News Americas, NEW YORK, NY, Fri, February 24, 2022: The economies of many Caribbean countries are struggling during this long end of the pandemic. Economic crashes were inevitable when countries had to go into lockdown, and they happened all over the world. However, while rich countries have mostly recovered (and some are doing better than ever), poorer countries are fighting to reverse the trend.
This is true throughout the Caribbean, and there doesn’t seem to be an end in sight. The World Bank has been writing nauseatingly about the potential problems we will continue to face in the years to come. The United Nations Economic Commission for Latin America and the Caribbean has called for greater solidarity in the region to address this. But how and when we will begin our recovery is still unclear.
In this context, many entrepreneurs in Caribbean countries are slow to start new businesses or restart businesses that have not survived the pandemic. Many of those who had capital lost everything during the long months of confinement. Those who would have gone to lenders are hesitant to take out loans at a time when nothing is certain.
Unfortunately, this reluctance to start businesses leaves the sector bare, which consequently strips the economy of different countries of their potential. There is a cyclical nature to this decline, which cannot be stopped until individuals, companies and governments decide to take more risks.
Risk is necessary in all economic undertakings. Even the most stable “risk-free” companies were unprepared for the pandemic. However, it at least seemed easier to assess the risk before the pandemic changed our perceptions. Now, many entrepreneurs are wondering if there’s any point in getting themselves into financial trouble if all the signs point to economic failure.
The good news is that things aren’t as bleak as they seem. There is still huge potential in the Caribbean for new businesses, including in industries that have been really boosted by the pandemic. And even if entrepreneurs don’t have capital available, there are always ways to finance a business while minimizing risk.
In 2022, these are some of the ways Caribbean businesspeople can access finance.
Secured loans have always been one of the most sought after sources of finance for businesses. With secured loans, the collateral or guarantor decreases the risk taken by the lender, allowing them to offer low interest rates. For the borrower, the risk of losing the collateral is not as great as the risk of ending up in bankruptcy due to an accumulation of interest and unpaid debts.
Secured lending in the 21st century represents a much lower proportion of business lending than ever before. This is largely due to the increasingly digital or virtual nature of businesses. Whereas a hundred years ago most businesses didn’t exist if they didn’t occupy any physical space, today most new businesses only exist online.
For Caribbean businesspeople in 2022, however, digital need not be the way to go. On the contrary, the region is still rich in resources and there are many trading opportunities that require goods or equipment.
Expensive equipment can be the perfect collateral for new business loans, with commercial equipment finance companies willing to offer low interest rates. To some extent, businesses that require heavy machinery are a bit safer bets. After all, if the company goes bankrupt, the equipment is repossessed and much of the debt can be forgiven.
There are rules to follow when obtaining equipment financing. No matter how your business grows – and even if you no longer need the machinery – you “can’t get rid of the equipment until the loan is paid off”. This is according to the comprehensive information made available by the business loan companies. You will also find a calculator to help you understand the cost of your business equipment loan.
If you can’t get a secured loan due to a lack of need for assets, an unsecured loan is the easiest option. However, it is much more risky. Unsecured loans come with high interest rates that would be hard to afford even in a booming economy. All good entrepreneurs consider other available loan options before turning to unsecured loans.
One option for a safer unsecured loan is a business line of credit. A commercial line of credit works much like a credit card. Instead of getting a lump sum of money that you have to start repaying immediately, you agree that a certain amount will be made available at a particular interest rate. Then you only use it when you need it. Instead of paying the full amount, you only pay for what you use. This minimizes the cost of the loan.
Of course, if you end up burning through the available cash, you’ll end up paying the full amount anyway. A business line of credit is a good option for those who know they can get by with as little as possible.
The ideal financing for a business is financing that you do not have to repay. Angel investors or venture capitalists are individuals or companies who provide funds because they believe your business will succeed. You agree that they receive a certain proportion of the profits or own a percentage of your business. They provide the capital with no strings attached for you to pay it back (unless you grossly misuse their funds).
Although you can search all over the world for angel investors who might want to fund your project, you can start in the region. Almost ten years ago, the World Bank launched an initiative called infoDev. As part of infoDev, the Entrepreneurship for Innovation in the Caribbean (EPIC) program was created, which provides seed funding to small businesses.
An important characteristic of the best angel investors is that they provide more than money. They also offer mentorship and resources to help entrepreneurs succeed because they have their skin in the game. EPIC provides mentorship to business owners in the same way, even though the program was started by an international institution rather only by investors who have seen opportunities to make money.
Going through a program like EPIC is ideal for many entrepreneurs who will benefit from the resources and low-risk source of funding. However, EPIC will not be ideal for everyone. Some companies will work better with more opportunistic angel investors. These entrepreneurs must seek investors in their country and in the region. If the business is global and operates digitally, there is no reason to be limited to angel investors at home.
The Caribbean’s economic recovery will require some risk-taking from individuals and institutions. Entrepreneurs who have been slow to start their business should consider seeking low-risk funding sources. There will never be a perfect time to start a business, but if no one takes the risk, the window of all opportunity will close.