or a principal.
She would need electrical appliances to secure the $100,000.
Expanding the business
Dervin Grant of Micro Enterprise Financing Limited (MEFL) in Kingston says that J.F. might get up to $300,000 to expand her business, but would not get the funds from his agency to be used as deposit for another loan.
"This money would have to be used for expansion of business, buying stock, et cetera," said Grant.
The interest, he states, is one per cent per week, two per cent fortnightly and four per cent per month.
The maximum repayment period is two years.
A credit committee of MEFL decides on the interest rate applicable. If J.F. can pay back the loan in 18 months, her monthly obligation would be $28,666.67.
There is no collateral required for the MEFL loan, but J.F. must have already been in business for at least six months. For the processing of the loan, she would need to provide ID, TRN, two passport-size photos, reference letters, receipts of purchase for goods, pro forma invoices for items to be purchased, utility bills, a declaration-of-assets form, including all items of value owned.
J.F. would also need an employed guarantor to co-sign for her. Alternatively, she might apply for the loan jointly with another business person and they would stand security for each other.
How to find the agencies/companies
Nation Growth Micro Finance
51 St Lucia Avenue, New Kingston
Tel: 906-0755
Self Start Fund Limited
10a Parkington Plaza, St Andrew
Tel: 929-8441-2
Micro Investment Development Agency Limited
Shops 3 & 4, 1 Beechwood Avenue, St Andrew
Tel: 968-5191-3
COK Co-operative Credit Union Limited
66 Slipe Road, Kingston
Tel: 929-6180-3
Micro Financing Enterprise Limited
12 Duke Street, Kingston.
Tel: 948-1224
JN Small Business Loans Limited
32 1/2 Duke Street, Kingston
Tel: 974-5537
Portmore Community Development Fund
Tel: 926-3814